In a typical partnership of tradespeople who are married or a couple living together, one partner holds the relevant qualifications (e.g., as an electrician) and generates income for the partnership, while the other partner is primarily engaged in managing the business. Traditionally, the profits from this partnership arrangement are divided equally between the two partners.
The Australian Taxation Office (ATO) examined this structure in 2005 during its 'Reassessment of the income-splitting test case program' and determined it to be valid. This decision was based on the reasoning that both partners assume liability for the partnership's debts, and as a result, they should equally share in the benefits. Tradespeople who opt for this husband-and-wife partnership arrangement can achieve significant tax advantages, particularly when one spouse has limited or no other sources of income.
When determining whether spouses are conducting a business as partners for tax purposes, the ATO considers the following factors:
• The shared consent and intention of both parties
• Co-ownership of business assets
• The degree of involvement of each partner in the business's operations
• Maintenance of business records
• The presence of a joint business bank account
• Conducting business under the joint names and public recognition of the partnership.
Contact us now if you would like to know more about this arrangement and potentially save yourself $$$ in tax.
