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DC 3B: Payments to working owners
or “Rules for claiming deductions on payments to owners who work for their company”
You could also call this:

“How partners can claim deductions for payments to working partners”

If you’re a partner in a business partnership, you can get some money back for payments made to another partner who does work for the business. This is called a deduction. But there are some rules you need to follow.

The partner who does the work must be doing jobs that are needed to run the business. They need to do these jobs while they have an agreement to work for the partnership.

This rule doesn’t apply if your partnership mainly deals with money, shares, or land.

You can only get money back for the amount that’s in the work agreement, including any bonus payments.

There’s another rule that might change this if the payment is too high for a family member. You can find this rule in section GB 23.

The work agreement needs to be very clear. It must say what work the partner will do, how much they’ll get paid, and all the partners must agree to it. The agreement also needs to be written down.

Remember, this rule helps you get a deduction, but there are still other general rules that apply.

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Next up: DC 5: Payments to spouses, civil union partners, or de facto partners: services

or “Approval needed for deducting payments to partners for business-related services”
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Part D Deductions
Employee or contractor expenditure

DC 4Payments to working partners

  1. A person who is a partner in a partnership is allowed a deduction for their share of a payment made under a contract of service to a partner who personally and actively performs duties that—

  2. are required to be performed in carrying on the business of the partnership; and
    1. are performed by the partner during the currency of the contract of service.

      1. This section does not apply to a partnership that is engaged wholly or mainly in investing money or in holding, or dealing in, shares, securities, investments, or estates or interests in land.

      2. The amount of the deduction is limited to the amount of the payment authorised by the contract of service and any bonus, whether or not the payment of a bonus is authorised by the contract.

      3. This section is overridden by section GB 23 (Excessive remuneration to relatives).

      4. In this section, contract of service, for a partner and a partnership, means an agreement that—

      5. specifies the terms and conditions of the services to be performed by the partner; and
        1. specifies the amount payable to the partner for the performance of the services; and
          1. is entered into by all the partners in the partnership; and
            1. is in writing.

              1. This section supplements the general permission. The general limitations still apply.

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