On 19 May 2026, SARS published guidance on the new Beneficial Owner Register for Partnerships (IT3(BO)). This process involves a designated partnership representative submitting a single annual declaration of the partnership and partner information. This replaces the recent requirement for each partner to capture detailed information about the other partners on their ITR12. This is a useful prompt to revisit the taxation of partnerships in South Africa.
Section 24H
A partnership is not a juristic person under South African law, and that legal position carries into the Income Tax Act. For income tax purposes, the partnership is neither a person nor a taxpayer in its own right. Since the partnership is not a person, the obvious question is: who pays tax on its profits? Section 24H governs this.
Each partner is deemed to carry on the partnership’s trade. This matters because expenditure is often only deductible for income tax purposes if incurred in the carrying on of a trade. Without that deeming provision, partners would struggle to satisfy this trade requirement.
The partnership’s income is deemed to accrue to the partners in their agreed proportions, in accordance with the partnership agreement. This look-through treatment differs fundamentally from the treatment of a company. A company pays tax in its own right and declares dividends when it distributes its profits. In a partnership, the partnership itself is transparent, and the income accrues to the partner immediately, whether or not the partner has actually received it. When the partner eventually receives the money from the partnership, there is no dividend. In that case, it’s simply a receipt of an amount previously included in the partner’s gross income.
Expenses and allowances follow the same proportionate principle. A partner may deduct their proportionate share of operating expenditure under section 11(a), and claim a proportionate share of capital allowances, for example, section 11(e) wear-and-tear on partnership assets. The allocation of expenses is more complex in the case of an en commandite partnership. Section 24H imposes a limitation on the deductions that partners with limited liability may claim. It restricts the deductions allocated to these partners to the extent of that party’s exposure to losses through the partnership.
The treatment of “salaries” paid by the partnership to partners is a particularly fact specific. The partner already pays taxed on his share of the partnership’s income net of expenses. A payment described as a salary may, in substance, often be a distribution of profits the partner has already brought to account, rather than a separate deductible expense at the partnership level. Practitioners should review the partnership agreement to establish whether the amount paid is a true expense. In some instances, it really represents feed for services or value exchanged.However, it could simply be the already-taxed profit extraction method. The objective is to ensure that the partnership’s profits are taxed, but taxed only once.
The IT3(BO) relates to the application and administration of these income tax principles. SARS should see the full picture of parties required to include the partnership’s profits in their taxable income. The IT3(BO) is the single submission that captures this. The designated partnership representative submits the IT3(BO), SARS issues an IT3(BO) reference number, and each partner then uses that number on their ITR12 to link back to the central submission.
VAT
For VAT purposes, a partnership is deemed to be a person. It can be a VAT vendor in its own right.
The more difficult area is the interface between the partnership and its partners. Where there is a transaction or arrangement between a partner and the partnership, the analysis turns on whether either party has made a supply. A pure distribution or extraction of partnership profits is arguably analogous to a dividend and would not constitute a supply for which VAT consequences arise. By contrast, where the partner makes the right of use of an asset available to the partnership, or renders services to the partnership for a separately identifiable consideration, that is more likely to be a supply attracting its own VAT treatment. The partnership agreement is the natural starting point for that analysis. Arrangements in which one partner acts on behalf of the partnership raise a further question, as section 54 of the VAT Act, which deals with agency, may come into play.
Take-home message
Three points are worth taking away from this article. First, for income tax purposes, a partnership is not a person. Section 24H of the ITA regulates the attribution of partnership profits to partners. Second, on the compliance side, the partnership, through a designated representative, is responsible for a central declaration of partner information that each partner’s ITR12 references via the IT3(BO) process. Lastly, the VAT position is the opposite. The partnership is a person and can be a vendor. This brings its own challenges to the analysis of transactions between the partners and the partnership.
You can listen to episode 77 of my podcast for more on this topic:
