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Changing the makeup of a partnership

Find out about changing the makeup of a partnership.

Last updated 11 July 2023

If the composition of your partnership changes – for example, a partner retires or dies, or a new partner is admitted – the partnership is dissolved and a new partnership is formed.

If the changes in composition amount to:

  • a technical dissolution of the partnership only, the partnership may be able to continue as a reconstituted partnership
  • more than a technical dissolution of the partnership, leading to the winding up of the partnership, a new partnership is formed.

GSTR 2003/13Goods and Services Tax Ruling for general law partnerships

Creating a new partnership

The new partnership needs:

  • a new TFN
  • ABN.

Both partnerships will need to lodge a separate partnership tax return.

  • Lodge one tax return for the old partnership from the beginning of the income year to the date of its dissolution.
  • Lodge another tax return for the new partnership from the date of its formation to the end of the income year.

Reconstituted partnership

A dissolution that does not result in the winding up of a partnership is called a technical dissolution and occurs where:

  • the assets and liabilities of the partnership are taken over by the continuing partners (and any new partners)
  • the partnership business is continued without any apparent break.

The reconstituted partnership does not need a new TFN and ABN, and only one partnership tax return is required covering the full income year.

The reconstituted partnership does not need a new GST registration (where the partnership was already required to register).

Reconstituted continuing entity

Generally, we will treat a changed partnership as a reconstituted continuing entity if the original partnership agreement included a provision for a change in membership or shares and the following apply:

  • the partnership is a general law partnership
  • at least one of the partners is common to the partnership before and after reconstitution
  • the partnership agreement includes an express or implied continuity clause
  • there is no break in the continuity of the enterprise or firm – the partnership's assets remain with the continuing partnership and there are no changes to  
    • the nature of the business
    • the customer or customer base
    • the business name or name of the firm
     
  • there is no period where there is only one partner – in a two-person partnership, there is a direct transfer of interest from the outgoing partner to a new partner.

A two-person partnership can be reconstituted. This may occur where a partner dies, and the partnership agreement allows for continuity of the partnership with the executor, trustee or beneficiary of the deceased partner's estate.

Procedures for the continued use of the partnership's TFN

To apply for continued use of the partnership's TFN, a partner, or an authorised contact (who states they are authorised to notify us of the changes) must inform us within 28 days of the change of registration.

You can phone us to speak with a customer service representative or write to:

Australian Taxation Office
PO Box 3373
PENRITH  NSW  2740

You must supply the following information:

  • a clear statement by an authorised continuing partner that all new, continuing and retiring partners agree to the continuity and reconstitution of the partnership
  • the date of the reconstitution
  • the names of the new, continuing and retiring partners
  • the TFN or address and date of birth of all new partners
  • any changes to persons authorised to act on behalf of the partnership
  • a statement that
    • the partnership is a general law partnership
    • at least one of the partners is common to the partnership before and after reconstitution
    • there is no period where there is only one 'partner' (that is, in a two-person partnership, there is a direct transfer of interest)
    • the partnership agreement contains a continuity clause, or in the absence of a written partnership agreement, the conduct of partners is consistent with continuity
    • there is no break in the continuance of the enterprise.
     

Lodging the tax return

At the end of the financial year, a reconstituted continuing partnership needs to lodge only one partnership tax return covering the full financial year. The tax return must include the distributions made to every person who was a partner at any time during the financial year, including those who left the partnership during the year.

When lodging the partnership tax return, you need to supply the following details on a schedule of additional information:

  • the date of dissolution
  • the date of the reconstitution
  • the names of the new, continuing and retiring partners
  • the TFN or address and date of birth of all new partners
  • details of the changes, if the persons authorised to act on behalf of the partnership have changed.

Other legal obligations

We have made this concession for ease of administration, but it does not change any legal obligations which may exist, including compliance with:

  • appropriate accounting standards (the International Financial Reporting Standards)
  • appropriate income tax requirements of the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997
  • the requirements of the relevant state partnership Act.

QC40493