Business Partnerships in Australia (2026): How to Set One Up, How It's Taxed and What Each Partner Risks

A partnership is the simplest way for two or more people to run a business together in Australia. There's no company to incorporate and no annual ASIC fee, but there's also no shield between the business's debts and each partner's house. This guide is for friends, spouses, family members and colleagues thinking about going into business together — a café, a trade business, a farm, a small professional practice. It covers how partnerships are formed and registered, how they're taxed, what each partner is liable for, what a good partnership agreement says, what happens when a partner leaves, and worked tax examples at 2026–27 rates.

Quick answer

A partnership in Australia is two or more people carrying on a business together and sharing the profit or loss. It needs its own ABN and TFN, lodges an annual partnership tax return but pays no income tax itself — each partner is taxed on their share at their own rates. General partners have unlimited, joint liability for the partnership's debts.

• ABN is free; business name A$47 for 1 year if you don't trade under your own names

• Register for GST at A$75,000 turnover

• No written agreement? Profits and losses are shared equally

• Partners aren't employees — 'salaries' are profit allocations

• Each partner can claim the small business income tax offset on their share

What a partnership is under Australian law

Each state and territory has its own Partnership Act — for example the Partnership Act 1892 in New South Wales and the Partnership Act 1958 in Victoria. They define a partnership in similar terms: the relationship between people carrying on a business in common with a view to profit. That definition matters because a partnership can exist without anyone signing anything. Two people who buy a food van together, share the takings and make joint decisions are probably partners already, with all the legal consequences, whether or not they've applied for an ABN.

A general partnership isn't a separate legal entity. The business, its contracts and its debts belong to the partners together. That's the key difference from a company, which is a separate legal person that can own assets and owe money in its own name. The partners are also each other's agents: each partner acts on behalf of the others, so a partner acting in the usual way of the business can bind the firm and all the other partners, even if the others didn't agree to that particular deal.

There are three types you'll see:

Almost all small business partnerships are general partnerships. Limited partnerships are mainly investment vehicles, and they need at least one general partner with unlimited liability. They also have a different tax profile: most limited partnerships are treated as companies for income tax ("corporate limited partnerships"), so profits are taxed at company rates rather than flowing through to the partners. Venture capital partnerships registered under the federal VCLP regime are the main exception.

There's also a size cap. Section 115 of the Corporations Act 2001 stops partnerships above a set number of members from carrying on business unless they incorporate; legal guides put the general limit at 20 partners, with higher limits for professional partnerships such as accountants, lawyers and medical practices. If you plan a large firm, check the current Corporations Act and regulations with a lawyer.

How to set up and register a partnership

Registration is mostly a tax and naming exercise. Expect the whole process to take an afternoon if every partner has their tax file number and identity details ready.

Setting up a general partnership

1. 1

   Agree the deal and put it in writing

   Settle profit shares, capital contributions, who does what, how decisions are made and how a partner leaves. Have a lawyer review the agreement before everyone signs.

2. 2

   Apply for the partnership ABN and TFN

   Use the Business Registration Service. You'll enter each partner's details (name, TFN, date of birth, address). The ABN is free; the partnership TFN is applied for in the same process.

   ABN registration guide
3. 3

   Register a business name if you need one

   If you trade as anything other than the partners' own names — say 'Northside Coffee' rather than 'S Chen & R Patel' — register the name with ASIC: A$47 for 1 year or A$108 for 3 years.

4. 4

   Register for GST and PAYG withholding as needed

   GST is compulsory once GST turnover reaches A$75,000. If you'll employ staff, register for PAYG withholding and set up Single Touch Payroll and super.

5. 5

   Open a partnership bank account and set up books

   Keep partnership money separate from each partner's personal money. Record each partner's capital contributions and drawings from day one.

A partnership ABN is separate from any ABN a partner holds as a sole trader. If Sarah already invoices as a sole trader bookkeeper, that stays her own business; the café she runs with Raj is the partnership's business under its own ABN. Mixing the two is a common source of confusion at tax time. Our ABN vs ACN guide explains why a partnership has an ABN but never an ACN.

Licences are separate again. Food businesses need council registration, trades need state licences, and some licences must be held by each partner individually. The government's ABLIS service lists the licences for your industry and location.

Keep the ABN details current. Changes to partners, addresses or contact details must be notified within 28 days. The Registrar can also cancel a partnership ABN that hasn't lodged a tax return or activity statement for 2 years, which catches partnerships that stopped trading but never formally wound up.

How partnerships are taxed

The partnership itself lodges an annual partnership tax return showing all of its income, its deductions and how the net income or loss is distributed between the partners. It doesn't pay income tax. Each partner includes their share in their own tax return, adds it to their other income and pays tax at their own marginal rates, as covered in our sole trader tax rates guide. If you lodge without a registered tax agent, the partnership return and the partners' returns are generally due by 31 October.

Some obligations do sit with the partnership as an entity. It registers for and pays GST, withholds PAYG from employees' wages, pays super guarantee for employees and reports through Single Touch Payroll. It may also lodge activity statements for those items. What it doesn't do is pay income tax or PAYG instalments; partners pay their own instalments based on their share of partnership income.

Partners can't be employees of their own partnership. Money each partner takes out during the year — drawings — isn't a wage and isn't deductible. Many agreements include a "partner salary" to reward the partner who works more hours, but tax-wise that's an agreed first slice of the profit, not an expense. The partnership doesn't withhold tax from it and doesn't pay super guarantee on it. Partners are responsible for their own super, and they can usually claim a personal deduction for contributions after lodging a notice of intent with their fund.

Each partner's share of net small business income qualifies for the small business income tax offset of 16%, capped at A$1,000 per partner, if the partnership's aggregated turnover is under A$5 million. Two partners can therefore receive up to A$2,000 between them, where a sole trader would get A$1,000.

Losses flow through too. If the partnership makes a loss, each partner's share can reduce their other income — but only if the partner passes the non-commercial loss rules, which require income for those purposes under A$250,000 and one of the tests, such as the business having assessable income of at least A$20,000. Otherwise the partner's share of the loss is deferred.

Worked example: splitting profit between partners

Sarah and Raj run a café as equal partners with no other income. In 2026–27 the café's net income is A$140,000 after all expenses, including wages for their two employees.

A$140,000 café profit in 2026–27

	Equal partners (each)	Partners combined	One sole trader instead
Taxable income	A$70,000	A$140,000	A$140,000
Income tax	A$11,520	A$23,040	A$32,870
Small business offset	− A$1,000	− A$2,000	− A$1,000
Medicare levy (2%)	A$1,400	A$2,800	A$2,800
Total tax	A$11,920	A$23,840	A$34,670

Taxable income

Equal partners (each)

A$70,000

Partners combined

A$140,000

One sole trader instead

A$140,000

Income tax

Equal partners (each)

A$11,520

Partners combined

A$23,040

One sole trader instead

A$32,870

Small business offset

Equal partners (each)

− A$1,000

Partners combined

− A$2,000

One sole trader instead

− A$1,000

Medicare levy (2%)

Equal partners (each)

A$1,400

Partners combined

A$2,800

One sole trader instead

A$2,800

Total tax

Equal partners (each)

A$11,920

Partners combined

A$23,840

One sole trader instead

A$34,670

Each partner's A$70,000 share attracts A$4,020 plus 30% of A$25,000, or A$11,520. Their incomes are above the A$66,667 point where the low income tax offset runs out, so it's nil. Each gets the full A$1,000 small business offset and pays A$1,400 Medicare levy, for A$11,920 each and A$23,840 together. If the same café were one person's business, that person would pay A$34,670, because more of the profit would fall in the 37% band and only one small business offset would apply. The A$10,830 difference is the effect of two people's tax-free thresholds and lower brackets.

That saving only exists if the partnership is genuine. Now suppose their agreement gives Sarah, who works full-time, a A$30,000 "partner salary" and splits the remaining A$110,000 60/40. Sarah's share is A$96,000 and Raj's A$44,000. Sarah pays A$19,320 tax, less A$1,000 offset, plus A$1,920 levy: A$20,240. Raj pays A$3,870, less a A$375 low income tax offset and a A$619 small business offset, plus A$880 levy: A$3,756. Together that's A$23,996 — slightly more than the equal split, because more profit sits in Sarah's 30% band. The partnership deducts none of the A$30,000.

The ATO looks closely at partnerships whose main purpose seems to be moving income to a lower-earning spouse. Income that is really one person's personal services — a consultant's fees, a contractor's labour — can't be split by putting it through a partnership. And a partnership needs substance: both partners should contribute capital, skill or work, share decisions, be named on the business's contracts and bank account, and carry the risk.

Liability: what each partner risks

Liability is the biggest drawback. In a general partnership every partner has unlimited liability for the debts and obligations of the partnership. If the café's lease, supplier accounts or a court judgment can't be paid from partnership assets, creditors can pursue the partners' personal assets — savings, cars, homes.

Partners are generally jointly liable for the firm's debts, and liable for wrongs committed by another partner acting in the ordinary course of the business. A creditor doesn't have to chase each partner for a proportionate share; it can sue whichever partner has the assets for the whole amount, leaving that partner to recover a contribution from the others. One partner signing a five-year equipment lease in the firm's name can bind everyone.

There are ways to manage the risk short of incorporating. Insurance — public liability, professional indemnity, product liability, business interruption — covers many of the claims that sink small partnerships. The agreement can limit which partners may sign contracts above a set value. Personal assets can be held outside the partnership, though transfers made to defeat creditors can be reversed in bankruptcy. And partners can choose a different structure: some use a partnership of family trusts or companies, which moves the unlimited liability to entities rather than individuals, at extra cost and complexity.

Retiring doesn't automatically end your exposure. A retiring partner remains liable for debts incurred while they were a partner, and can be liable for later debts to people who dealt with the firm and weren't told about the retirement. Notify suppliers, banks and customers in writing, update the ABN and business name records, and get a written release or indemnity from the continuing partners.

What a partnership agreement should cover

A written agreement isn't compulsory, but running a partnership without one means the state Partnership Act fills the gaps. The most important default is money: without an agreement the ATO treats partnership income and losses as shared equally, regardless of who contributed more capital or worked more hours. The Acts' other default terms — on management, pay for work and ending the partnership — are rarely what busy partners would choose either, which is why lawyers recommend writing your own.

Clauses to include in a partnership agreement

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• Partners' names and the business's name, ABN and purpose
• Capital contributed by each partner, and whether it earns interest
• Profit and loss shares, any partner salaries, and when profits are paid out
• Who makes which decisions, and limits on signing contracts or borrowing
• Hours and duties of each partner, leave and illness
• Admitting new partners and a continuity clause for when a partner leaves
• Valuing and buying out a departing or deceased partner's share
• Restraints on competing after leaving, and confidentiality
• Dispute resolution — mediation before court
• How the partnership ends and assets are distributed

Share Print

The continuity clause has a direct tax benefit. When the partners change, the ATO will generally treat the business as a reconstituted continuing partnership — same ABN, same TFN, one return for the year — only if the original agreement provided for a change in membership, at least one partner is common before and after, there's no break in the business, its assets stay with the continuing partnership, and there's never a period with only one partner. Without that clause, a change of partner usually means a new ABN, a new TFN and two part-year returns.

Buy-sell terms are the other clause people regret leaving out. If a partner dies or becomes incapacitated, the others need a way to value the share and fund the purchase, often through life and TPD insurance owned under a buy-sell agreement. Without it, the remaining partners can end up in business with a deceased partner's estate.

When partners change or the partnership ends

Under partnership law, any change in membership dissolves the old partnership. What matters for tax is whether it's a technical dissolution — the continuing partners take over the assets and liabilities and carry on without an apparent break — or more than that.

For a technical dissolution that meets the ATO's conditions, a partner or authorised contact must tell the ATO within 28 days to keep using the partnership's TFN, and the reconstituted partnership doesn't need a new GST registration. Where the change amounts to winding up and forming a new firm, the new partnership needs its own TFN and ABN. The old partnership lodges a return from 1 July to the date of dissolution and the new one lodges from its start to 30 June.

A partner leaves — what happens to the ABN and TFN

Step 1

Partner leaves or joins

Step 2

Continuity clause + no break in business?

Step 3

Yes: reconstituted partnership

Keep ABN and TFN; tell the ATO within 28 days

Step 4

No: new partnership

New ABN and TFN; two part-year returns

A departing partner may also make a capital gain on their interest in the partnership's assets, including goodwill. Since the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, the 50% CGT discount for individuals, trusts and partnerships is replaced by cost base indexation and a 30% minimum tax for gains accruing from 1 July 2027; gains accrued before that keep the discount. The small business CGT concessions can still reduce or eliminate the gain on active business assets — see our small business CGT concessions guide.

To close the partnership completely, pay or settle its debts, sell or distribute the assets as the agreement says, lodge a final partnership return marked as the final return, cancel GST and other registrations, and cancel the ABN. Our cancel an ABN guide lists the steps.

Partnership or company?

Many two-person businesses start as partnerships and later incorporate. The usual triggers are liability (a big lease, staff, risky work), profit (when it regularly exceeds what the partners need to live on, so keeping some in a company taxed at 25% becomes attractive) and outside investment. A company costs A$636 to register and A$342 a year in ASIC fees, and its directors take on legal duties. Moving the business later usually involves transferring assets and contracts, new registrations and possibly CGT rollover relief.

Our business structures guide compares partnerships with sole traders, companies and trusts in one table, with A$ examples and the switching costs. If you're still at the starting line, our ABN registration guide walks through the application and our business name guide covers the ASIC step.

Official links

• business.gov.au — PartnershipTypes, liability, agreements
• ATO — Business structures: key tax obligationsPartnership tax obligations
• ATO — Changing the makeup of a partnershipReconstitution, new ABN and TFN
• Business Registration ServiceApply for the partnership ABN, TFN, GST and business name
• ASIC — Register a business nameFees and steps

Next steps

Before you register, sit down together and agree the numbers: who puts in what, how profit is split, and what happens if one of you wants out. Put it in a written agreement with a continuity clause and have it reviewed. Then apply for the ABN and TFN, register the name, and run your expected profit through the break-even calculator so both partners know how much the business has to earn before anyone gets paid.

This is general information, not legal or tax advice — confirm on the official source or with a professional.

Frequently asked questions

How do I register a partnership in Australia?

There's no separate partnership registry for an ordinary general partnership. You apply for a partnership ABN (which is free) and a partnership tax file number through the Business Registration Service, giving each partner's details. Then register a business name with ASIC if you'll trade under a name other than the partners' own names, register for GST if turnover will reach A$75,000, and sign a written partnership agreement.

Does a partnership pay tax in Australia?

No. A partnership lodges its own annual partnership tax return showing its income, deductions and how the net income or loss is split, but it doesn't pay income tax. Each partner includes their share in their own return and pays tax at their own rates. The partnership does pay GST, PAYG withholding for employees and super for employees, because those are its own obligations.

Are partners personally liable for partnership debts?

Yes, in a general partnership. Every partner has unlimited liability for the partnership's debts and obligations, and partners are generally jointly liable — a creditor can pursue any partner for the whole debt, including one caused by another partner acting in the ordinary course of the business. Only limited partners in a registered limited partnership have liability capped at what they contributed.

Do we need a written partnership agreement?

It isn't required by law: a partnership can exist simply because two or more people carry on a business together with a view to profit. But without an agreement, the state Partnership Act's default rules apply — including equal sharing of profits and losses — and the ATO also treats income and losses as split equally. A written agreement sets out contributions, profit shares, decision-making, exits and disputes.

What happens when a partner leaves or joins?

Legally the old partnership is dissolved. If the business continues without a break and the agreement has a continuity clause, the ATO can treat it as a reconstituted partnership that keeps its ABN and TFN — you must tell the ATO within 28 days. If it's more than a technical dissolution, the new partnership needs a new ABN and TFN, and both lodge part-year returns.

Can a partner be paid a salary?

Not as an employee. Partners aren't employees of their own partnership, so a 'partner salary' is really an agreed allocation of profit, not a deductible wage, and the partnership doesn't pay super guarantee on it. Money partners withdraw during the year (drawings) isn't deductible either. Each partner is taxed on their share of net income, whatever they actually withdrew.

Sources & verification

Figures on this page were checked against the sources below when it was last reviewed on 11 October 2026. Each rate and limit is stored once with its own official source and review date, and official update channels are monitored daily so changes are picked up. How we verify

1. 1.Partnership — business.gov.au · accessed 11 October 2026
2. 2.Business structures – key tax obligations — Australian Taxation Office · accessed 11 October 2026
3. 3.Changing the makeup of a partnership — Australian Taxation Office · accessed 11 October 2026
4. 4.Small business income tax offset — Australian Taxation Office · accessed 11 October 2026
5. 5.Tax rates – Australian resident — Australian Taxation Office · accessed 11 October 2026
6. 6.Fees for commonly lodged documents — ASIC · accessed 11 October 2026
7. 7.What is the maximum number of partners a partnership can have? — Lawpath · accessed 11 October 2026