Question

Steve and his cousin Alex started an equal partnership business, Euca sanitizer, motivated by the increase in the recent demand for hand sanitizer during the COVID -19 pandemic. Steve lives in Sydney and is an Australian resident for tax purpose. Alex however, is resident of New Zealand and is foreign resident for tax purpose in Australia. On 30 June 2020, Euca Sanitizers partnership net income is $300,000, 60% of the income is generated from selling hand sanitizer to Australian retailers and 40% comes outside Australia form sale of hand sanitizer to New Zealand retailers.

Required:

With reference to relevant provision of ITAA 97/ITAA36, discuss how the partnership income is taxed.

Answer 1

A partnership is not liable for taxes in Australia as it is not a tax entity. Partners share income is subjected to taxability in their hand.

A partnership asset is owned by the partners in proportion of agreed ratio. Share of the capital gains relating to CGT events occurring for partnership assets must be disclosed on the partner’s tax return.

A partner who is not a resident of Australia is not taxed on the share of net income of the partnership attributable to sources outside Australia.

In the given case, Steve shall be liable to offer his entire share of income i.e. $150,000 as taxable whereas Alex shall be liable to offer only share in income generated by Partnership from Australia i.e. 300,000*60%/2= $90,000.