The impact for partnerships and sole traders

Last updated: 
23 January 2020

This page explains how your involvement in a partnership or as a sole trader may affect your rate of income support pension or payment under the income and assets tests.

What is a partnership?

A partnership is where two or more people own a business in common, with the aim of making a profit.

A partnership will have the following characteristics:

  • the business may run in the owners’ names or under a registered business name;
  • although the partnership lodges a tax return, the profit or income is assessable in the hands of the individual partners;
  • each partner owns a specific portion of the business assets and receives a specific portion of the profits;
  • each partner is liable for all business debts; and
  • a partnership agreement may be oral or written.

Who is a sole trader?

A sole trader is self-employed, operating a farming enterprise or working independently being contracted for a particular service when, where, how and for whom the person chooses.

A sole trader arrangement will have the following characteristics:

  • the business may be run in the owner’s name or under a registered business name;
  • sole traders need only lodge a personal tax return;
  • the owner is responsible for all the debts of the business;
  • the owner is entitled to all the profits from the business; and
  • the business may or may not have employees.

How does your business affect your pension or payment?

The amount of income support pension or payment you receive depends on your income and assets. Your pension or payment is calculated under two separate tests, the income test and the assets test. The test paying the lower rate of pension or payment is the one that is applied.

What is income?

For partnerships the assessable income is your share as a partner of the gross income of the partnership, less the allowable deductions.

The assessable income for sole traders is the total gross income of the business, less any allowable deductions.

Losses and outgoings of the business may be allowable deductions from income if they relate to the business and are allowable deductions under specific sections of taxation legislation. If you incur expenses through combined business and personal activities, only those expenses that are associated with the business are deductible. For example, if you operate your business from your principal place of residence, deductions for rates and electricity only apply to the proportion that is used for the business.

What if your business runs at a loss?

If after allowable deductions are taken into account, your business runs at a loss, no amount for your business is included as income under the income test. When your total income is calculated under the income test, the loss from your business is not deducted from your other income.

A business loss from a previous year is not allowed as a deduction from profit made in a subsequent year.

What is the asset value of your business?

The asset value of your partnership or sole trader business includes the current market value of property or leasehold of the property and all assets used in connection with the business such as buildings, plant machinery and stock. Goodwill may also be counted as an asset. If there is a charge or encumbrance in relation to your business, the asset value of the business may be reduced.

If your business is operated from your principal place of residence, the part of the residence used for the business can be counted as an asset.

If you are a partner in a business, the proportion of partnership assets that you own determines your share of the asset value.

Information about your business

Each year you need to provide information to DVA that allows us to work out the income of the business and the asset value of the business. The primary sources of information are:

  • tax return and assessment notice;
  • profit and loss statement;
  • balance sheet; and
  • depreciation schedule.

In certain cases a valuation of business assets may be done by an independent valuer.

Work Bonus

Work Bonus allows veterans with a small business to have some of their income from their business excluded from the income test for pension purposes.

A "Personal Exertion" test will apply to ensure the Pension Work Bonus is only available to self-employed people who rean income from active participation in the workforce. The Work Bonus will not apply to income earned through business structures that are associated with a return on financial or real estate investments. 

Obligations

When you are granted an income support pension or payment and periodically after that, you will be notified of your obligations. Unless otherwise advised in writing, you will be required to tell us within 14 days (28 days if you live overseas or receive remote area allowance) of changes to your circumstances that might affect the rate of income support pension or payment you receive or your eligibility to receive that pension or payment. These obligations apply equally to trustees.

In relation to your business, the sorts of things you would need to tell us about are as follows:

  • you start a business;
  • you sell, transfer or close down a business;
  • you join a business; or
  • there is any significant change in your business.

Usually an overpayment of pension or payment will not occur when you have met your obligations. However, sometimes even if you have met your obligations, an overpayment can occur because we have not been able to process the change before the next payday. We do our best to prevent this occurring, but it is not always possible. To provide you with your exact entitlement we are obliged to recover overpayments of pension or payment where they do occur.