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Join Date: Aug 2009
Thanked 8 Times in 8 Posts
| | Re: Partnership Drawings or Salary
Drawing a salary from a partnership is a complex area of tax, as though you may declare it as a salary, current tax law will added it back to final partnership profits and then distribute profits based on partnership agreement.
It is important that the partners salary is documented in a contractual agreement before end of income year in question. As if the partners salary results in a loss for the partnership this loss will be scaled back, and the partners salary will be taken to be an advance on future profits.
For example lets take your $500 a week = $26,000 a year. Lets also assume the partnership after allowing for your salary makes a loss ($36,000)
Partnership Loss after salary $(36,000)
addback Bec's Salary $26,000
Partnership Taxable Loss ($10,000)
Though the partnership has a loss of $36,000 after Becs salary, the losses are limited to $10,000 under tax law, so $5000 each and the $26,000 you have taken as salary will be seen as an advance on future profits from a tax
I hope I have not confused you. Please let me know
The advice above is general in nature and should not be taken as professional advice. It is recommended you seek a professional for such advice