Partnership taxation Sri Lanka (Sec. 53 to 56 of act Number.24 of 2017) Prasanna Walisundara FCA, MBA, ACMA,BSC,ATII

1. Taxation of Partnership Income
(Sec. 53 to 56 of act Number.24 of 2017)
Walisundarara Mudiyanselage Prasanna Walisundara
FCA, MBA, ACMA,BSC,ATII
Partnership Tax27 April 2019

2. What is Partnership (Section 195- Interpretation)
Page 2 27 April 2019 Partnership Tax
Partnership means, an association of two or more individuals or corporation
carrying on business jointly for the purpose of making profit, irrespective of
whether the association is recorded in writing
Therefore;
 Existence of a business is essential
 Two or more persons must conduct the business jointly
 Intention of making profit should be present
 Not required the association in writing
Nevertheless:
 Does not have a separate legal personality
 Treated as an entity for tax purpose

3. Calculation of Profit
Page 3 27 April 2019
 Calculating of profit/ Loss other normal provisions (Section 10 to 19) and other
administrative provisions are applicable
 Amount derived or expenses incurred in common shall be treated as partnership
income or expenditure (Section 53(4)
 Assets owned or owed in common shall be treated as Partnership (Section 53(5)
 All Business activities of the partnership considered as single business
 Arrangements between a partnership & its partners are recognized for tax
purpose. (as a partners’ share)(Section 53(7))
 If two partners are continue with the business, considered the continuation of the
partnership )(Section 53(8))

4. Format for calculation of Partnership Tax
Page 4 27 April 2019
Rs.
Business Profit XXXXX
(After deducting Salaries & Loan Int.)
Add: Partners’ Salaries XXXX
Partners’ Loan Interest XXXX
Profit to be allocated to Partners XXXXXX

5. Format for calculation of Partnership Tax Continued…
27 April 2019
Total Rs. Partner A Partner B
Share of Profit XXXXX XXXXX XXXXX
(Profit before followings)
Add: Salary XXXX XXXX XXXX
Interest on Loan XXX - XXX
WHT 8% XX XX XX
Liability If Any;
 Not liable to pay income & not entitle to any tax credits but liable to pay income tax
with respect to WHT. (8%)
 Liable to pay Capital Gain Tax (10%)
 If there is a payment for an associate person that portion is also a part of income of
respective partner of the partnership. (Section 34 (4))
Page 5

6. Partners’ liability & Tax Credits
Page 6 27 April 2019
 In calculating the partner’s income from partnership, the share of
profit (or loss) of the partnership shall be included
 The partners and not the partnership is liable to pay tax with regard to
the taxable income of the partnership
 Also partners are entailed to get the tax credits such as WHT, ESC and
so on

7. Practical Issues facing when calculating the Partnership Tax
27 April 2019
 No provision for calculating the Divisible Profit to the partnership, but
still required to identify the share of profit (Previous Act it was under
76(2)
 No provision in the act to claim the ESC & WHT
As Partnerships are liable to pay ESC but with current status there
is no link in the IRD act how to clam it (Subsequently facilitate in the return
to claim it)
 No indication in the act when to distribute the Profit
(But still the Partnership is also required to pay quarterly payments)
Page 7

8. Applicable Tax Rates
Page 8 27 April 2019
 Gains from the realization of investment assets –The gain shall tax
at 10% (Paragraph 2 of the First Schedule)
 WHT on Partner's share of the partnership income at the rate of
8% (Section 84 (1)(a)ii

9. 27 April
2019
Partnership Tax
Thanking You