Tax Guide: Partnership Tax Preparation in Canada

The Various Business Structures

‍If you’re operating a business in Canada, you will fall into one of three categories. We’ve already discussed the tax requirements for Sole Proprietorships and Corporations in the past. To complete the trifecta, it’s now time to explore the world of Partnerships. As a Canadian business operating under a partnership structure, you’re going to be responsible for filing both a T5013, alongside a traditional T1 form for personal income.

What is a T5013?

‍A T5013 form, also known as the Statement of Partnership Income, is a return slip designated to report basic income and business information. Although partnership income itself is not taxed in Canada, the CRA requires a completed T5013 to assess the net income (or loss) needing reporting on each individual partner's T1.

Who Has to File a T5013?

‍Any eligible Canadian partnership should file a T5013 to ensure accurate tax information is utilized on personal returns. From a technical side, the CRA recognizes a partnership as any association or relationship between two or more individuals, corporations, trusts, or partnerships that come together for business purposes.

If you and others contribute money, labour, skills, or services together to generate a return, have registered for GST/HST, and have not formally incorporated, the CRA will view you as a partnership. Like sole proprietors, partnerships aren’t formally incorporated entities and don’t necessarily require formal documentation. In most cases, written contracts outlining partner equity division will exist, but regardless of that, a T5013 will be required come tax time.

Is a T5013 the Only Form My Partnership Needs to File?

‍It’s important to understand that the T5013 is only one part of your broader partnership information return, of which all four components listed below must be completed:

1. T5013 FIN. This is the Partnership Financial Return component.

2. Various T5013 Schedules. These are the schedules required from your partnership filing, which often will depend on its financial state, but can include:

• T5013 SCH 1 - Partnership’s net income (or loss) for personal income tax purposes.
• T5013 SCH 50 - Individual partner’s ownership and account activity.
• T5013 SCH 100 - Partnership balance sheet information.
• T5013 SCH 125 - Partnership income statement information.

3. Form T5013. This is the Statement of Partnership Income component.

4. Form T5013 SUM. This is the Summary of Partnership Income component.

If you’re required to file a partnership information return, each of the four components listed above must be completed. To learn more about the detailed filing process, continue reading this article or consult this CRA Guide for Partnership Information Return.

‍How Do I Complete a Partnership information Return?

‍Given the complexity of a T5013 Statement of Partnership Income tax form, we’ll take the next page or so to walk through the process using the four partnership components mentioned above.

Step 1: Fill Out T5013-FIN

‍The first step in completing your T5013 is a four-page, three-part slip. You can expect to input partnership details such as address and identify the schedules being completed. The T5013 FIN includes information about the partnership and any additional information for reporting purposes.

Step 2: Fill Out the T5013 Schedules Relevant to Your Partnership

‍The next step of your T5013 filing involves the completion of the schedules necessary for your partnership. The schedules listed in the above section – 1, 50, 100, and 125 – will be mandatory for all eligible partners. Depending on your partnership specifics, you may also be required to fill out schedules 2, 5, 6, 8, 9, 12, and 52. Given the increasing complexity of these additional schedules, it’s often best to seek professional financial advice.

Step 3: Fill Out a T5013 for Each Partner

‍Following schedule completion, you’re now ready to work through the two-page T5013 form for each partner. This slip will outline information regarding partnership equity, net income (or loss), capital gains (or losses), and more. There are also boxes for you to report partnership expenses  and revenue.

If you happen to be a member of more than one partnership, you’ll be required to fill out a separate T5013 slip for each.

Step 4: Complete the Partnership T5013 SUM

‍The final step in the T5013 slip completion process is to work through the two-page summary. This is a space for you to record all partnership income information stemming from all T5013 slips, including Canadian and foreign net income.

What Happens After You File?

‍Following the successful completion and submission of your T5013 tax slip, the CRA will begin the reviewal process to determine if any discrepancies exist. The purpose of the T5013 slip is to ensure accurate reporting on individual T1 income tax returns. Assuming everything is correct and the CRA doesn’t find any issues throughout their four-week cross-examining process, there won’t be much of a follow-up. Note that failure to file your T5013 before the specified deadline will result in a $25 per day penalty. You can also make amendments following a successful submission.

If your team is looking for expert support as you work through the T5013 filing process, ParallelCFO is here to help. To learn more about how our seasoned financial professionals can help you come tax time, get in touch with us today.