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  • #967269
    BrightBiz
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    Hi Everyone,

    Life is crazy here right now, my husband is opening a store in partnership with his current boss.
    They are opening a new premises, and they will be 50/50 partners.
    My husband will be working in and managing the store, and the other partner is I guess almost just a silent partner who takes his share of profit (once it becomes profitable of course) :)

    They are setting up as a partnership, with a partnership agreement we are having drawn up by a solicitor (wasn’t my preferred option but how it’s going ahead!)

    So I had envisaged that hubby would be paid a wage as an employee of the business as he’ll be the only one working there until it’s profitable enough to add other staff.

    I am Just filling out their ABN form for them and came to the question about employees and estimated PAYG liability and his partner just said there will be no employees as they are both partners, that makes sense to a degree but I want to make sure everything is above board and hubby is protected for the work he will do.

    So can someone get my head around how the tax setup works if my husband is paid only as a partner, as I thought he would need to be “employed” by the shop for all the in house work he does and the eventual profit of the business will be split 50/50 will be worked out seperately.

    Before we file the ABN I want to make sure I have understanding of the PAYG and employment details first.

    Thanks for any insight you can offer.

    #1025068
    CruzAccountant
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    The profits in a partnership are distributed equally as “distributions” – ie not technically a “partner’s salary”. You need to be mindful of overdrawing funds in a partnership, and the ATO’s view on that.

    Both partners also need to formally agree if one partner will be drawing out more from the partnership.

    Technically, the partner is not an employee of the partnership.

    Let me know if I can help.

    Richard

    #1025069
    BrightBiz
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    Ok, so to make it a little bit easier to understand the setup,

    The business is a hairdressing Salon, to begin with, my husband will be the sole worker in the business, the other person won’t be physically working in the business, but as far as ownership of the business they are equal partners.

    So should the financial agreement in return for my husbands physical hours he is working in the shop be worked out that my husband is paid $xxx amount per week as partner and then a 50% share of profits if there are any after expenses etc?

    When we spoke to the solicitor, I had just assumed he would become an employee of the business and his normal wage would be a business expense, as well as that he would be a financial partner, so that is wrong then and he can’t be and isn’t an employee?

    Wow, more confusing than I thought. Are my questions making any sense, I’m not sure how else to word them.

    The reason I am asking here is because the accountants that will be handling this business are the same accountants that also run the other partners current business (where my husband has been an employee) He and his wife run that business as partners, so I just need to know for our own security exactly how these things normally work, thanks :)

    #1025070
    James Millar
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    Just to add to that.

    The way it typically works is that the partnership agreement will provide for a notional salary to the active partners (which can change from time to time). The salary is notional in that there is no employment relationship between a partner and themselves – it is purely an accounting adjustment pre the standard ownership distribution calculation. This allows for a 50% partner to actually receive more or less of the pre distribution profits in any given year whilst still maintaining a 50% partnership interest.

    If you are going down the partnership route I’d highly recommend speaking to your lawyers about a partnership of trusts rather than a conventional partnership of individuals.

    Helping build better businesses and better lives with expert financial and taxation advice. [email protected] www.360partners.com.au 03 9005 4900
    #1025071
    James Millar
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    BrightBiz, post: 29671 wrote:
    So should the financial agreement in return for my husbands physical hours he is working in the shop be worked out that my husband is paid $xxx amount per week as partner and then a 50% share of profits if there are any after expenses etc?

    Yes. Your husbands notional salary is calculated as a pre distribution item (eventhough it will not appear in the standard profit and loss statement).

    Helping build better businesses and better lives with expert financial and taxation advice. [email protected] www.360partners.com.au 03 9005 4900
    #1025072
    BrightBiz
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    Oh BOY!!!

    Do I have some things to get my head around!!

    Thank you so much everyone for your information.

    Believe me when I say that I preferred and wanted to use trusts as that had been recommended to me previously, but it hasn’t ended up going that way, so I am just getting my head around the entire partnership setup.

    I guess we need to sit down with the Accountant to figure this stuff out, is it viable to have our own accountant as part of a partnership? Or will it all be handled by their current accountant? I am just very wary of making this water tight and fair for all concerned.

    #1025073
    CruzAccountant
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    • Total posts: 195
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    There is usually one accountant handling the partnership business, but that doesn’t stop you from seeking independent advice from another accountant and to have that accountant looking after your personal tax matters / returns.

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