Partner “salaries” treated as draws
10. Salaries paid by a partnership to its members do not constitute a business expense, but are a method of distributing partnership income among members. The income of a partnership in a taxation year may be less than the salaries which the partnership agreement requires to be paid to the partners. In this event, the excess of the salaries over such income appears as a deduction in the partners' capital accounts. Such a reduction of the capital of each partner is allowed as a deduction in determining the allocation to him of the income or loss of the partnership. [This last sentence stated to be incorrect in 2001-0066067]
Rent paid to partner not recharacterized as draw
12. Where a partnership leases property owned by a partner, the rent is an expense of the partnership and income of the member, and not an allocation of partnership income.
