Posted: August 14th, 2016

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Shortly after he retired in November 2009, Paul Martyn decided to set up a coffee retail shop in leased premises close to the Camberwell where he lived. The main products sold were coffee, tea, machines, tea and drinks. To keep things simple, Paul elected to conduct the business in his own name as a sole proprietor. Because there had been an excess of commercial property at the time, Paul was offered a lease incentive of $19,000 by the landlord when the lease was being negotiated. Paul was obliged to be registered for GST.

Paul determined, at the time of the business s commencement, that his gross annual sales would be approximately $170,000 growing by 5 percent per annum for the first five years. At the end of the first financial year of trading he had $28,000 of stock on hand and trade debtors amounting to $5,700.

Although several items of equipment were purchased for the business, most cost less than $1,000 inclusive of GST. The business also purchased fixtures and fittings which were installed in the customer area and manager s office. Computer software was acquired to keep accounting records and prepare BAS documentation. Paul also used his private motor vehicle for business purposes with a 60 percent taxable usage.

In January 2010 Paul invited Angela to be a partner in the business. After receiving advice from her accountant, she accepted the offer and the necessary legal documentation was prepared. The partnership commenced on 1 March 2010. It was agreed that profits and losses would be shared on an equal basis. Each partner would receive interest on the capital invested at a rate of 5 percent per annum. They would also receive an agreed salary although Paul s figure would be higher than for Angela reflecting the longer weekly hours he worked in the business. To help finance business expansion, Paul also lent $69,000 to the partnership at a market rate of interest. Legal expenses incurred in regard to the loan amounted to $600. On the advice of the partnership s accountant, the business also contributes $500 per month to superannuation for each partner.