Announcements
Worried you’re missing part of your refund? Remember, the low and middle income tax offset isn’t a refund on its own – it’s used to offset (or reduce) the amount of tax you pay. The offset amount you may be entitled to is automatically applied and could range between $255-$1080, depending on things like your taxable income and how much tax you’ve paid.
Still not sure? Ask the Community

ATO Community

Re: Partnership profit sharing

Newbie

Views 1301

Replies 1

Hi,

 

One of my client has a family partnership and there is no partnership agreement. Is it possible to change the profit sharing ratio from last year or do I need to use the same ratio which was used in the last year in preparing current year tax return.

 

Thank you

1 ACCEPTED SOLUTION

Accepted Solutions

Most helpful response

Former Community Support

Replies 0

Hi @pjayasuriya 

 

If there is a partnership there should be a partnership agreement. A partnership agreement can be either written or oral. It states who the partners are and how profits and losses are to be shared.

 

A partner's interest in the net partnership income or partnership loss is usually determined in accordance with the partnership agreement.  However, if that is completely out of proportion to the partners' true interest in the partnership, an assessment will be made on the merits of the case.

 

It is advised that a written agreement be in place in case of any possible friction between the partners later on regarding entitlement to profits and losses.

 

The written partnership agreement can be either formal (drawn up by a solicitor or accountant) or informal (drawn up by the partners themselves).

 

A partnership cannot change the partnership distribution after the end of the financial year. Partnership agreements can be changed but the new agreement is prospective not retrospective meaning that it applies only from the date of the new agreement. This means that if on 20 November 2001 the partners decide to now split profits and losses 70% to partner A and 30% to partner B instead of 50% each for the year ended 30 June 2001, they cannot do that.

 

The previous agreement where each partner was to share profits and losses equally still applies to the financial year ended 30 June 2001. The new agreement applies from 20 November 2001 so that it will apply to the 2002 year.

For further reading see TR 2005/7 Income tax: the taxation implications of 'partnership salary' agreements.

 

I hope this assists you

 

 

1 REPLY 1

Most helpful response

Former Community Support

Replies 0

Hi @pjayasuriya 

 

If there is a partnership there should be a partnership agreement. A partnership agreement can be either written or oral. It states who the partners are and how profits and losses are to be shared.

 

A partner's interest in the net partnership income or partnership loss is usually determined in accordance with the partnership agreement.  However, if that is completely out of proportion to the partners' true interest in the partnership, an assessment will be made on the merits of the case.

 

It is advised that a written agreement be in place in case of any possible friction between the partners later on regarding entitlement to profits and losses.

 

The written partnership agreement can be either formal (drawn up by a solicitor or accountant) or informal (drawn up by the partners themselves).

 

A partnership cannot change the partnership distribution after the end of the financial year. Partnership agreements can be changed but the new agreement is prospective not retrospective meaning that it applies only from the date of the new agreement. This means that if on 20 November 2001 the partners decide to now split profits and losses 70% to partner A and 30% to partner B instead of 50% each for the year ended 30 June 2001, they cannot do that.

 

The previous agreement where each partner was to share profits and losses equally still applies to the financial year ended 30 June 2001. The new agreement applies from 20 November 2001 so that it will apply to the 2002 year.

For further reading see TR 2005/7 Income tax: the taxation implications of 'partnership salary' agreements.

 

I hope this assists you