Business partnership accounting

Under a partnership structure, your business is required to lodge a tax return. However, each partner must also pay tax on 50% of their partnership’s net income. For more details, we’ve written a comprehensive guide on how tax changes under different business structures.

A written agreement brings a partnership into being. Once done, you will then need to:

1. register a business name;
2. obtain an Australian Tax File Number and an Australian Business Number.

If your partnership has revenue in excess of $75,000 per year, it may also be necessary to register for GST.

In Australia, a partnership business structure is when two or more people act as co-owners in a business and share income. For a partnership business, advantages include that they are cheaper to set up than a company, and profits do not have to be disclosed publicly.

A partnership ceases to exist every time there is a change in membership. If you wish to add or remove individuals from the partnership, you must dissolve the present partnership and create a new one. This is done by executing a new partnership agreement.

Generally no. A partnership is not an effective vehicle for holding or amassing appreciating assets. This is because a change in the Partnership has certain capital gains tax implications.

Partnerships can be a good tax structure to minimise tax, because a partner can use any losses to offset income earned from other sources.

• Tax is charged at the personal tax rate, so when business earnings increase, so does the tax rate.
• Partners cannot transfer their ownership to someone outside the partnership unless the other partner(s) agree.
• All partners are personally responsible for the debts of the business, and each partner is individually liable for debts incurred by the other partners. This is known as being 'jointly and severally' liable, or having 'unlimited liability'.