This document is a service agreement between a partnership and its service trust.

It is common for professional service providers, such as lawyers and accountants who are partners in a professional partnership. to establish service entities (such as a unit or discretionary trust) to provide non-professional external services in return for payment of fees and charges by the partnership.

This precedent is a services agreement that sets out the terms of the arrangement between the service trust entity and the partnership.

What is a service trust?

The service trust typically provides clerical and administrative services, labour hire including professional staff (if permitted by the relevant professional association or regulatory body), recruitment services, premises and plant and equipment to the partnership business.  Usually this is for the purposes of asset or income protection or due to particular professional licensing requirements.

The partnership entity will normally claim a deduction for the fees paid to the service trust, as the expenditure is incurred in the conduct of its business. The service trust will normally derive a profit by on-charging the partnership the costs it has incurred in providing those services plus a margin.

Using this precedent

You should amend definitions to suit the particular arrangement with the service entity and ensure that you make the corresponding amendments in the substantive remuneration clause (clause 4 of the precedent).

The Australian Tax Office has published the following information as guidance on service entity arrangements: “Your Service Entity Arrangements - NAT 13086” (Guidelines) (see www.ato.gov.au). It would also be wise to seek independent tax advice from a qualified tax professional about this type of arrangement.

This document has been authored for LexisNexis by Michael Heraghty, Partner, TressCox Lawyers, Rosemarie Ryan, Barrister and Jacqui L Walker, Principal Lawyer, J L Walker Law.

This document is part of a suite of business structure documents prepared with the assistance of Specialist Editor Stephen Newman, Executive Counsel, Ponte Earle.