A general partnership is not recognized as a taxable entity. Thus, each partner is subject to tax on his share of the partnership’s income or commercial loss for the year based on the partners’ respective interests in the partnership. The tax is levied at the specific rate(s) applicable to the partner concerned.
For tax compliance purposes, the partnership must submit a tax return showing the total income derived by the partnership and the deductions it is claiming (both of which are to be determined as if the partnership were an Australian resident taxpayer), along with each partner’s share in the net income of the partnership for the tax year. For this reason, a partnership must be registered with the tax authorities.
Limited partnerships are generally taxed in the same manner as companies, subject to a restriction on the ability of the partners to utilize losses incurred by the partnership.
In principle, the beneficiaries of the trust are taxed on their share of the trust’s net income or capital gains, irrespective of whether they have in fact received it. However, trust losses may not be distributed to beneficiaries but carried forward for set off against trust income in subsequent years.
In some cases, the trustee is subject to tax on behalf of the beneficiary, including:
- where no beneficiary is specifically or presently entitled to the trust’s income or capital gains;
- where the beneficiary, though presently entitled, may not receive the amount for some other legal reason (e.g. infancy); or
- where the beneficiary is a non-resident.
As in the case of a partnership, a trust must be registered with the tax authority and must submit an annual income tax return. The trustee is responsible for fulfilling these obligations, as well as paying any tax on the assessed income of the trust.
Additional requirements apply in the case of closely-held trusts, including withholding tax obligations in respect of beneficiaries who have not supplied their tax file number to the trust, additional reporting obligations in respect of the present entitlement of its beneficiaries to trust income, and a special trustee beneficiary non-disclosure tax that is payable where the trustee does not file a correct trustee beneficiary statement.
Unit trusts are generally treated in the same manner for tax purposes as discretionary trusts, with a number of exceptions.
In particular, public trading trusts are accorded the same tax treatment as companies, with distributions to unit holders being treated in the same manner as a distribution of corporate profits (i.e. as dividends). The determination of whether a unit trust is a public trust is made with reference to a number of criteria, including whether its units are quoted on the stock exchange or offered to the public, or whether the number of its unit holders is at least 50. Prescribed holdings of certain special entities, including tax exempt entities and special investment vehicles, in the property or income of the trust may also qualify the trust as a public trust.
A joint venture has no tax responsibilities, and its participants are taxed separately on their income from the venture. However, if the terms of the venture qualify it as a partnership, it will be treated as such, and subject to the same income tax obligations applicable to a partnership (see above).