Partnership Income Tax Return

Partnership

A partnership is a business structure involving two or more people who distribute income or losses base on the binding partnership agreement. A partnership is not a separate legal entity and therefore, does not pay tax. The business profits such as incomes, capital gains/losses, debts are distributed among the partners, and income tax is paid by each partner in their own individual tax returns. In a partnership, the business assets, equity and liability are jointly owned. This mean all partners in the business are equally responsible for the business's debts regardless of the percentage share you agreed in the partnership.

Three main types of partnerships:

• The General partnership – It is the  most common type, where all partners are equally share management responsibilities of the business, and each has unlimited liability for the debts and obligations it may incur to suppliers, secure creditors or ATO.
• The Limited partnership –It is a general partnership, but with limited partnerships, and a partner’s liability is limited to the amount of money they have invested to the partnership. Limited partners are usually passive investors who don’t play any role in the day-to-day management of the business.
• The Incorporated Limited Partnership – Partners  have limited liability for the debts of the business. However under an ILP there must be at least one general partner with unlimited liability. If the business cannot meet its obligations, the general partner become personally liable for all debts.

If you operate your business as a partnership, the partnership lodges a partnership tax return, reporting the partnership’s net income or loss. As an individual partner, you report on your individual tax return:

• Your share of any partnership net income or loss
• Your share of capital gains or loss
• Your wages/salary
• Your dividends received
• Your rental income.
• tax credits

The partnership doesn’t pay income tax or capital gains tax on the income it earns. Instead, each of the partners pay tax on the share of net partnership income or capital gains or loss they receive.