Item | How to assess |
Example 1 | Partner is paid a wage or salary
Anna and Robert formed a partnership under which they agreed to share the profits and losses of the partnership equally. The partnership agreement allowed the partners to draw a salary if the partners agreed. At the beginning of the income year, Anna and Robert agreed that Anna would draw a salary of $20,000 for managing the business, and that the balance of profits and losses would be shared equally. The partnership’s net profit after paying Anna’s salary was $35,000. The total assessable partnership income is $55,000 ($35,000 net partnership profit + Anna’s $20,000 salary): - Anna’s total share of partnership income is $37,500
- Robert’s total share of partnership income is $17,500
To work out the income split percentage, divide each partner’s total share by the total assessable partnership income: - Anna $37,500 ÷ $55,000 = 68.18%
- Robert $17,500 ÷ $55,000 = 31.82%
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Example 2 | Partner has business expenses on personal tax return
Jordan and Sam are partners and share partnership profits equally. The partnership’s assessable income is $80,000, so each partner’s share before any personal deductions is $40,000. Sam claimed $5,000 in allowable business deductions on their personal income tax return against their share of the partnership profit. Jordan did not claim any more deductions: - Sam’s assessable partnership income is reduced to $35,000 ($40,000 share of partnership profit - $5,000 of expenses from their personal tax return)
- Jordan’s assessable partnership income remains $40,000
The total assessable partnership income recorded is $75,000 (total of Sam and Jordan’s assessable partnership income). To work out the income split percentage, divide each partner’s assessable partnership income by the total assessable partnership income: - Sam $35,000 ÷ $75,000 = 46.67%
- Jordan $40,000 ÷ $75,000 = 53.33%
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Example 3 | Wages paid to the customer’s partner who is not a partner in the partnership
Taylor and Morgan are members of a business partnership and share partnership profits equally. Taylor’s partner, Riley, works in the business as an employee but is not a partner in the partnership. The partnership’s profit and loss statement shows gross business income of $120,000 and allowable business expenses of $40,000, including $15,000 in wages paid to Riley: - The $15,000 wage paid to Riley is an allowable business expense because Riley is not a partner in the partnership
- The expense for Riley’s wage is not added back to Taylor’s share of the partnership income
- The adjusted net partnership income is $80,000 ($120,000 income - $40,000 allowable expenses)
As Taylor and Morgan share profits equally, each partner’s assessable partnership income is $40,000. Riley’s wage is assessed separately as employment income. |
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