Income Tax Assessment Act 1997



Division 106 - Entity making the gain or loss  

Subdivision 106-A - Partnerships  

SECTION 106-5   Partnerships  

Any *capital gain or *capital loss from a *CGT event happening in relation to a partnership or one of its *CGT assets is made by the partners individually.

Each partner ' s gain or loss is calculated by reference to the partnership agreement, or partnership law if there is no agreement.

Example 1:

A partnership creates contractual rights in another entity (CGT event D1). Each partner ' s capital gain or loss is calculated by allocating an appropriate share of the capital proceeds from the event and the incidental costs that relate to the event (according to the partnership agreement, or partnership law if there is no agreement).

Example 2:

Helen and Clare set up a business in partnership. Helen contributes a block of land to the partnership capital. Their partnership agreement recognises that Helen has a 75% interest in the land and Clare 25%. The agreement is silent as to their interests in other assets and profit sharing.

When the land is sold, Helen ' s capital gain or loss will be determined on the basis of her 75% interest. For other partnership assets, Helen ' s gain or loss will be determined on the basis of her 50% interest (under the relevant Partnership Act).

Each partner has a separate *cost base and *reduced cost base for the partner ' s interest in each *CGT asset of the partnership.

If a partner leaves a partnership, a remaining partner *acquires a separate *CGT asset to the extent that the remaining partner acquires a share of the departing partner ' s interest in a partnership asset.


The remaining partners would not be affected if the departing partner sells its interests to an entity that was not a partner.


(Indexation is ignored for the purpose of this example).

John, Wil and Patricia form a partnership (in equal shares).

John contributes a building (which is a pre-20 September 1985 asset) having a market value of $200,000. Wil and Patricia contribute $200,000 each in cash.

The partnership buys another asset for $400,000.

John is taken to have disposed of 2/3 of his interest in the building (1/3 to Wil and 1/3 to Patricia). His remaining 1/3 share in the building remains a pre-CGT asset. The 1/3 shares that Wil and Patricia acquire are post-CGT assets.

Wil retires from the partnership when the partnership assets have a market value of $1,200,000 ($500,000 for the building and $700,000 for the other asset). John and Patricia pay Wil $400,000 for his interest in the partnership.

Wil has a capital gain of $100,000 on the building and $100,000 on the other asset. John and Patricia each acquire an additional 1/6 interest in the partnership assets. These additional interests are separate assets and post-CGT assets.

If a new partner is admitted to a partnership:

(a) the new partner *acquires a share (according to the partnership agreement, or partnership law if there is no agreement) of each partnership asset; and

(b) the existing partners are treated as having *disposed of part of their interest in each partnership asset to the extent that the new partner has acquired it.


(Indexation is ignored for the purpose of this example).

Lyn and Barry form a partnership, each contributing $15,000 to its capital. The partnership buys land for $30,000.

The land increases in value to $300,000.

Andrew is admitted as an equal partner, paying Lyn and Barry $50,000 each to acquire a 1/3 share in the land. His cost base is $100,000.

Lyn and Barry have each disposed of 1/3 of their interest in the land. Each has a cost base for that interest of $5,000, and capital proceeds of $50,000, leaving them with a capital gain of $45,000 each on Andrew ' s admission to the partnership.

The land is sold for its market value.

Andrew has no capital gain on the land.

Lyn and Barry have disposed of their remaining 2/3 original interest in the land for capital proceeds of $100,000, leaving each of them with a capital gain of:

$100,000   −   ($15,000   −   $5,000)   =   $90,000

(Repealed by No 119 of 2002)

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