Taxes on the income of a partnership

(i) Assessable Income of Partnership Statement presenting assessable income of the partnership for the income year 30th June 2019 Particular Amount in $ Business Income (working note: 1) 378100 Interest income 60000 Rental Income (Rental income – Rental expense) (51000) Capital Gain (working note : 2) 37500 Total Assessable Income 424600 Note: As the land has been held for more than one year, 50% of CGT Assessment discount will be available and half

Revenue Law

TABLE OF CONTENTS
Part A.........................................................................................................................................3
(i) Assessable Income of Partnership.....................................................................................3
(ii) Allowable deductions for Partnership..............................................................................4
Part B..........................................................................................................................................5
Part C..........................................................................................................................................5
References..................................................................................................................................7

PART A
A partnership is referred as business structure which involves more than one person who
carries business together. In accordance with provision of ATO, a business partnership does
not pay tax on its income (Starting your own business, 2018). However, it is necessary for a
partnership organization to lodge income tax return in order to declare income as well as
deductible expenses. For capital gain tax, each partner owns its own portion of CGT asset and
evaluate capital gain or loss for their share relating to each asset. Every partner is required to
disclose their individual share of partnership’s net income or loss in their individual return
even in case they actually received the income or not (Australian Taxation Office, 2018). In
accordance with ATO, provision the GST component of expense cannot be claimed in case
GST credit has been availed on business activity statement.
(i) Assessable Income of Partnership
Statement presenting assessable income of the partnership for the income year 30th June 2019
Particular Amount in $
Business Income (working note: 1) 378100
Interest income 60000
Rental Income (Rental income – Rental expense) (51000)
Capital Gain (working note : 2) 37500
Total Assessable Income 424600
Note: As the land has been held for more than one year, 50% of CGT discount will be
available and half of capital gain will be included in assessable income.
Working note: 1
Calculation of net business income
Particular Amount in $
Business Income (on a cash basis) 480000
Less: Apprentice salary 35000
Less: Lucy Salary 50000
Internet expenses 1320
Depreciation 10000
Electricity expense 1980
Fringe benefit tax 3600
Net Business Income 378100

Working note: 2
Calculation of capital gain
Particular Amount in $
Selling proceeds of the land 450000
Less: Acquisition cost 375000
Capital gain from the sale of land 75000
50% deduction is available in case asset is held for one year
or more
37500
Taxable capital gain 37500
Note: An assumption has been made that partnership firm does not claim GST credit paid on
its expenditure comprising electricity and internet expenses.
(ii) Allowable deductions for Partnership
Statement presenting calculation of deduction for Partnership
Particular Amount in $
Apprentice salary 35000
Lucy Salary 50000
Internet expenses 1320
Depreciation 10000
Electricity expense 1980
Fringe benefit tax 3600
Business Expenses 101900
Rent expenses 66000
Total deductible expenses 167900
In order to claim work-related expenses, following condition are required to be satisfied as
per ATO provisions:
 Expenditure has been made and not reimbursed
 Expense is directly related to earning of your income
 Assessee is required to have a record to prove it (Income and deductions for business,
2018)
In accordance with provisions stated in the Income Tax Assessment Act 1997, FBT is
separate income tax and is assessed on the taxable value of fringe benefit. AN employer can

claim deduction of FBT for income tax purposed for the FBT they have paid (Fringe Benefit
Tax (FBT), 2018). In present case, all the expenses are relating to business except drawing
made by Jane and Sophia. Thus all other expenses are deductible for income tax purpose.

PART B
Statement presenting calculation of the income of Jane, Sophia and Lucy
Jane
Particular Amount in $
Profit share from the partnership (working note 1) 141533.3
Total Income taxable as partnership share 141533.3
Sophia
Particular Amount in $
Profit share from the partnership (working note 1) 141533.3
Total Income 141533.3
Lucy
Particular Amount in $
Profit share from the partnership (working note 1) 141533.3
Total Income 141533.3
Working note 1:
Ascertainment of the share of each partner
Total assessable income of partnership firm $424600
No. of partners 3
Share of each partner $141533.3
In accordance with section 995 1 (1) of the Income Tax Assessment Act 1997, partnership is
an association of person carrying on business as partner. Further, a partnership business is not
taxable, but the partners are taxable on individual basis on the share of their net partnership
income whether distributed or not. Thus, above stated partnership profit will be taxed in their
personal returns.
PART C
Statement presenting tax payable by Lucy for 30 June 2019
Particular Amount in $
Salary Income 50000
Net income partnership share 141533.3

Total income 191533.3.3
Capital Gains (working note 1)
Total taxable income 191533.3
Tax liability (working note 2) 63117.64
Working note: 1
In accordance with provisions specified by ATO, while assessing capital loss; loss relating to
personal assets must be disregard. Thus, capital loss relating to a personal asset cannot be
adjusted against capital gain from land in relation to business activity (Capital Gain Tax.
2018). In present case the land was purchased for building office; however capital loss of
another asset cannot be adjusted against same. Net loss in relation with collectable can be set
off against capital gains made from collectables and not from other capital gains.
Working note: 2
Tax liability
Particular Amount
Tax on $180000 $54097
Tax on next $ 11533.3 $5189.9
Total tax $59286.98
Medicare levy 2% on taxable income $3830.33
Total tax liability $63117.64

REFERENCES
Australian Taxation Office. (2018). Partnerships. Retrieved through
<https://www.ato.gov.au/Forms/Partnership-tax-return-instructions-2013/?page=15>
Capital Gain Tax. (2018). Working out your net capital gain or loss. Retrieved through
<https://www.ato.gov.au/General/Capital-gains-tax/Working-out-your-capital-gain-or-
loss/Working-out-your-net-capital-gain-or-loss/>
Fringe Benefits Tax (FBT). (2018). Recognition of FBT. Retrieved through
<https://www.ato.gov.au/General/Fringe-benefits-tax-(FBT)/#targetText=Employers
%20can%20generally%20claim%20an,%2Dprofit%20organisations%20and%20FBT).>
Income and deductions for business. (2018). Business tax deductions. Retrieved from
<https://www.ato.gov.au/Business/Income-and-deductions-for-business/Deductions/>
Starting your own business. (2018). Partnership. Retrieved through <au/business/starting-
your-own-business/before-you-get-started/choosing-your-business-structure/partnership/>.