Partnership Organisation Law

Partnerships

A partnership for income tax purposes is defined in s995-1 as “an association of persons carrying on business as partners or in receipt of ordinary income or statutory income jointly but does not include a company.”

In common law it is defined as “the relationship that exists between persons carrying on business in common with a view to profit”.

Therefore it can seen that persons who would not be considered to be carrying on a partnership under common law due to them only receiving joint ordinary/statutory income and not engaged in business activities will be considered a partnership for taxation purposes. Eg joint ownership of a rental property.

Whether a partnership exists for income tax purposes is a question of fact. The most important elements are the mutual agreement and intention to act as partners as well as the conduct of parties.

It is not essential for there to be a partnership agreement, but if an agreement does exist it can be in the form of either a written agreement or deed or it may be a verbal agreement. A partnership agreement will give prima facie evidence of the intentions of the parties to enter into a partnership, it will also set out the terms of the agreement under which the partnership is to operate.

The ATO released Taxation Ruling 94/8 which set out some factors to consider when

determining the existence of a business partnership they included –

• joint ownership of business assets

• entitlements to a share of net profits

• the existence of a joint bank account specifically named and used as a business account

• the power of the partners to operate on the partnership account

• the registration of a business name in the joint proprietorship of the partners and trading in joint names

• business records (books of accounts, minutes of partnership meetings)

• public recognition of the partnership (stationery, advertising)

• the involvement of all the...