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Partnerships: Commissioner loses Part IVA Case
Pyramid Selling Schemes
Reasonable Allowance Limits 2003/04
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Partnerships: Commissioner loses Part IVA Case
The AAT decided last year that Part IVA did not apply to a husband and wife partnership, and therefore no tax shortfall penalties should be imposed.

The taxpayer carried on an engineering consultancy business in partnership with his wife.  The Commissioner, however, formed the view that the partnership was a tax avoidance scheme and sought to impose penalties for the shortfall of tax.

Days before the hearing, however, it was discovered that state legislation prohibits engineers from entering into partnerships with persons who are not engineers.

As a result, the taxpayer withdrew his claim that he was in partnership with his wife and instead claimed a deduction for wages paid to her.  The AAT allowed the deduction, noting that the taxpayer?s wife did in fact make a significant contribution to the business.

In relation to the tax shortfall penalties, the AAT was satisfied that the taxpayer?s entering into a partnership with his wife was more a statement about their relationship as ?life partners? rather than about obtaining a tax advantage.  Therefore, the partnership between the taxpayer and his wife did not amount to a scheme under Part IVA and no tax shortfall penalties were applicable.

Tip: For income tax purposes, a partnership exists where two or more persons are in receipt of income jointly. Where this is the case a partnership exists even when no written agreement has been entered into.   


27th-February-2004