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  • #988404
    peasonearth
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    I have been doing some research and whilst I appreciate this area is quite ‘grey’, as I understand, as a general rule when you are a sole trader, you need to earn around $20,000 annually to be considered a business and therefore claim business expenses.

    Does this general income level increase if you register as a partnership?

    I am starting a produce business and know I can earn the $20,000 in the one financial year. I have a business partner that, whilst they will become more involved in the future years, will not be contributing much to the income earned in the first year of business. I cannot see them being able to earn another $20,000 for the business, but perhaps around $2000-$5000.

    We will have an agreement drawn up for the first year so everything is transparent and understood, but I need to understand any differences in this choice financially so I can decide whether it is better to start as a sole trader and change to a partnership as business picks up.

    I cannot find this sort of information on line anywhere, the ATO and ABN websites are not helpful in this area.

    Thanks!

    #1166996
    Dave Gillen – Former FS Concierge
    Keymaster
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    Hi there,

    Welcome to the forums!

    I don’t believe that you need to be earning $20k to be considered a business. If your business is registered and operational and you want it to be considered a business for tax purposes, then it will be.

    But keep in mind that if only earning $20k you’ll be paying very little tax anyway, so there won’t be a lot to claim back.

    I’m not a tax expert though, so if an accountant drops in with something different, please take their advice instead of mine. ;)

    Dave

    #1166997
    rpryer
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    peasonearth, post: 193440 wrote:
    I have been doing some research and whilst I appreciate this area is quite ‘grey’, as I understand, as a general rule when you are a sole trader, you need to earn around $20,000 annually to be considered a business and therefore claim business expenses.

    Does this general income level increase if you register as a partnership?

    I am starting a produce business and know I can earn the $20,000 in the one financial year. I have a business partner that, whilst they will become more involved in the future years, will not be contributing much to the income earned in the first year of business. I cannot see them being able to earn another $20,000 for the business, but perhaps around $2000-$5000.

    We will have an agreement drawn up for the first year so everything is transparent and understood, but I need to understand any differences in this choice financially so I can decide whether it is better to start as a sole trader and change to a partnership as business picks up.

    I cannot find this sort of information on line anywhere, the ATO and ABN websites are not helpful in this area.

    Thanks!

    Where did you get the $10,000 figure from?

    If you are running a business (as opposed to a hobby, for example) then you can deduct the related expenses. The ATO’s definitive guidance as to whether you are in business is contained is the ruling http://law.ato.gov.au/atolaw/view.htm?DocID=MXR/MT20061/NAT/ATO/00001

    #1166998
    NickKaro
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    This is a good example of needing to seek professional advice rather than relying on responses online.

    The “ATO’s definitive guidance” relates to an enterprise for ABN entitlement purposes.

    The 20k threshold you are alluding to one of a number of tests within provisions of the tax act which generally apply to limit access to deductions from non-profitable business ventures and these provisions are fairly complex.

    Whether or not you are operating a “business” is a separate question of fact.

    Also, changing structures may result in capital gains tax implications.

    If you have not already, I recommend seeking professional advice with respect to the above.

    Regards
    Nick

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