Retiring partner's income – is it assessable?

July 2015

Retiring partner taxes

If you or your business partner is thinking about retiring from a partnership, then it is important to understand how any payments for their individual interest is assessable. 

The Australian Tax Commissioner recently confirmed that if a retiring partner receives an amount which represents their individual interest in the net income of the partnership for a tax year, this amount is included in their assessable income, regardless of how the payment is described 

This applies, for example,  if it is called a payment for giving up rights or relating to years of service as a partner), when the retirement occurs or when the payment is made (e.g. even if they retire before it is actually paid).

However, if the payment relates to net income of the partnership which is from sources outside Australia and is attributable to a period when a partner was not a tax resident of Australia, then it would not be assessable.

Any capital gain that might be made by the retiring partner as a result of a CGT event occurring in relation to their interest in the partnership should be reduced to the extent that an amount has already been assessable (e.g., it represents an interest in the net income of the partnership).

It's worth discussing how your retirement from any partnership will affect your tax position with your accountant. Contact us on 02 9957 4033 for more information

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This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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