Legal Definitions - family-partnership rules

Definition: Family-partnership rules are laws or regulations that aim to prevent the transfer of income between partners, particularly family members, who may not be conducting business at an arm's length.

Examples:

• A father and son own a business together. The father decides to transfer a large portion of the business's profits to his son's personal bank account, even though the son did not contribute significantly to the business's success. This would be a violation of family-partnership rules.
• A husband and wife own a rental property together. The husband decides to charge his wife a significantly lower rent than what he charges other tenants. This would also be a violation of family-partnership rules.

These examples illustrate how family-partnership rules aim to prevent partners, particularly family members, from transferring income or assets in a way that is not at arm's length. This means that the transfer should be made as if the two parties were unrelated and conducting business with each other in a fair and equitable manner.