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Why Do You Need To Lodge The Partnership Tax Return?
A partnership is generally defined as a group of two or more people who carry on a business together for profits.
Broadly speaking, the net income received from a partnership is calculated as its assessable income; less all allowable deductions. In other words, it is as if the partnership were a resident taxpayer in its own right: with all Australian and overseas’ sourced income and deductions included. The ATO generally considers the payment of a salary to a partner as being a distribution of partnership profits and, therefore, not a tax-deductible partnership expense.
This is because a partner cannot legally, be an employee of a partnership, i.e. a person cannot employ him or herself.
A Tax Return must be lodged for the partnership and each partner must also submit an Individual Tax Return. This allows business expenses and deductions to be separated from personal finances.
Some deductions may not be available to the partnership however they may be claimed by individual partners in their return.
You need to take the following steps:
Lodge a Partnership Tax Return to report the net income. This takes all assessable income into account minus allowable expenses and deductions.
Lodge individual Tax Returns for each partner.
Each partner pays tax on a share of the net partnership income as the partnership itself does not pay Income Tax.
You need to take care when considering a partnership. This business structure is common for small businesses in Australia and there are many advantages for the partners involved. However, the structure is not perfect for every business collaboration. Tax implications can become complicated.
Each partner is then taxed on his or her share of the partnership’s taxable income – or they may claim a deduction for their share of any partnership tax loss. In other words, a partnership itself does not pay tax but is required to lodge a tax return nonetheless.
Tax Return Perth is one of the most highly-regarded tax consultants in Perth.
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