Partner in a partnership – using the small business entity test

A partner can't be a small business entity. It's the partnership that must satisfy the small business entity test to qualify as a small business entity. The aggregated turnover of the partnership must be below the relevant threshold to access a particular concession.

If the partnership is a small business entity, a partner may be eligible for the small business CGT concessions for:

• their interest in a partnership asset, or
• an asset they own that is not a partnership asset but is used in the business of the partnership.

In both cases the partner is not required to be connected with the partnership.

This is different to the approach used in the maximum net asset value test. For that test, it's the individual partners in the partnership that determine their eligibility, not the partnership.

Partnership assets

An asset is a partnership asset if the partners own the asset in line with their respective interests as specified in the partnership agreement.

You're eligible for the concessions if:

• the asset is your interest in a partnership asset
• that partnership is a small business entity, and
• the asset meets the active asset test.

Partner’s assets

You're eligible for the concessions for a CGT asset you own (that is not an interest in a partnership asset) when the following conditions are satisfied:

• you are a partner in a partnership in the income year in which the CGT event happens to your CGT asset
• the partnership uses the asset at a time in the income year in carrying on the partnership business, and is a small business entity for that income year
• the only business you carry on is as a partner in a partnership, and
• the asset meets the active asset test.

There's a special rule for calculating the aggregated turnover of the partnership in cases where a partner's asset is being used in the business carried on by the partnership.

An entity that is your affiliate, or connected with you, is deemed to be an affiliate of, or connected with the partnership that uses the asset. In calculating the aggregated turnover of the partnership, the turnover of entities that are deemed to be affiliates or connected entities must be included. The calculation of aggregated turnover is otherwise the same.

There's another special rule for working out aggregated turnover where:

• you are a partner in more than one partnership, and
• the asset is used in more than one partnership’s business.

In this case, each partnership that you're a partner in, and that uses the asset, is treated as being connected with the partnership for the purpose of working out whether it's a small business entity (the test entity). When working out the aggregated turnover of the test partnership, the turnover of any other partnerships that are deemed to be connected must be included.

Next steps:

• Choosing and applying the concessions

See also:

• Calculate your aggregated turnover
• Affiliates
• Connected entities