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Changes happen in businesses all the time, and that applies to partnerships as much as other types of business. One of the partners might die or retire, or a new partner might need to be added to the business structure. To do this you can use what the Australian Tax Office (ATO) calls a reconstituted partnership.

If you don't go through this process, there is more administration work to change the structures of a partnership. You have to get a new tax file number, and a new goods and services tax number. You also have to file two tax returns - one up to the point of dissolution, and one from the start of the new partnership arrangement to the end of the tax year.

Using a reconstituted partnership process avoids much of this administration and makes it easier to make changes. The tax authorities made these changes because they recognised that there was no real dissolution when a change of partnership takes place in most situations. The business continues to trade, so things like getting new tax file numbers don't make sense. In addition, you only have to file one tax return, and you don't need a new goods and services tax registration.

When Can You Use A Reconstituted Partnership?

You have to meet a number of basic tests before you can use the rules under reconstituted partnerships to make changes to the structure of your business:

  1. It has to be a general law partnership, not a tax law partnership
  2. At least one of the partners must be involved in both the old and new arrangements
  3. There must be no break in the trade of the business - this means continuous trading without any changes of asset ownership, name of business, customer base, or business sector.

There is no period where only one partner exists - the exception to this is when one of the partners dies

Steps To Take

To become a reconstituted partnership you have to do two main things:

  • Notify the ATO and apply for the continued use of your tax file number
  • Lodge a tax return

In both of these situations you need to supply a number of things. Firstly, you have to notify the ATO of the change in structure within 28 days of it happening. You have to make a clear statement of what has taken place, including the date of the change. You must also include the names, addresses and dates of birth of everyone involved - old, continuing and new partners. And you must show that the new arrangement meets the criteria outlined above.

When you submit your tax return at the end of the financial year you have to supply similar information. It must also include details of monies paid to all partners throughout the year, including those who are no longer with the company.

Only one tax return is required, though, covering the full financial year period.

So there is some additional work and communication with the ATO required to become a reconstituted partnership, but it is much less onerous than the alternative.



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When the time comes that you're ready for retirement, there are a number of different options for exiting your business. Often the way in which you exit your business will depend upon the business structure and whether or not your input is a crucial element in the continued operation of the business.

The following are just some of the possible business exit scenarios that you may consider:

Succession and passing your business along to family members - This may seem like a simple choice, but in fact handing a business over to a family member or your children can be more complicated than it seems. To manage this effectively, you need to seek assistance in determining how much of your capital will remain with the business, you must put an effective tax management strategy in place and you must determine if you will hand over some or all of your control of the business. You may wish to retain some control through a company and shareholding structure, or you may wish to set up a family trust to manage the transition of the business and the control of the company.

Winding up your business - Often this is a logical choice if the enterprise relies heavily upon your individual labour or output (eg. If you're a tradesperson) and there is no family member to succeed you or no interest from a potential buyer. The key issues that need to be addressed in this scenario are that any monies owed are paid and any capital is obtained from business assets. Money realised from assets will be a part of your retirement income and it is worth seeking advice from an expert to ensure you minimise any tax owing, while retaining as much as possible for your retirement.

Selling the business to a third party - When you sell a business to a third party, you should seek assistance to ensure you preserve any monetary gains and minimise your tax bill. This will ensure you have more money going into your retirement income or available for investment in other income generating opportunities.

Selling to co-owners or business partners - If you've established a successful business with other parties, then the sale of your portion of the business to those third parties may be the logical choice. You may wish to make arrangements for your portion of the business to be transferred to other stakeholders and include this in the partnership agreements you have in place. Seeking advice on how to construct an agreement that is acceptable and beneficial for all parties can be the best way to manage this, thereby ensuring that everyone's interests are protected by the agreement.

Other options are also open to business owners and these can be explored if they are more suitable for your particular business. When you make plans for a pending retirement or exiting your business, the right advice can be essential to ensure that you've covered all the necessary arrangements.

If you'd like to find out more about exiting your business, then I can discuss this with you and help you make suitable plans for your retirement. Please arrange a consultation to discuss and assess your business exit needs.