Home – New Forums Money matters Soler Trader to Partnership

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  • #977806
    Captain Scarlet
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    I’ve been running my online business as a sole trader for 8 months. It bringing in money which I declare on top of my day salary.

    My wife has started to do a lot more work for me on the marketing side, support to customers and answering enquiries about our software.

    So, I feel that given she is doing half of the work, then we should set up a partnership. Can I convert to a partnership now? It seems the right thing to do.

    Another advantage is that my wife is in a lot smaller tax bracket than me, so given her the money and it being taxed at her rate instead of being taxed at my rate and then giving it to her seems much more prudent.

    Thanks

    #1101666
    TehCamel
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    i suspect, and I could be wrong, that as a partnership, you can’t just declare all the income going to her.

    You may be better off creating a trust structure… the trustee can then decide to distribute the income however seems most appropriate.

    (Seek proper financial advice..)

    #1101740
    TehCamel
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    i suspect, and I could be wrong, that as a partnership, you can’t just declare all the income going to her.

    You may be better off creating a trust structure… the trustee can then decide to distribute the income however seems most appropriate.

    (Seek proper financial advice..)

    #1101668
    Captain Scarlet
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    Thanks TehCamel. I was thinking of distributing 50% to her as she does half the work (not all of it). My only concern with trusts is the cost.

    #1101742
    Captain Scarlet
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    Thanks TehCamel. I was thinking of distributing 50% to her as she does half the work (not all of it). My only concern with trusts is the cost.

    #1101670
    ray_223
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    Hi Captain,

    Yes you can do this.

    In “theory” you will need a partnership agreement and also minuted partnership meetings.
    Your wife will need to buy say 50% of the business from you (my wife paid me $1 – not sure if I ever got it now I think about it!!!!).

    You will also need a new ABN and make sure to update any bank accounts that may be in your name to the partnership name.

    It is best to see an accountant to make sure you don’t miss anything.

    #1101744
    ray_223
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    Hi Captain,

    Yes you can do this.

    In “theory” you will need a partnership agreement and also minuted partnership meetings.
    Your wife will need to buy say 50% of the business from you (my wife paid me $1 – not sure if I ever got it now I think about it!!!!).

    You will also need a new ABN and make sure to update any bank accounts that may be in your name to the partnership name.

    It is best to see an accountant to make sure you don’t miss anything.

    #1101672
    Captain Scarlet
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    Hi Ray,

    Great. That is what I was hoping to hear. I will see an accountant, but I wanted to prepare some research first so I go in at least knowing something. My main concern I guess was that I am a sole trader now and if it was possible to change the business structure. The business was only setup as a bit of extra cash and now it is earning a reasonable income, and so I think it is time to rethink the way I have set it up.

    #1101746
    Captain Scarlet
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    Hi Ray,

    Great. That is what I was hoping to hear. I will see an accountant, but I wanted to prepare some research first so I go in at least knowing something. My main concern I guess was that I am a sole trader now and if it was possible to change the business structure. The business was only setup as a bit of extra cash and now it is earning a reasonable income, and so I think it is time to rethink the way I have set it up.

    #1101674
    Normanby
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    While a trust structure can be costly, there can be great tax savings if you have kids, especially if they’re over 18 and not earning much.
    Also, if there’s any likelihoodd of ever being sued, sole traders and partnerships have little protection against this. You need the “corporate veil”.
    Matt
    http://www.NoHassleAccounting.com.au

    #1101748
    Normanby
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    While a trust structure can be costly, there can be great tax savings if you have kids, especially if they’re over 18 and not earning much.
    Also, if there’s any likelihoodd of ever being sued, sole traders and partnerships have little protection against this. You need the “corporate veil”.
    Matt
    http://www.NoHassleAccounting.com.au

    #1101676
    ray_223
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    Normanby, post: 113935 wrote:
    Also, if there’s any likelihoodd of ever being sued, sole traders and partnerships have little protection against this. You need the “corporate veil”.

    Hi Matt,

    I agree with this comment, and add …

    If there is the possibility of being sued – then make sure you have the “relevant” insurance.

    #1101750
    ray_223
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    Normanby, post: 113935 wrote:
    Also, if there’s any likelihoodd of ever being sued, sole traders and partnerships have little protection against this. You need the “corporate veil”.

    Hi Matt,

    I agree with this comment, and add …

    If there is the possibility of being sued – then make sure you have the “relevant” insurance.

    #1101678
    MattR
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    Hi

    Yes you can transfer the business from sole trader to partnership, but this may trigger a capital gain (if the business is worth something you have just shifted half the value to someone else) – you may be able to access the small business CGT concessions. I don’t think there is CGT rollover relief from sole trader to a partnership. Value shifting thresholds may also be used.

    As noted above the partnership does not offer any more asset protection. In fact its now worse;
    – assuming you own property with your spouse (partner) then as you are now both partners in the business, then ALL of your joint assets are now at risk, not just your 50%.

    Since the CGT rollover relief is not available for sole trader to p/ship, but other concessions may be, I would consider the opportunity to use a trust to do what you want with respect to tax plannning, but also for asset protection.

    NOTE: Part IVA of the Tax Act (the big stick) will attack any scheme where the “dominant” purpose of the scheme is to reduce tax.

    #1101752
    MattR
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    Hi

    Yes you can transfer the business from sole trader to partnership, but this may trigger a capital gain (if the business is worth something you have just shifted half the value to someone else) – you may be able to access the small business CGT concessions. I don’t think there is CGT rollover relief from sole trader to a partnership. Value shifting thresholds may also be used.

    As noted above the partnership does not offer any more asset protection. In fact its now worse;
    – assuming you own property with your spouse (partner) then as you are now both partners in the business, then ALL of your joint assets are now at risk, not just your 50%.

    Since the CGT rollover relief is not available for sole trader to p/ship, but other concessions may be, I would consider the opportunity to use a trust to do what you want with respect to tax plannning, but also for asset protection.

    NOTE: Part IVA of the Tax Act (the big stick) will attack any scheme where the “dominant” purpose of the scheme is to reduce tax.

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