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Assessing partnership income 043-03120050

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This document outlines the process for assessing income from a partnership.

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Assessing partnership income


Assessing partnership income

Table 1: This table describes the process to assess income in a business partnership.

Expand table

Step

Action

1

Advice of involvement in a partnership

Is the partnership still operating?

2

Customer advises they are involved in a partnership

If the customer tells Services Australia the partnership is still operating or they are now involved in a partnership, use the Request for Information (FRI) workflow or guided procedure (if necessary) to:

  • send the customer a:
  • ask for:
    • their personal and partnership income tax returns
    • their partner’s personal tax return. Note: this is only if the customer is partnered and their partner is also a partner in the business
    • 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

Tell the customer they can lodge their documents:

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

Once the customer returns the documents, go to Step 3.

3

Referral to Complex Assessment Officer (CAO)

A Complex Assessment Officer (CAO) must do an assessment where a partnership involves:

Does the partnership require a CAO assessment?

Note: if the decision to refer to a CAO is not clear, service officers must follow normal escalation processes. Local Peer Support (LPS) and/or Service Support Officers (SSO) must investigate the individual circumstances before referring to a CAO. See Technical Support Model.

4

Review the income of the partnership business

Review the partnership income from the profit and loss statement. Some income amounts are not assessable for social security payments. Staff must deduct these when calculating the adjusted net assessable income for the partnership:

  • Income such as one-off capital gains
    • Income from one-off capital gains that is not part of the normal trading activities of the partnership is not assessed
  • Cash Flow Boost payments paid by the Australian Taxation Office
    • Cash Flow Boost 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
  • Income from financial assets
  • Income from real estate

Once the total of assessable income has been determined, and to determine allowable expenses go to Step 5.

5

Review expenses of the partnership business

Review the partnership expenses from the profit and loss statement. Some expenses are not allowable for social security payments. Staff must disregard these when calculating the adjusted net assessable income for the partnership:

  • Wages or salary paid to partners
    • For accounting purposes, the partnership may record a wage or salary paid to a partner as an expense
    • A partner’s wage or salary is not an allowable deduction for tax purposes and is considered a distribution of profit to that partner
    • For social security purposes, a wage or salary paid to a partner is used to reduce the income of the partnership. It must be added back to the relevant partner’s share of the partnership profit or loss
    • If this adjustment has not been made in the partnership tax return it must be manually done when determining the adjusted net income
    • See the Resources page for examples
    • Because a partnership is not a separate legal entity from its partners, the payment does not arise from an employer–employee relationship. It is not treated as employment income
  • Expenses claimed in personal tax return
    • Customers involved in partnerships can claim more expenses on their personal income tax return against their share of the partnership income
    • If they have any allowable deductions, they can use this to reduce their share of the partnership income

See Business deductions for more examples of expenses which are not allowable.

Once the total of allowable expenses has been determined, and to determine the adjusted net income of the partnership, go to Step 6.

6

Adjusted net income of the partnership business

The adjusted net income of the partnership business is the total adjusted income (as determined in Step 4) minus the total adjusted expenses (as determined in Step 5).

Each partner’s share of the adjusted net income will be determined by their determined share of the partnership income outlined in the partnership agreement. Make sure that:

  • Wage or salary amounts paid to a partner are added back to the relevant partner’s share of the adjusted net income
  • Expenses claimed on a partner’s personal tax return are only used to reduce the relevant partner’s share of the adjusted net income

Once each partner’s share of the adjusted net partnership income is determined, go to Step 7.

7

Check current income from partnership

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

8

Updating the income for Partnership

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

Process Direct:

Customer First/Customer Record: