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Partnership taxation in Canada works on one idea: the partnership itself doesn’t pay income tax. Each partner reports a share of the profit or loss on their own return and pays the tax there. On $120,000 of profit split evenly between two Ontario partners, that’s $14,602.92 of tax and CPP each.
How is partnership income taxed?
The CRA calls a partnership a flow-through. The income is worked out at the partnership level, then it passes to the partners in the shares your agreement sets out. What matters is that you’re taxed on your share whether or not anybody took the cash out.
That last point catches people. If the business made $120,000 and you own half, you report $60,000 even if you left every dollar in the bank account for equipment. The tax is on the profit, not on what you drew.
Picture Marc and Jess, who run a two-person bakery in Moncton. They bought a new oven in December, so the bank balance is nearly empty, but the books still show a profit. Both of them owe tax on their half of that profit, oven or no oven.
The return you use turns on who the partner is. An individual reports on a T1, a corporation on a T2 and a trust on a T3. The calculators further down treat an individual’s share as self-employment income, with CPP on both halves, which is an assumption we couldn’t check against a full CRA page on partners.
Who has to file the T5013 return?
Not every partnership. The CRA says a partnership files a T5013 Partnership Information Return if it meets any of these conditions.
| Condition | Limit |
|---|---|
| Revenues plus expenses at year end | Over $2 million |
| Assets at year end | Over $5 million |
| A partner is a corporation or a trust | At any time in the fiscal period |
| Tiered partnership | A partnership is a member of another partnership |
| Flow-through shares with renounced Canadian resource expenses | Any |
| The CRA asks in writing | Any |
So a small two-person firm of individuals under those size limits may not need to file one. Read the CRA test rather than guess, though, because the revenue and expense figures are added as absolute values. A partnership with $1,500,000 of revenue and $1,250,000 of expenses adds up to $2,750,000 and must file, even with $250,000 of net income. The CRA’s page on filing a T5013 partnership information return lays out the same tests.
Farm partnerships made up only of individuals were excused from the T5013 for the 2025 fiscal year.
When is a partnership return due?
The date turns on who the partners are. If they’re all individuals, trusts or investment clubs on a modified basis, it’s March 31 of the following calendar year. If they’re all corporations, it’s five months after the fiscal period ends. With a mix, it’s the earlier of the two.
The late penalty is $25 a day, with a minimum of $100 and a maximum of $2,500. It applies to a late return and to failing to give partners their slips on time.
The slip itself is the T5013, and it tells each partner the share of income to report. It’s the partner’s tax bill that sets their own dates. If you’re an individual you’ll usually file by June 15 as a self-employed person, while any balance is due April 30.
What does splitting profit save?
Sometimes a lot, but only because tax rates climb with income. Use the self-employed tax calculator for an Ontario partner on $60,000 and it shows $7,879.42 of income tax plus $6,723.50 of CPP, or $14,602.92. Two equal partners pay $29,205.84 in all.
Try one person on the full $120,000 instead. That comes to $34,774.46. And if the shares are 70% and 30%, the partners’ bills are $23,537.59 on $84,000 and $7,329.52 on $36,000, so $30,867.11 in total.
The gap between those totals is what the shares are worth. Against one person on $120,000, the even split is $5,568.62 lighter, and the 70/30 split is $3,907.35 lighter. But the split has to match who owns what, who works and who takes the risk, since you can’t just pick shares to save tax. These figures also leave out other income, credits, expenses in your own name and provincial differences. See what your own return looks like in the income tax calculator.
What happens if the partnership loses money?
The same flow-through idea applies. A loss is shared in the same way as profit, so a $40,000 loss in a 50/50 partnership puts $20,000 on each partner’s return. That can lower other income in the year. There are limits on how much of a loss a partner can use, and we haven’t covered them, so check the CRA’s partnership guide before you plan around a loss.
This is another reason to write the loss-sharing rule into the agreement. Nobody argues about it in a good year.
What mistakes come up with partnerships?
Missing paperwork is common.
A written agreement that sets shares and how losses are shared saves arguments and makes the slips easier to prepare. Another mistake is paying tax only on the money you took home, which leaves a bill at tax time that nobody saved for.
Instalments trip up new partners too, because nobody withholds anything from a partner’s share. If you expect to owe more than $3,000, the tax instalments calculator splits the year into four payments. Expecting $9,000 gives four payments of $2,250.
What if you’d rather have a company? Then the profit is taxed in the corporation first, and the corporate tax calculator shows that side. We haven’t covered what a partnership pays for GST/HST, employees or a partner’s own salary, because we couldn’t confirm those rules from a full official page.
What this page is based on
The filing conditions, due dates, penalty and flow-through rules come from the Canada Revenue Agency‘s guide for the partnership information return (T4068) and its T5013 pages. Tax and CPP figures use the 2026 federal and Ontario data on this site, and every example is an estimate for an Ontario resident with no other income. This site has no tie to the CRA or any government.
Frequently asked questions
Does a partnership pay income tax?
No. The partnership isn't a taxpayer. Each partner reports a share of income or loss on their own return.
What is a T5013?
It's the partnership information return, and also the slip each partner gets showing their share of the income to report.
When is the T5013 due?
March 31 of the following year if all partners are individuals or trusts, five months after year end if all are corporations, and the earlier of the two for a mix.
What is the penalty for filing late?
$25 a day, with a minimum of $100 and a maximum of $2,500.
Do I pay tax on money I left in the partnership?
Yes. You're taxed on your share of the profit, whether or not you withdrew it.
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