I am 1 of 2 partners (no employees) in a recently registered consulting business. Essentially we are 2 former sole proprietors joining forces. We are currently working on forming our partnership agreement with a lawyer.
Could someone explain to me, at a high level, how partners earn income from a partnership and the tax implications?
BACKGROUND: As a sole-proprietor, I simply charged my clients HOURLY RATE + HST and the amount that I invoiced (minus HST and expenses) was my income.
With 2 partners, working variable hours for different clients, bringing funds into the partnership, do we pay ourselves a "salary" or do we simply draw the funds (in accordance with the partnership agreement) and that becomes our income? The thing that confuses me is that the partnership is not a taxable entity, so that makes me think the $ is considered our taxable income as soon as it enters the books of the business.
I will of course be consulting a professional accountant on this, but would very much appreciate to have a better understanding of the workings myself.