Husband & Wife Partnerships

When deciding if persons are carrying on a partnership for tax purpose, the ATO looks at the following:

• Mutual assent and intention of the parties,
• Joint ownership of business assets and bank account,
• Business records,
• Trading in joint names and/or public recognition of the partnership, and
• Extent of involvement of both parties in the conduct of the business.

In a common husband and wife partnership, one of the partner is qualified and produces the partnership income, and the other partner may be providing administration labour to the partnership. The profits from the partnership are normally, split equally between the parties.

The aforementioned structure was reviewed by the ATO in 2005, and was held to be legitimate due to the fact that both partners are exposed to liability for the debts incurred by the partnership, hence likewise should have corresponding share of the rewards.

In this respect, if one of the spouse has low or negligible income, the use of the husband and wife partnership can result in substantial tax savings.

The only drawback to the structure is that it can only be used for a tradespeople partnership, and is not recommended to be used by professionals.

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