Partnership
A written agreement is the normal requirement. This agreement sets out profit sharing %'ages & may provide for salaries to the partners. Partnerships may be between natural persons, Companies, or trusts or any combination thereof. Here we set out detail of person to person partnership only. It is advisable to ask a Solicitor to draw up the agreement although preprinted forms may be obtained from a legal stationer.
Advantages
- Straightforward structure
- Cheap to establish and operate
- Partnerships pay no tax itself and thus:
- Profit is distributed to partners as in the agreement
- Loss is distributed to partners as in the agreement
- Capital Gains/Losses also distributed.
Disadvantages
Partnership agreement sets a relatively rigid format
Partners are Jointly & Severally liable for each others acts within the business
Changes of ownership under the agreement may cause Capital Gains Tax implications which can be undesirable
Associated Persons.
Family members or persons considered by the ATO not to be a "Arms Length" are defined as Associated Persons.
The ability to pay Salaries, Management fees or the like as a method of splitting income is subject to close scrutiny and careful evidencing of the activities recommended.
Partnership Share
Similarly, should a partner NOT have full control of their own share of the income arising from it, the ATO may declare the arrangement a "Sham" and apply Part IV(A) to set it aside and tax the remaining partners on the diverted income.
Quarterly PAYG
Also applies. (Refer Sole Trader)
Generally speaking this is the business format considered to be most difficult to control over an extended period.