A general partnership (SENC), which was generating losses, paid an amount in the year to one of the three equal partners (an individual), and wishes to treat that amount as deductible salary, with the loss of the SENC being allocated equally to the partners.
The Directorate stated that, in accordance with ITTN No. 30, “any remuneration paid to a partner for work performed in the course of partnership business may properly be considered a distribution of income or a withdrawal of capital and is not deductible in computing a partnership's income,” and that here, since the SENC had a net loss, the amount was a withdrawal of capital, reducing the ACB of the individual’s interest. Furthermore, the amount would not be deductible in computing the SENC's income.