In brief, a partnership is a relatively effective structure to split income within the provisions of the tax laws. The structure also offers investors freedom to pool capital, skill and expertise. However, the liability of a partnership is also unlimited (except a limited partnership) and extends to debts incurred by a partner without the consent of the other partners.
In the main, a partnership as a tax structure has the following characteristics:
- A partnership is not a separate legal entity and partners are assessed individually on their share of any profit.
- Partners are responsible for their own superannuation arrangements as they are not employees of the partnership. Partners may be able to claim a deduction for personal superannuation contributions.
- Unlike in companies and trusts, partnership losses are not quarantined within the partnership. Instead, the losses can be distributed to the partners.
- Each partner is jointly and severally liable for the debts of the partnership. One partner may be required to pay all the partnership debts if the other partners are insolvent or cannot be traced. For this reason, an Unincorporated Joint Venture (UJV) is sometimes formed instead of a partnership.
Does the partnership pay tax on its income?
A partnership does not pay tax on its income, but it does complete a partnership tax return showing all income earned by the partnership and all deductible expenses.
Corporate limited partnerships and limited partnerships are generally treated like companies for tax purposes and do pay tax on their income.
Who pays tax in a partnership?
Each partner pays tax on their share of the partnership's net income.
Each partner must include the whole of their individual share of the net profit or loss in their individual tax return, whether the income has been distributed to them or not.
A partner who is a non-resident of Australia for tax purposes for the whole of the income year is assessable on only that part of their share of the partnership net income that is attributable to sources in Australia.
A partner who is a non-resident of Australia for tax purposes for only part of the income year is assessable on the aggregate of:
- their share of all the partnership net income that is attributable to the period they were a resident, and
- their share of all the Australian sourced partnership net income that is attributable to the period they were a non-resident.
If you require assistance, please contact us on (02) 8264-0755
All representations and information on this site is general in nature and should not be relied upon as advice. If you require specific advice please contact us.