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General Provisions for Sole Traders and Partnerships
Last amended 25 August 2008
This topic provides information on the following:
- differences between sole traders and partnerships for the purposes of income and assets testing,
- when a pensioner is operating a business, and
- identifying business income.
Assessable income and assets for sole traders and partnerships
Assessable income and assets for sole traders and partnerships are almost identical, except that:
- sole traders receive all of the income from their business, either as wages or profit, and
- partners in a business only receive an agreed portion of the profit from the business, as determined by the partnership agreement.
Operating a business as a sole trader or partnership
The provisions in this topic are only concerned with sole traders and partners who are operating a business. The following table describes when a pensioner is considered to be operating a business.
If the pensioner...
then they are...
is carrying on a trade, occupation or profession as an on-going concern
operating a business.
obtains rent from:
not operating a business, but are obtaining income from a profit making transaction.
The income assessed is the profit from the transaction, after taking into account the expenses incurred in obtaining the income.
Income from a business
Income from a sole trader or partnership business is the net amount:
- after allowable expenses for the cost of running the business, and
- before income tax and other personal deductions.
For assessment purposes the current annual rate of income is used, generally based on the most recent taxation return.
Annual Reviews and Date of Effect
Income from sole traders and partnerships is usually assessed annually, when income tax returns or completed financial statements are provided to the Department, with the date of effect of a pension reassessment based on the date this evidence of earnings is received.
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.
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.
An asset means any property, including property outside Australia.
Profit, for a business, is the amount of earnings in excess of its expenses over 12 months.