Partnerships are relatively simple to setup and cheap the operate but differ from Sole Traders in that a partnership will have its own Tax File Number and all partners of the business are responsible and liable for the decisions of the business. The income and responsibility will be divided amongst the partners, and each will be taxed at their individual tax rate according to their share of the partnership. Legally, this means that a partnership is recognised as the same entity as the group of partners who would be liable for any debt or obligations the business incurs. Whilst this is still a very flexible structure with simple reporting requirements like a Sole Trader, it enables you to team up with friends or family to start a business together and share in its successes (as well as losses).
What will be very useful for this structure is a partnership agreement stipulating the exact roles and ownership of each partner to avoid any major headaches later! Partnerships are ideal for starting a business that might need a little more capital and a team to start with; like opening an art agency with a group of artists or a plumbing service with a team of plumbers! Key features: Income, losses, and control of the business are shared among the partners The partnership has its own TFN and must lodge an annual partnership return showing all Income and deductions of the business The partnership doesn't pay income tax on the profit it earns – each partner reports their share of the partnership income in their own tax return Each partner pays tax on their share of the partnership profit at the individual tax rate and may be eligible for the small business tax offset The partnership must apply for an ABN and use it for all business dealings The partnership must be registered for GST if its annual GST turnover is $75,000 or more. As a partner you can't claim deductions for money drawn from the business. Amounts you take from a partnership are not wages for tax purposes