An individual who was not in a partnership carrying on a business does not need to lodge a partnership tax return where the only income derived jointly (or in common) with another person was:
- rent from a jointly owned investment property
- interest from a jointly held account
- dividends from jointly held shares.
In these instances, each individual shows their share of the income and expenses at the appropriate items on their own individual tax return.
Australian Business Register
The Australian Business Register (ABR) stores details about businesses and organisations when they register for an Australian business number (ABN).
We are authorised by the A New Tax System (Australian Business Number) Act 1999External Link and other taxation laws to collect certain information relating to your entity. We may use business details supplied on the tax return to update the information held in the ABR in relation to your entity. This may include cancelling the ABN if your entity is no longer entitled to be registered in the ABR.
Where authorised by law, selected information on the ABR may be made publicly available and some may be passed on to other Commonwealth, state, territory and local government agencies. These agencies may use ABR information for purposes authorised by their legislation or for carrying out other functions of their agency. Examples of possible uses include registration, reporting, compliance, validation and updating of databases.
You can find details of agencies that regularly receive information from the ABR at abr.gov.auExternal Link or to have a list of the agencies sent to you, phone us on 13 92 26 between 8.00am and 6.00pm Monday to Friday.
For more information about privacy, the information we collect and how it may be used, see our Privacy statementExternal Link.
International taxation
Broadly, ‘foreign hybrid’ means entities such as foreign hybrid limited partnerships, limited liability companies in the United States of America (US LLCs) and UK Limited Liability Partnerships (UK LLPs); being entities that are treated in Australia as a company for tax purposes, but are taxed on a partnership basis in their country of formation. That is, the overseas jurisdiction taxes the members on their share of the entity’s income and the entity itself is not taxed in that jurisdiction.
Under Division 830 of the Income Tax Assessment Act 1997 (ITAA 1997), if the conditions specified therein are met, certain foreign hybrids (such as foreign hybrid limited partnerships, US LLCs and UK LLPs) are taxed as partnerships and not as companies, for Australian income tax purposes.
Investors in these entities are treated for Australian income tax purposes as having partnership interests. There are other special rules in addition to those normally applying to partnerships.
The effect of Division 830 of the ITAA 1997 is that specified income tax provisions apply 'as if' the foreign hybrid was a (tax law) partnership. That is, Division 830 extends the list of arrangements that fall within the definition of 'partnership' in the ITAA 1997, for the purpose of securing a method of taxation in respect of the foreign hybrids that applies to other tax law partnerships.
Foreign exchange gains and losses
Under the foreign exchange (forex) measures contained in Division 775 and Subdivisions 960-C and 960-D of the ITAA 1997, forex gains and losses are generally brought to account as assessable income or allowable deductions, when realised. The measures cover both foreign currency denominated arrangements, and broadly, arrangements to be cash-settled in Australian currency with reference to a currency exchange rate. Forex gains and losses of a private or domestic nature, or for exempt income or non-assessable non-exempt income, are generally not brought to account under the forex measures.
If a forex gain or loss is brought to account under the forex measures and under another provision of the tax law, it is assessable or deductible only under the forex measures. However, if a financial arrangement of a partnership is subject to the taxation of financial arrangements (TOFA) rules contained in Division 230 of the ITAA 1997, forex gains and losses from the financial arrangement will generally be brought to account under those TOFA rules instead of the forex measures.
Additionally, forex gains and losses will not be assessable or deductible under the forex measures if they arise from certain acquisitions or disposals of capital assets, or acquisitions of depreciating assets, and the time between the acquisition or disposal and payment is no more than 12 months. Instead, any forex gain or loss is usually matched with or integrated into the tax treatment of the underlying asset.
The general translation rule requires all tax-relevant amounts to be expressed in Australian currency regardless of whether there is an actual conversion of that foreign currency into Australian dollars.
The tax consequences of forex gains or losses on existing foreign currency assets, rights and obligations that were acquired or assumed before 1 July 2003 are determined under the law as it was before that date unless:
- you have made a transitional election that brings these arrangements under the forex measures, or
- there is an extension of an existing loan (for example, an extension by a new contract or a variation to an existing contract) that brings the arrangement within these measures.
Electronic lodgments
Tax agents who lodge partnership returns electronically must complete the Partnerships and trusts rental property schedule 2017 if item 9 Rent is completed. You do not have to complete that schedule if you are lodging a paper version of the partnership tax return.
Information matching
We are increasing our use of information-matching technology to verify the correctness of tax returns. Ensure all information is fully and correctly declared on your tax returns. Certain claims made may be subject to additional scrutiny by us.
In particular, we will be checking the following on the 2017 tax returns:
- distributions from partnership and trusts
- total salary and wages paid against the pay as you go (PAYG) withholding system
- interest and dividend income
- franking credits claimed (including franked dividends that are correctly grossed up).
Hobby or business
It is important to determine whether the partnership is carrying on a business, as distinct from pursuing a hobby, sport or recreational activity that does not produce assessable income.
The factors or ‘business indicators’ that various courts and tribunals have taken into account in determining if a business exists for tax purposes include whether the activity:
- has actually started
- has a significant commercial purpose or character
- is undertaken with a purpose of profit, as well as a prospect of profit
- is carried out in a manner that is characteristic of the industry
- has repetition, regularity or continuity
- is planned, organised and carried on in a business-like manner
- is of a sufficient size, scale and permanency to generate a profit
- is not more properly described as a hobby, recreation or sporting activity.
See also:
Private ruling by the Commissioner of Taxation
A private ruling is binding advice that sets out how a tax law applies to you in relation to a specific scheme or circumstance. You may be able to seek a private ruling to find out how the law applies or would apply to a specific situation. If you would like to discuss your issue with us prior to applying, you can submit an early engagement (for advice) request.
Next step:
Penalties and interest charges
The law may impose penalties on a partner or the partners in the partnership for:
- failing to lodge a partnership tax return on time and in the approved form (which includes all applicable schedules)
- making a statement that is false or misleading in a material particular
- failing to keep and produce proper records
- preventing access to premises and documents
- failing to retain or produce declarations.
In addition, general interest charge and shortfall interest charge may apply to the partners.
Purchase or sale of a business during the income year
Keep a record of the following:
- the name and address of the other party to the transaction
- the purchase or sale price, including details of the allocation of purchase or sale price to all items purchased or sold, including stock on hand and depreciating assets
- a copy of the contract of purchase or sale.
Requirements
Record-keeping requirements and retention
If you are carrying on a business, you must keep records relevant for any taxation purpose that record and explain all transactions and other acts you are engaged in. Subsection 262A(2) of the ITAA 1936 prescribes the records to be kept as including:
- any documents relevant for the purpose of ascertaining a person’s income and expenditure
- documents containing particulars of any election, estimate, determination or calculation made by a person for taxation purposes and, in the case of an estimate, determination or calculation, particulars showing the basis on which and the method by which the estimate, determination or calculation was made.
You must keep these records for your financial arrangements covered by the TOFA rules, even if you are not carrying on a business for those arrangements.
Generally, the partnership must keep all relevant records for five years after they were prepared or obtained, or five years after the completion of the transactions or acts to which they relate, whichever is the later. This period may be extended in certain circumstances. Keep records in writing and in English. You can keep them electronically as long as the records are in a form that we can access and understand to ascertain your taxation liability; see TR 2005/9 Income tax: record keeping – electronic records.
If the partnership made a loss then see TD 2007/2 Income tax: should a taxpayer who has incurred a tax loss or made a net capital loss for an income year retain records relevant to the ascertainment of that loss only for the record retention period prescribed under income tax law?
Partnership records
Keep the following records:
- a copy of the partnership agreement; if none exists, then a copy of the partnership’s certificate of registration, or if that doesn't exist, then documentary evidence that the partners were carrying on their activities as a partnership
- commencement date of the partnership or the date of reconstitution
- detailed statement of assets and liabilities
- details of each partner’s capital accounts and sources of capital contributed
- details of each partnership bank account including the name and number of the account, the bank and branch at which it is kept, the date the account was opened and the names of persons authorised to operate the account and the date of such authorisation
- the family relationship of the partners and, if the partners are husband and wife, details of the nature and extent of the services rendered by each to the partnership
- whether the partners own jointly or in common, any property from which interest, dividends, rents or royalties are derived
- the names in which business contracts are made
- details of any services rendered in the production of assessable income by a partner under 18 years old, or by a beneficiary under 18 years old in a trust where the trustee is a partner; details must include the nature, extent and value of the services rendered
- whether the partnership is constituted or conducted such that any partners cannot, of their own will, deal with any part of their share of the partnership income
- whether any partners are required to use any part of their share of the profits to meet any debt to another person
- records that show you have met your choice of superannuation fund employer obligations; for more information, see Keep records or phone 13 28 64.
Record keeping for overseas transactions
Keep records of any overseas transactions in which the partnership is involved, or has an interest, during the income year.
The involvement can be direct or indirect, for example, through individuals, trusts, companies or other entities. The interest can be vested or contingent, and includes a case where the partnership has direct or indirect control of:
- any income from sources outside Australia not disclosed elsewhere on the tax return, or
- any property, including money, situated outside Australia. Where this is the case, keep a record of:
- the location and nature of the property
- the name and address of any partnership, trust, business, company, or other entity in which the partnership has an interest, and
- the nature of the interest.
If an overseas interest was created by exercising any power of appointment, or if the partnership had an ability to control or achieve control of overseas income or property, keep a record of:
- the location and nature of the property
- the name and address of any partnership, trust, business, company, or other entity in which the partnership has an interest.
In relation to transfer pricing, section 284-255 of Schedule 1 to the Taxation Administration Act 1953 sets out specific record keeping requirements for the partners to be eligible to have a reasonably arguable position, see TR 2014/8 Income Tax: transfer pricing documentation and Subdivision 284-E.
Partnerships
A partnership for income tax purposes is an association of persons carrying on a business as partners or receiving income jointly, see TR 94/8 Income tax: whether business is carried on in partnership (including ‘husband and wife’ partnerships).
A partnership is not a taxable entity, but it must nonetheless lodge a tax return unless one of the exceptions listed in Lodging a partnership tax return applies.Partners are taxed on their share of the profits of the partnership or are entitled to a deduction for their share of the losses incurred by the partnership as disclosed in their own tax returns.
Some deductions are not available to the partnership, but may be claimed by the partners, see Appendix 7: Deductions applicable to partners.
A partnership asset is owned by the partners (and not the partnership) in the proportion to which the partners have agreed. A partner’s share of the capital gains or losses relating to CGT (capital gains tax) events occurring for partnership assets must be disclosed on the partner’s tax return, see Partnerships and capital gains tax.
Non-resident partner
A partner who is not a resident of Australia is not taxed on the share of net income of the partnership attributable to sources outside Australia. Similar rules apply to temporary residents. If it is believed that any partner who has a share of such income is not an Australian resident, or, is a temporary resident, keep a record of their name and residential address, the basis of any contention and the partner’s share of income derived from sources outside Australia.
Variation of partnership agreement
Keep a copy of any variation to the partnership agreement for the life of the partnership plus five years.
Reconstituted partnerships
Under the law, if the composition of a partnership changes, for example, a partner retires or dies, or a new partner is admitted, the partnership is dissolved and a new partnership is formed.
However, if the change in the composition amounts only to a technical dissolution of the partnership, the partnership may be able to continue as a reconstituted continuing entity. As such, it avoids the need to change its tax file number (TFN) and Australian business number (ABN), and only one partnership tax return is required at the end of the income year.
Generally, we will treat a changed partnership as a reconstituted continuing entity if the original partnership agreement incorporated a provision for a change in membership or shares and the following factors apply:
- the partnership is a general law partnership
- at least one of the partners is common to the partnership before and after reconstitution
- there is no period where there is only one ‘partner’ (that is, in a two-person partnership, there is a direct transfer of interest from the outgoing partner to a new partner)
- the partnership agreement includes an express or implied continuity clause or, in the absence of a written partnership agreement, the conduct of the partners is consistent with continuity
- there is no break in the continuity of the enterprise or firm (that is, the partnership’s assets remain with the continuing partnership and there are no changes to the nature of the business, the client or customer base, the business name or name of the firm).
For more information, see GSTR 2003/13 Goods and services tax: general law partnerships.
At the end of the income year, a reconstituted continuing partnership needs to lodge only one partnership tax return covering the full income year. The tax return must include the distributions made to every person who was a partner at any time during the income year, including those who left the partnership during the year.
When lodging the partnership tax return, supply the following details:
- the date of dissolution
- the date of the reconstitution
- the names of the new, continuing and retiring partners
- the TFN or address and date of birth of all new partners
- details of the changes if the persons authorised to act on behalf of the partnership have changed.
For information on how to supply this information to us, see Other attachments to the tax return.
If the changes in membership amount to more than a technical dissolution of the partnership, a new partnership is formed. This new partnership needs a new TFN and ABN. Both partnerships will need to lodge a partnership tax return. Lodge one tax return for the old partnership from the beginning of the income year to the date of its dissolution; and lodge another tax return for the new partnership from the date of its formation to the end of the income year.
Lodging a partnership tax return
Do not lodge a partnership tax return if you are an individual and the only income derived jointly (or in common) with another individual was:
- rent from a jointly owned property
- interest from a jointly held account
- dividends from jointly held shares and
- you were not in a partnership carrying on a business (in the above three instances each individual shows their share of the income and expenses at the appropriate items on their own tax return).
A partnership return is not required if the partnership was a subsidiary member of a consolidated group or Multiple Entry Consolidated (MEC) group for the full income year. Where this is the case, the head company of the group will have the responsibility for reporting any partnership income in its tax return and preparing any necessary schedules.
A partnership return is not required by some limited partnerships.
A partnership tax return is lodged by the resident partner with the most individual interest in the partnership net income or loss. If partners have equal interests, or two partners have the same greatest interest, any of those partners may lodge the return. If there is no resident partner, the agent in Australia lodges the tax return. For information relating to non-residents, see Non-resident partner.
Keep a copy of the partnership tax return and related documents because there may be a charge for obtaining a copy from us.
Send the partnership tax return to the relevant lodgment address:
Australian Taxation Office
GPO Box 9845
[insert the name and postcode of your capital city]
For example;
Australian Taxation Office
GPO Box 9845
SYDNEY NSW 2001
Where a return is required because the partnership had one or more periods in the income year when it was not a member of a consolidated group or MEC group (a non-membership period) the partnership should prepare a partnership return and prepare any necessary schedules.
For information about reporting multiple non-membership periods during the year, see the following parts of the Consolidation reference manual:
- ‘Part C – Detailed information’
- ‘C9 – Determine tax liabilities, determine obligations’
- ‘C9-5-110’.
Limited partnerships
Certain limited partnerships which are taxed as companies must lodge a Company tax return 2017 (NAT 0656).
This does not apply to a limited partnership (including an incorporated limited partnership) that is a venture capital management partnership, or a limited partnership that is unconditionally registered with Innovation Australia as a venture capital limited partnership, an early stage venture capital limited partnership, or an Australian venture capital fund of funds. These limited partnerships are taxed as ordinary partnerships (subject to special rules about the deduction of their losses) and are not taxed as companies.
In the case of foreign limited partnerships, see International taxation.
Other attachments to the tax return
In some cases, we need more information about the partnership to raise correct assessments for the individual partners. These are:
- where the partnership attaches an election, notification, request or application when lodging the partnership tax return
- where the partnership has received a bonus or other amount in respect of a short-term life assurance policy issued after 7 December 1983, see item Other Australian income
- where the partnership has paid or credited unfranked dividends or interest to a foreign resident or has received unfranked dividends or interest on behalf of a foreign resident, see Appendix 1
- reconstituted partnerships where the dissolution of the partnership was only technical and the partnership business carried on as per GSTR 2003/13; see the details that must be supplied when lodging the partnership tax return under Reconstituted partnerships.
If any of the above circumstances apply, attach separate pages, headed SCHEDULE OF ADDITIONAL INFORMATION, showing the full details, the partnership name and TFN, and attach them to the partnership tax return. Print X in the Yes box at Have you attached any ‘other attachments’? at the top of page 1 of the tax return.
Partnerships and capital gains tax
A partnership does not own assets for capital gains tax (CGT) purposes. A partnership asset is owned by the partners in the proportion to which they have agreed. If a CGT event happens to a partnership during the income year, or the partnership received a share of a capital gain from a trust, each partner must include their share of the capital gain or capital loss on their own tax return. For more information about how a partner returns their share of a capital gain or capital loss, see the Guide to capital gains tax 2017.