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Summary of Assessable Income for Sole Traders and Partnerships

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Last updated 22 December 2010

Assessable income

The following table summarises the assessable income, and its treatment, for pensioners from a sole trader's business or a partnership.

Income Source

Treatment

Sole Traders and Partnerships

Rent paid by a business to a pensioner

Add it to assessable net profit and assess as income on an annual basis. It can be offset against the pensioner's share of the business loss.

Capital gain or loss on disposal of depreciated assets distributed via the business structure's profit and loss statement

Do not include when calculating the current rate of assessable income for the business unless it is part of the normal activity of the business.

Capital gain or loss on disposal of assets not depreciated and distributed via the business structure's profit and loss statement (not including managed investments and shares) from business assets

Do not include when calculating the current rate of assessable income for the business unless it is part of the normal activity of the business.

Example: property developers make their income from capital gain so would have capital gains included in their assessment.

Capital gain or loss from managed investments and shares

The net amount must be included as assessable income.

Capital gain or loss on the sale or winding up of a business

Do not include in the income assessment as the gain or loss is not directly related to the normal activity of the business.

Loan interest paid by the business to the owner

If it is listed as an expense on the profit/loss statement it is allowed as a deduction against business income. No deeming applies. The amount received by the owner, however, is added to the adjusted net business profit. It can be offset against a business loss.

Income Source

Treatment

Sole Traders and Partnerships

Loan interest paid by the business to a third party who is not the owner

Allowed as a deduction if it is listed as an expense on the profit/loss statement. If the payments are made to a pensioner who does not own the business, the amount received is disregarded as income, and deeming is applied to the investment.

Petty cash and financial investments used as part of the on-going operations of the business

Actual income is included as part of the business profit, and no deeming applies. Deductions for investment expenses claimed on the profit/loss statement are allowed.

Financial investments not used as part of the operations of the business

  • Take them out of the business financial statements and assess them as the financial investments of the investment owners.

Income equalisation deposits, farm management deposits, farm management bonds    

  • Hold actual income earned.  (This will show on the Income Tax Return.)
  • No deduction is allowed for investment expenses.

Income Source

Treatment

Sole Traders only

Business net profit

Hold it as assessable income on an annual basis after making adjustments for non-allowable expenses.

Salary to pensioner from business

Add it to assessable net profit and assess it as income on an annual basis. It can be offset against the pensioner's share of the business loss.

Income Source

Treatment

Partnerships only

Partner's share of profit

Hold it as assessable income on an annual basis after making adjustments for non-allowable expenses.

Salary from partnership

Add it to assessable net profit and assess it as income on an annual basis. It can be offset against the pensioner's share of the partnership loss.

Date of effect

The date of effect policy for sole trader and partnership income, where annual reviews are undertaken following the receipt of an income tax return or completed financial statements.     


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.

Each partner:

  •       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.

Profit, for a business, is the amount of earnings in excess of its expenses over 12 months.

An asset means any property, including property outside Australia.