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James Millar
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Shonit, post: 265843, member: 22849 wrote:
Hi all,

I have been a partner in a business for 18 months (and worked there for 3 years overall), and something has just come to light that I would appreciate any thoughts on. I have spoken to my accountant and am waiting to hear from my lawyer.

Previous to me buying 50% into the business, the previous owner was acting as a sole trader under a company with no discretionary trusts. He had been, for the prior 10+ years, been paying his wife a salary of $30k/pa for 40 hours a week (he says for book keeping). However, we also have our actual bookkeeper on our books being paid $30k a year as well.

My accountant said strictly speaking this is not legal BUT “everyone does it” and the ATO won’t be too worried.

However, this seems bizarre to me, as I would think this is tax evasion. Does anyone have any thoughts on the legality of this, regardless that ‘everyone does it’?

Lastly, my lawyer so far has said I am not liable for anything as a new entity was created. However, if my current business partner is found to be ‘guilty’ of tax evasion, there are repercussions on our shareholders agreement.

Thanks for your time.

Shon

Hi Shon

1. You mixed up a range of entity terminology which makes it difficult to determine what exposure you may have for the conduct of others. You use the word “partner” but I suspect you don’t operate with a partnership structure. Basically, provided the entity that you have a stake in has not engaged in these practices then you should be safe. His old entities that you do not have a stake in are his problem.

2. If a spouse is being paid by the business for bookkeeping and has no skills in this area AND the business is simultaneously paying an equally large amount for a professional bookkeeper to provide those services then I think the ATO position would be obvious. The facts don’t seem to support the claim.

Helping build better businesses and better lives with expert financial and taxation advice. [email protected] www.360partners.com.au 03 9005 4900