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Allowable Deductions for Sole Traders and Partnerships
Last amended: 27 April 2010
This topic provides information on the following:
- allowable deductions for income test and taxation purposes,
- types of allowable business deductions for sole traders and partnerships, and
- non-allowable business deductions for sole traders and partnerships.
This topic should not be used for determining allowable deductions from income from real estate. This is because some deductions only apply to business income and not to income earned from real estate.
Allowable deductions for income test and taxation purposes
Section 46C VEA
According to section 5H of the VEA income is:
- an amount earned, derived or received by a person for the person's own use or benefit;
- a periodical payment by way of gift or allowance; or
- a periodical benefit by way of gift or allowance.
For the purposes of income and assets assessment, a sole trader is a business owned by one person.
- is not a separate legal entity from the owner,
- is not a separate accounting entity, which means that sole traders need ONLY lodge a personal tax return,
- may be run in the owner's name OR under a registered business name, and
- may or may not have employees.
The owner is:
- liable for all the debts of the business, and
- entitled to all the profits of the business.
For the purposes of income and assets assessment, a partnership is the relationship which exists between people carrying on business in common, with a view to making a profit. A partnership agreement may be oral OR written. The business may be run:
- in the owners' name(s), or
- under a registered business name.
The business is not a separate legal entity, which means that although the partnership lodges a tax return, the profit or income is assessable in the hands of the individual partners.
- owns an agreed portion of the business assets,
- receives an agreed portion of the profits, and
- is 'jointly and severally' liable for all business debts.