Husband & Wife Partnership
Running a business?
- Working in your business whist your partner cares for the kids or has a part time job?
- Doing your husband or wife’s bookwork?
- Want to know how you could potentially save tax?
Have you ever considered a Husband and Wife partnership?…. And we’re not talking about your marriage either.
So, firstly – what is a partnership?
An entity involves 2 or more (with a maximum 20) partners carrying on a business together, with the mutual goal of making a profit. Partnerships are set up through the Partnership Act of the appropriate state/territory where formed.
What’s the difference with a general partnership and a husband & wife partnership?
Not a whole lot, both parties are looking for a profit-making venture, typically husband and wife is seen more as a tradespeople partnership, one partner is qualified (for example a mechanic, carpenter or hairdresser) and produces the partnership income and the other partner is involved in administration and bookkeeping for the partnership.
Profits from the partnership are normally split 50/50 between the partners unless your partnership agreement or Personal Services Income status states otherwise.
Is this 50/50 split allowed by the ATO with Personal Service Income implementations?
In 2005 the ATO reviewed this Husband & Wife structure in their ‘Refocus of the income-splitting test case programme’ and accepted as legitimate because both partners are exposed to the liability for the partnership debts, so both should share the rewards.
Guidelines to meet these criteria;
Joint Ownership of business assets
Joint Bank Account
Trading in joint names
Public Recognition of the partnership
Both parties involved in conducting the business
Mutual Intention – Basically you both want to make a profit
Why should you look into this entity set up for your business? What are some of the advantages?
Partnerships set up just as this, can generate substantial tax savings where one spouse has low or no other income due to the income splitting that is available, this can decrease the tax rates for each partner. Each partner obtains joint control of the management of the business. Along with sharing the work load, capital and skills to build the business (in comparison to a sole trader setup).
What are the Disadvantages?
With many advantages comes a few disadvantages, with this Husband & Wife partnership set up each partner is equally liable for all the partnership debts with an unlimited liability. Not to mention that all partners are liable for the actions of other partners, regardless of their view of what has been done. There is always a risk of disagreements and conflict between partners and therefore a partnership agreement is essential as it outlines what is, and what is not allowed to be agreed upon without mutual contract with all partners.
What is the process and costs to set up a Partnership entity?
The partnership set up is relatively inexpensive. However, this does vary entity to entity, we suggest visiting your accountant to weigh up if this is the best entity structure for your business and to get a quote on set up costings. At Ashok Parekh & Co Accounting we offer a FREE initial business consultation either in person or over the phone, its basically a discussion as to what is involved with your business and for us to get to know you! Once we have mutually decided this is a great, tax saving way to go, we organise EVERYTHING for you!
Upkeep of a partnership each year?
A separate tax return and financials if needed are to be prepared each year in addition to your individual tax returns, here at Ashok Parekh & Co Accounting we also encourage tax planning and interim reports of all your accounts to keep up to date with what’s happening in your business. This along with meetings held as per your partnership agreement.
Still Interested? Want to book a FREE consultation, have a coffee and a chat?
Contact one of our offices below via phone or email and one of our awesome stuff will get the ball rolling, and hopefully save you some tax!
Kalgoorlie 08 9021 5866 firstname.lastname@example.org
Karratha 08 9021 5866 email@example.com
Mandurah 08 6168 2448 firstname.lastname@example.org
Bunbury 08 9721 5725 email@example.com