Taxation of Partnership Business: The Two B's Partnership Analysis

This report examines the taxation of partnership businesses, focusing on 'The Two B's' partnership. It details the calculation of cost of goods sold, allowable expenses (including depreciation of assets and GST implications), and income tax calculations for individual partners, Mary and Sally Brown. The report analyzes the partnership's income statement, determining net profit before tax and the subsequent division of profits. It then calculates Mary's taxable income, considering various revenue sources and expenses, including salary, dividends, interest, and rental income. The report uses Australian tax brackets to determine Mary's income tax payable, including the medical levy charge and withholding taxes. Finally, it calculates Mary's net tax payable after deductions, including PAYE, withholding tax, and franked dividends, providing a comprehensive overview of the tax obligations for the partnership and its individual members. The report references various academic sources to support its analysis and calculations.

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Taxation Of Partnership Business
Students' Name
Course Title
Instructor’s Name
Institutional Affiliation
City and State
Date of Submission

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The partnership involves doing business with the sole aim of distributing the gain or
losses between the parties. The business nature allows smooth and efficient running of
operations since the control via decision makings as well as gross liability misfortunes are
directly felt by the parties. Most of the operations in a partnership business are mostly guided
by a partnership agreements that stipulates each and every approach to events surrounding the
business.
Partnership businesses basically involve profits and losses hence tasking the venture
to declare tax return. Unlike individual income tax where prescribed tax bracket is outlined
hence creating guaranteed tax obligation, in partnership the latter depends on the performance
and operation of the business
Partnership agreement outlines how loss or gain, expenses or benefits, assets or
liabilities are to be accounted for to the extent of stipulating respective ratios
Pickering(2012.Pg 67). The agreement stands as the constitution and no operations are
expected to contravene anything in the agreement. The Two B’s partnership business in
question just like any other form of the partnership business is seen to be governed by an
agreed document signed by Sally Brown and Mary Brown.
For tax purposes there exist a little bit difference while accounting for a partnership
business this is mostly so since most of the operations controls and respective direct impact is
felt by the partners thus the operations is to some extent not deemed independent
Weichenrieder(2007.Pg 8). A partnership business is not allowed by the law to pay and
report on any tax obligatory on the profits earned instead it tasks individual partners to do so
as the portion of their income Chetty(2009.Pg 40)as they file income tax return. The
individual parties are obliged to pay the partnership profit share as per the available tax tie
brackets in place at the time of reporting.

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Likewise for taxation basis we expect partnership profit and losses to be the one
subjected to tax, it’s there clear that tax burden depends on the declaration hence flexible in
nature thus if the profit is less we expect low capture on tax while when its high the vice
versa takes the stand. The worst of all is when losses are suffered there is no tax that is being
charged.
ATO further expects the partnership business to be filing annual partnership return defining
the income and expenses earned and incurred respectively Abdul-Jabbar(2008.Pg 290).The
partnership is also expected to register and account for goods sales tax if any upon making
sales turnover of $75000 or above. With all these information in mind, we are now
comfortable to compute The Two B’S partnership taxable income and respective individual
tax obligations.
Notes Used In the Statements
A: Calculation of Cost of Sales of Good =Opening Stock=$370000
+
=Purchases = $320000
-
Closing Stock valued at cost =Closing Stock=$490000
COGS=$370000+$320000-$490000=$200000
B: The purchase of the motor vehicle, treadmill and exercise bikes since they are entirely
used for the business purpose they are supposed to be allowed as the expense but ONLY GST
credit should be settled off upon keep of records from the tax payable Halabi(2010.Pg 165).
C: Franking credits on dividend received should like be set off from the tax payable
Franking credits=1/ (0.725/0.275)*10500=1/2.636*10500=3983.3

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Mary P partnership frank dividends credit portion=3983.3/2=1991.6
Mary dividend received frank credit=7000*1/2.636=2660
D: Withholding tax on interest should like-wise be set off thus need to sum up
11250+1250=12500 as interest
E: Calculation of GST on Various Items, Evans(2011.Pg 130)
GST=Amount Before Sales Tax*GST rate
1st July 2016=$65000; GST=65000*10%=650
1st January 2017=$115000=115000*10%=11500
GST for motor vehicle=120000*10%=12000
GST on purchase of trade stocks=320000*10%=32000
All these GST costs have to be settled from the income Palil(2011.Pg 200)
F: PAYE for Mary of 9000 to be settled off
G: To calculate Mary tax payable the Australian tax brackets have to be used as shown
below;
Calculation of income tax for individuals uses the below tax brackets; Saez, (2012 Pg.40)
0-$18,200 - Nil
$18,201-$37,000 - 19c for each $1 over $ 18,200
$37,001-$87,000 - $3,572 plus 32.5c for each $1 over $37,000
$87,001-$180,000 - $19,822 plus 37c for each $1 over $87,000
$180,001 and over - $54,232 plus 45c for each $1 over $180,000
H: Medical Levy Charge=Gross revenue*2%

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Medical Levy For Mary=2%*640946.5 =12818.93
J: Mary’s withholding tax portion =1250/2=625
The Two B’s
Partnership Income Statement
For The Year Ended 30th June 2017
$ $
Revenue;
Gross trading receipts 1900000
Capital Gain on Shares 20000
Cash Dividend Received From BHP 10500
Bank Interest received from China Bank inclusive of WTax (D) 12500
Total Revenue 1943000
Less Cost of Goods Sold (A) (200000)
Gross Profit 1743000
Expenses;
Interest paid on loan of funds by Mary 10000
Salaries Paid To Employees 250000
Rent and power 60000
Marys salary 40000
Superannuation to staff 85500
Superannuation paid on behalf of Mary 25000
Superannuation paid on behalf of Sally 25000
Interest on bank overdrafts 18623
Purchase Of BMW Motor Vehicle GST (E) 12000

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Provision For bad debts 67000
Provision for Long Service Leave 25984
Purchase Of treadmill and exercise bikes GST (E) 18000
GST On Purchases of trade stocks (E) 32000
Total Expenses (649107)
Net Profit before Tax 1093893
This profit is to be shared equally between Mary and Sally in the ratio 1:1
Mary=1093893*50%=546946.5
Sally=1093893*50%=546946.5
Taxable income=Gross income less allowable deductions (expenses relating to the income)
Mary Brown
Statement of Income Tax
For Year End 30th June 2017
$
Revenue;
Dividends received 7000
Share of Partnership profit 546946.5
Gross Salary from part-time lecturing 30000
Salary earned from working at partnership 40000
Gov’t refunds on medical care 2000
Interest on Bank Deposits 5000
Rental Income on Investment 10000
Gross Income 640946.5

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Less Expenses
Travel expense 1200
Rates On Mentioned Invest 2000
Electricity 900
Tax Agent Fee 3000
Interest paid on loan acquire 15000
Printing Cost of Investment 5000
Replacement Cost 1000
Bathroom extension cost 15000
Total Expenses (43100)
Net Taxable Income 597846.5
Mary’s Tax Payable;
The taxable income for Mary is $597846.5
Mary’s income lies between brackets;
$180,001 and over - $54,232 plus 45c for each $1 over $180,000
It is over 180000 by=579846.5-180000=417846.5 from this we assume the over to be
417846.5 hence;
45c for each $1
45/100=0.45
The over is=0.45*417846.5=$188030.925
Tax payable on this, $54,232 plus the $188030.925
Total income tax payable for Mary=$54,232.5+$188030.925=$242263.425
Total Net Tax Payable Income Tax plus Medical Surge Levy Siahpush(2009.Pg 290)
Total Tax Payable=$12818.93+$242263.425=$255082.355

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It should be realized that Marys Total Tax Payable should be subjected to the portion of tax
credits and withholding charges but only to the 50%/50% ration
Mary’s Tax Payable
For Year End June 2017
Total Tax Payable =$255082.355
Less PAYE note F = ($9000)
Withhold Tax Portion on Interest = ($625)
Franked Dividends partners portion = ($1991.7)
Frank dividends Mary received = ($2660)
Total Tax Net Offs = (14276.7)
The Net Tax Payable $240805.655
Mary is therefore expected to file the return of the above tax expected as well as clear the
obligation through payment. It’s further assumed that the other portion of rebates and tax
credits should be settled by Sally as he files the return Grary (2014.Pg 20).

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