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1.1.1.4. Partnership

Partnerships are regulated under separate laws enacted by each state or territory of Australia, which spell out the responsibilities of partners to each other and to other persons with whom they deal. In all these cases, the general common law principles regarding partnerships continue to apply except to the extent specifically provided for under the applicable law.

The partnership laws all recognize the essential nature of a partnership as being a binding contractual relationship between persons (who may be natural or legal persons) carrying on a business jointly for the purpose of realizing profits.

For tax purposes, a partnership is defined as:

  • an association of persons (other than a company or a limited partnership) carrying on business as partners or in receipt of ordinary income or statutory income jointly; or
  • a limited partnership (ITAA 1997 s 995-1).

Partnerships are of three main types: a normal partnership, limited partnership or incorporated limited partnership, with differences in various aspects of the partnership relationship depending on the type. For example, under the New South Wales Partnership Act of 1892, a limited partnership must have at least one general partner and a maximum of 20 general partners. It must also have at least one limited partner, whose liability to contribute to the liabilities of the partnership is limited to a prescribed amount.

In the case of a general partnership, the Commissioner of the Australian Tax Office has indicated that for purposes of determining whether persons are carrying on a business as partners in a tax year, a number of factors will be considered. These include the intention of the parties and their conduct. In relation to conduct, consideration will be given to factors such as the joint ownership of business assets, registration of a business name, joint business account and the power to operate it, how far the parties are involved in conducting the business, their entitlements to a share of the net profits from the business, their business records and public recognition of the partnership.