A partnership is formed by two or more people who join together to carry on a business.
Each partner contributes capital, skill and labor to the partnership, and in return they are entitled to receive a share of the income it generates.
All partners must complete their own individual income tax returns, as well as one overall partnership tax return that is lodged with the Australian Taxation Office (ATO).
If your business is structured as a partnership, there are certain obligations you need to meet.
For instance, the income of the partnership needs to be reported on a partnership tax return and each partner must lodge an individual tax return.
It's important to understand the business structure and how it affects the way taxes are paid and expenses are claimed. Net income from the business should be reported on both the partnership’s and partners’ individual tax returns. Any assessable income is also required to be reported in both sets of tax returns.
Understanding the obligations you need to meet when running a business as a partnership can help ensure that all parties remain compliant with their tax obligations.
Deciding on a partnership is an important step for any business. It’s essential to consider the business structure and needs when taking this decision.
A general partnership can be perfect for some small businesses in Australia, however, selecting the right partner is key.
For many, this may not be an ideal choice due to each partner being equally responsible for the management of the business, and having unlimited liability for the debts and obligations the partnership may incur.
There are many business structure options available in Australia that may be better suited, like a company or a family trust. There are also different types of partnerships to consider, if that is the direction taken, each with different service requirements and lodgment conditions.
Therefore, it’s important to consider all the factors involved before committing to a partnership.