Question

Julian and Jenna carry on a partnership business and for the income year ended 30 June, the partnership net income was $38,000, as returned by their accountant. However, included in the deductions was a salary of $12,000 paid to Julian’s wife (who is not a business partner). The Commissioner disallows all but $2,000 of this amount.

Required:

a) What authority, if any, does the Commissioner have in disallowing the claim for salary?

b) What course of action, if any, is available to the partners in disputing the assessment?

c) Will Julian’s wife be required to pay tax on $2,000, or $12,000, for the current income year. Why?

d) On what basis should future salary payments be made to Julian’s wife?

Answer 1

Answer-

a) The commissioner has full right to not allow the salary given to wife because salary could have been given with an intention to lower the income and pay less taxes If commissiner do not find any supporting bill he cannot allow salary paid to wife as expenses.

b) partners if have proper documentation or they didn't pay with an intention to avoid taxation and wife is paid on skill she has then partners can take the case to the tribunal.

c) no where in the tax an asses has to pay double tax. All the laws are made to avoid double taxation. Therefore tax has been paid by partners on $10,000 and his wifeincome is considered only $2000. Therefore she has to pay tax on $2000.

d) Wife should be paid on the basis of proper documentation bill should be raised of the services provided by her and she should have knowledge or has been provided those services to others also like lawyer, docter etc. Payment should also be paid what is her fees general for everyone.