Assessing partnership income 043-03120050

Is the partnership still operating?

• Yes, go to Step 2
• No, see Business has ceased to operate or has closed. Procedure ends here

If necessary, use the Request for Information (RFI) workflow or guided procedure to:

• Issue a Business Details (MOD F) to the customer.
• Request the customer's personal and partnership income tax returns. If the customer is partnered, their partner's personal tax return will also be required if they are a partner of the business
• Request the business's financial statements, such as the profit and loss statement, balance sheet, depreciation schedule, partnership agreement (if one exists)
• See Documents required to assess a partnership

Advise the customer they can lodge their documents:

• online
• in person at their local service centre
• by post

Once documents are returned, go to Step 3.

An assessment by a Complex Assessment Officer (CAO) is required where a partnership involves:

• a primary production partnership that has any liabilities (except for Farm Household Allowance (FHA) review assessments)
• a trading partnership of more than 2 members (except for FHA review assessments)
• trading partnerships that hold multiple encumbrances and secured loans (except for FHA review assessments)
• multiple business activities that do not relate (except for investment and rental income)

Does the partnership require a CAO assessment?

• Yes, refer the case to a CAO. Note: if the decision to refer to a CAO is not clear, Service Officers should first contact Local Peer Support (LPS)
• No, go to Step 4

• Remove any non-allowable deductions (see Business deductions) from the profit and loss statement
• Remove any non-assessable income such as one-off capital gains that are not part of the normal trading activities of the partnership
• Cash Flow Boost payments paid by the Australian Taxation Office
  Payments made to eligible small and medium sized businesses as part of the Australian Government coronavirus (COVID-19) stimulus response:
• are exempt from assessment under section 8(8)(zt) of the Social Security Act 1991
• are not included when assessing business income for a customer or their partner
• were made for the March to June 2020 and June to September 2020 quarters
• If these payments appear as income on the profit and loss statement for the business, remove and disregard when assessing the net income
• Remove any income from financial assets that are not part of the partnership working account. This income will be assessed under the deeming provisions as the shares and managed investments are considered the personal assets of the partners. For more information, see the following:
• Assessment of income and assets from partnerships
• Share traders
• If any of the partners have been paid a wage or salary, these amounts are added back to their share of the partnership profit or offset against their share of the partnership loss. Wages and salaries to partners are an allowable deduction against profit, however they are considered to form part of the business income for each partner. As partnerships are not separate legal entities from their partners, wages and salaries are not derived from an employer-employee relationship, and therefore are not counted as employment income
• Check the customer’s personal income tax return to see if they have claimed any further deductions against their share of the partnership income. If they have, and the deductions are allowable, they can be used to reduce the customer’s share of the partnership income

Does the customer's share of the income from the partnership (calculated in Step 4) represent their current income from the partnership business?

• Yes, this is the customer's share of the income which will be coded on the Real Estate/Business Details (REBS) screen. Go to Step 6
• No, request customer supply a current profit and loss statement for partnership. If partnership has operated for:
• Up to 12 months, an interim profit and loss statement (for example, via a completed Profit and Loss Statement (SU580)) for the full period is necessary. See Steps to assess an interim profit and loss statement, go to Step 7
• If 12 months or more, but the customer has not yet lodged income tax returns showing full details of the profit and loss for a full 12 months, request an interim profit and loss statement for the 12 month period (for example, via a completed SU580), go to Step 7

Service Officers and CAOs must use the correct date of event for business income and assets. To update in:

Process Direct:

• Key Start into the Super Key and select the Self Employment workflow from the Task Selector
• Use the Self-employment workflow to add or update details

Customer First/Customer Record:

• For new business details:
• Code the Real Estate/Business Identifying (REBI) screen. The customer must uniquely identify the location of any real estate or business site they own or have an interest in. For more information, see Assessing and coding real estate details
• See Assessing and coding the Business details for sole traders and partnerships Mod F for assistance in coding
• For a business already on a customer's record:
• Select the business from the Real Estate Business Summary (REBS) screen
• See Assessing and coding the Business details for sole traders and partnerships Mod F for assistance in coding

Notify customer of the assessed income of the partnership business and advise customer that if there is a significant increase or decrease in income from the partnership business, then they should notify Centrelink immediately and provide the most recent profit and loss statement.

If the partnership owns any property, the income from real estate and timeshare and assets from real estate and timeshare will need to be assessed and coded separately. The customer must uniquely identify the location of any real estate or business site they own or have an interest in.

To update in:

• Process Direct update on the Real Estate/Business Details (REBS) screen
• Customer First update on the Real Estate (RE) screen

Code the property details for the entity or business. For more information on assessment of real estate, see:

• Assessment and sale of real estate and timeshare asset
• Assessing income from real estate and timeshare

Enter details of the income and assets of the real estate.

Code the source of the business valuation in the Valuation Source: field.

To calculate the net assets of the business, see Assessing partnership assets. Enter the value of customer's assets from the business in the Net Assets Customer $: field.

If the customer's partner has assets in the business, code the value of these assets in the Net Assets Partner $: field.

If the customer or partner receives a wage or salary from the partnership this income should be added to the partner's share of profit. Code the total net income, after adjustments for non-allowable deductions and salary/wages from the business have been included, in the Income p.a $: field.

• In the % Income (C/P): field, enter both the percentage income for the customer and the percentage income for the partner derived from the business
• In the Income Earned (C/P)?: field enter both the percentage earned by the customer and the percentage earned by the partner
• Code the Source: and Date of receipt: fields

Code any shares and managed investments on Managed Investments Summary (MIS) or Securities and Investments Summary (SIS) screens. Code any other income as notified.

Record the information provided on a DOC or Note. DOC should detail all information used for assessment, including the source documents for example, 2020 Income Tax Returns, Profit and loss 1 July 2019 to 30 September 2020.

Finalise the activity.