850Allocation of firm's profits or losses between partners

1

For any period of account a partner's share of a profit or loss of a trade carried on by a firm is determined for income tax purposes in accordance with the firm's profit-sharing arrangements during that period.

This is subject to sections 850A and 850B.

2

In this section and sections 850A and 850B “profit-sharing arrangements” means the rights of the partners to share in the profits of the trade and the liabilities of the partners to share in the losses of the trade.

850AProfit-making period in which some partners have losses

1

For any period of account, if—

a

the calculation under section 849 in relation to a partner (“A”) produces a profit, and

b

A's share determined under section 850 is a loss,

A's share of the profit of the trade is neither a profit nor a loss.

2

For any period of account, if—

a

the calculation under section 849 in relation to A produces a profit,

b

A's share determined under section 850 is a profit, and

c

the comparable amount for at least one other partner is a loss,

A's share of the profit of the trade is the amount produced by the formula in subsection (3).

3

The formula is—

$\mathrm{FP}\times \frac{\mathrm{PP}}{\mathrm{PP}+\mathrm{TCP}}$

where—

FP is the amount of the firm's profit calculated under section 849 in relation to A,

PP is the amount determined under section 850 to be A's profit, and

TCP is the total of the comparable amounts attributed to other partners under step 3 in subsection (4) that are profits.

4

The comparable amount for each partner other than A is determined as follows.

Step 1

Take the firm's profit calculated under section 849 in relation to A.

Step 2

Determine in accordance with the firm's profit-sharing arrangements during the relevant period of account the shares of that profit that are attributable to each of the other partners.

Step 3

Each such share is the comparable amount for the partner to whom it is attributed.

5

In subsections (2) to (4) “partner” means any partner in the firm, whether or not chargeable to income tax.

850BLoss-making period in which some partners have profits

1

For any period of account, if—

a

the calculation under section 849 in relation to a partner (“A”) produces a loss, and

b

A's share determined under section 850 is a profit,

A's share of the loss of the trade is neither a profit nor a loss.

2

For any period of account, if—

a

the calculation under section 849 in relation to A produces a loss,

b

A's share determined under section 850 is a loss, and

c

the comparable amount for at least one other partner is a profit,

A's share of the loss of the trade is the amount produced by the formula in subsection (3).

3

The formula is—

$\mathrm{FL}\times \frac{\mathrm{PL}}{\mathrm{PL}+\mathrm{TCL}}$

where—

FL is the amount of the firm's loss calculated under section 849 in relation to A,

PL is the amount determined under section 850 to be A's loss, and

TCL is the total of the comparable amounts attributed to other partners under step 3 in subsection (4) that are losses.

4

The comparable amount for each partner other than A is determined as follows.

Step 1

Take the firm's loss calculated under section 849 in relation to A.

Step 2

Determine in accordance with the firm's profit-sharing arrangements during the relevant period of account the shares of that loss that are attributable to each of the other partners.

Step 3

Each such share is the comparable amount for the partner to whom it is attributed.

5

In subsections (2) to (4) “partner” means any partner in the firm, whether or not chargeable to income tax.