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Hi There,
This may be a long one and require an excel spreadsheet to clearly answer but here goes. To be clear these values are hypothetical.
Suppose two people have just started a Digital Advertising and Web design company in Ontario and it’s a General partnership. In the first fiscal year, they do $300,000 (including GST) and their total costs (COGS, Operating Expenses, etc.) is $120,000. They have no employees, own no company building or vehicles, would like to set aside $30,000 to keep in the business and then split the rest 50/50.
Questions:
Are they still each taxed on the $30,000 savings because they are not incorporated?
Roughly how much would they each take home after taxes?
Do they have to pay any EI or CPP for themselves?
How much would each person owe in taxes?
How much GST is owed to the CRA?
I’m sorry if the description is too broad, just trying to get a better understanding of how all this works. Explanations of calculations would be extremely helpful!
Thank you so much!
Thank you for your questions. My responses are as follows:
> The $30,000 that has been set aside for the business will be taxed. Each partner is taxed on their share of the partnership's income earned in the year, regardless whether all of the cash profits have been distributed to the partners.
> To compute the tax payable by each partner, you need to first determine the partnership's earnings (before HST). The gross income of the partnership before HST of 13% is $265,487. The net income of the partnership after deducting expenses of $120,000 is $145,487, or $72,743 for each partner.
> If each partner resides in Ontario, then each partner will pay a total tax of $19,352. This includes personal income tax and CPP premiums payable on self-employed earnings of $5,498.
> EI premiums are not applicable.