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Income Tax Act 2007

Taxation of certain entities - Joint venturers, partners, and partnerships

HG 4: Disposal upon final dissolution

You could also call this:

"Selling your share of a partnership when it ends"

When a partnership is finally dissolved, you are treated as selling all your interests in the partnership to someone else, and then buying them back. This happens immediately before and after the dissolution. The price you sell and buy them for is the market value of your interests. You do not have to consider anything you receive when the partnership is finally dissolved. This rule does not apply if you sell your interests to people you do not work with, or if you and your partner are married, in a civil union, or in a de facto relationship, and the dissolution is because one of you died, or you are settling your relationship property, and all your interests are transferred to your partner, and this transfer is treated as a disposal under subpart FB or FC. If you are in a limited partnership, the market value of your interest must take into account any credit impairment adjustments when you are the debtor in a financial arrangement.

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Part HTaxation of certain entities
Joint venturers, partners, and partnerships

HG 4Disposal upon final dissolution

  1. This section applies when a partnership is finally dissolved by agreement of the partners, court order, or otherwise, and the partnership's business ignoring section HG 2 will not continue to be carried on in partnership.

  2. A partner of the partnership is treated as disposing of all of their partner's interests in the partnership, immediately before the dissolution, to a single third party for a payment equal to the interests' market value. The partner is treated as re-acquiring all of their partner's interests immediately after the dissolution, from the third party for a payment equal to the interests' market value.

  3. Anything received by a partner in relation to the final dissolution of the partnership is ignored.

  4. This section does not apply to the extent to which a partner of the partnership disposes of their partner's interests in the partnership to persons who are not associated with them. For the purposes of testing association, the partner's partnership capacity is ignored.

  5. This section does not apply if—

  6. immediately before the dissolution, there are only 2 partners of the partnership and they are married to each other, in a civil union together, or in a de facto relationship together; and
    1. the dissolution is caused by death of a partner, or the dissolution relates to the settlement of relationship property; and
      1. on dissolution, all partner's interests of 1 person are transferred, ignoring any intervening transfer to an executor or administrator, to the other person; and
        1. the transfers of those partner's interests are subject to provisions in subpart FB or FC (which relate to transfers of relationship property and gifts), and those provisions treat the transfers as disposals for amounts that are not the interests' market values.

          1. Repealed

          2. In this section, in relation to a limited partnership, the market value of a partner’s interest in a financial arrangement as debtor must take into account the amount of any adjustment for credit impairment.

          Notes
          • Section HG 4: substituted (with effect on 1 April 2008), on , by section 270(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
          • Section HG 4(4): amended (with effect on 1 April 2008), on , by section 100(1) (and see section 100(2) for application) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
          • Section HG 4(6) heading: repealed (with effect on 1 April 2008), on , pursuant to section 77(1) (and see section 77(3) for application) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
          • Section HG 4(6): repealed (with effect on 1 April 2008), on , by section 77(1) (and see section 77(3) for application) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
          • Section HG 4(7) heading: inserted, on (with effect on 1 April 2011 and applying for income years beginning on or after that date), by section 122(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
          • Section HG 4(7): inserted, on (with effect on 1 April 2011 and applying for income years beginning on or after that date), by section 122(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
          • Section HG 4 list of defined terms financial arrangement: inserted, on (with effect on 1 April 2011), by section 122(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
          • Section HG 4 list of defined terms limited partnership: inserted, on , by section 77(2) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).