the reasoning seems to be that partners derive their share of profits on 30

The reasoning seems to be that partners derive their

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arrangement must be in place before the end of the income year. the reasoning seems to be that partners derive their share of profits on 30 June (when accounts should have been taken): Case W79 89 ATC 705. an arrangement entered into after 30 June is considered an attempt to redistribute the partnership income after derivation (i.e. application of profits). accordingly, the other terms regarding profit distributions will apply for that year (e.g. profits shared 50-50) Observation: it also seems that changing the partner salary from year-to-year does not trigger a 20
new partnership coming into existence. the qualification seems to be that the salary must bear some relationship to the value of services the partner provides to the partnership: Case W79 89 ATC 705 6.3.2 Interest Earned on Capital Account (Current Account) of Partner Beville situation: does not give rise to income to the partner, and does not give rise to a deduction to partnership The reasoning is same as immediately below (Sub-Part 3.1.2) 6.3.3 Interest Charged to Partner on (Overdrawn) Capital Account (Current Account) Beville situation: does not give rise to a deduction to partner, and does not give rise to income to partnership Reasoning : These types of clauses in partnership agreements adjust each partner’s interest in the profits (and presumably in losses); they act as a qualification on the normal or prima facie profit sharing ratios (e.g. Janice is entitled to 40% of profits and Bonnie 60%). The reasoning seems to be that a partnership is not a separate legal entity from the persons comprising it (i.e. one cannot make money from yourself or incur expenses to yourself) Sounds good, but the court did not actually suggest how it adjusts the prima facie profit sharing ratios. Consider this for a suggested approach though: Interest Charged on Capital/Current Accounts of Partners, and Interest Accruing on Capital/Current Accounts of Partners: Suggestion on How to Vary the Prima Facie Profit Entitlements of Partners (i.e. Suggested Application of Principle in Beville’s case ) It will be recalled that the High Court (Taylor J) held that the charging of interest on a partner’s current account did not give rise to income for the partnership. Rather, the charging of interest to the partner operated to qualify the prima facie profit allocation amongst the partners under the profit distribution clause in the partnership agreement. Taylor J also noted that credits to partners’ current account would not give rise to a business outgoing to the partnership. While Taylor J was dealing with the tax position of the partnership, the charging of interest to a partner’s current account, or the crediting of interest to a partner’s current account (i.e. other side of “transaction”), would also not give rise to deductions or income to the partner. The question that remains unaddressed by the High Court is, how does the interest accrued to, and charged to, partners vary the prima facie profit allocation? Broadly, this comes down to the intent of the parties (i.e. partners). In most cases however, bald interest figures accrued on,

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