A partnership tax return reports the income and deductions of a business run by two or more partners, and shows how the net income or loss is split between them. The partnership itself doesn’t pay income tax. Each partner declares their share in their own return and pays tax on it.
That share is taxed whether or not the partner actually took the money out. Profit left in the business account for equipment or next quarter’s bills still counts.
Below we cover who has to lodge, the 2025-26 due dates, how profit is split, what changed on the form this year, and a worked example.
Key takeaways
- A partnership lodges its own return but doesn’t pay income tax. The partners pay tax on their shares.
- Partners declare their share of net income even if they didn’t withdraw it.
- Without a written agreement, income and losses are split equally.
- A “salary” paid to a partner isn’t a deductible wage. It’s a share of the profit.
- If you lodge the 2025-26 return yourself, it’s due 31 October 2026. A registered tax agent may have a later date.
What does a partnership tax return cover at a glance?
| Question | Short answer |
|---|---|
| Who pays the tax? | Each partner, on their share of net income, in their own return |
| Who lodges? | The partnership, through a resident partner |
| Self-lodgement due date (2025-26) | 31 October 2026 |
| Lodging through a tax agent | A later date may apply under the agent lodgment program |
| How profit is split | As set out in the partnership agreement, or equally if there isn’t one |
| Partner “salary” | Not deductible to the partnership. It’s a distribution of profit |
| Notice of assessment | The partnership doesn’t get one. Each partner does |
| Jointly owned rental, no business | Generally no partnership tax return. Each owner reports their share |
| Partnership loss | Each individual partner must pass the non-commercial loss rules to offset it |
What is a partnership tax return?
A partnership is two or more people (or entities) carrying on a business together and sharing the income or losses. The ATO treats it as a separate entity for reporting, but not for paying tax.
According to the ATO’s business structures guide, a partnership:
- has its own tax file number
- must apply for an ABN and use it for all business activities
- must register for GST if its GST turnover is $75,000 or more
- lodges an annual partnership tax return showing all business income and deductions, and how the net income or loss is distributed to the partners
- does not pay tax itself
Partners are not employees of the partnership. Money they take out is not wages for tax purposes. If you are setting up a new partnership, our guide to registering an ABN walks through the first step.
Why doesn’t a partnership get a notice of assessment?
Because the partnership isn’t a taxable entity. Its income or loss flows to the partners and is assessed in their own returns, as the ATO explains on its income tax return page. Each partner gets their own notice of assessment.
Who must lodge a partnership tax return?
A partnership that carries on a business must lodge a partnership tax return every year. Under the ATO’s lodgment instrument for the 2026 year, LI 2026/16, the return is lodged by the resident partners. In practice, one resident partner can lodge:
- if all resident partners have equal interests, any one of them
- if two or more share the largest equal interest, any one of those partners
- otherwise, the resident partner with the greatest individual interest in the net income or loss
Do co-owners of a rental property need one?
Generally, no. The ATO’s lodgment program guidance says not to lodge a partnership tax return where individuals only earn income jointly from rent on a jointly owned property, interest on a joint account or dividends on jointly held shares, and they are not carrying on a business. Each owner reports their share in their own return.
Two siblings who run a plumbing business together are different. They are carrying on a business, so a partnership tax return is needed.
Watch out: partner “salaries”
Many partnership agreements give a working partner a “salary”. The ATO’s ruling TR 2005/7 says this isn’t a deductible expense of the partnership. It’s a way of sharing the profit, and it can’t create or increase a partnership loss. Don’t put it in wages on the return.
When is the 2025-26 partnership tax return due?
| How you lodge | Due date |
|---|---|
| Self-lodgement | 31 October 2026 |
| Through a registered tax agent | Later date under the agent’s lodgment program, if you are on their list by 31 October 2026 |
| Agent clients with overdue prior-year returns at 30 June 2026 | Generally 31 October 2026 |
| Agent returns due 15 May 2027 | Can be lodged by 5 June 2027 without penalty |
The ATO’s partnership tax return lodgment instructions set the 31 October 2026 self-lodgement date. Under the registered agent lodgment program, the 5 June concession covers individuals, partnerships and trusts with returns due 15 May.
Lodge the partnership tax return early enough for each partner to finish their own return on time. Our tax return deadline guide lists the other key dates.
What changed on the partnership tax return for 2025-26?
- Exploration credits label removed. The ATO’s 2026 form changes summary shows label M (share of exploration credits) has been removed from the statement of distribution at item 54. The statement of distribution itself stays.
- ATO interest charges no longer deductible. General interest charge (GIC) and shortfall interest charge (SIC) incurred on or after 1 July 2025 can’t be claimed. See denying deductions for ATO interest charges.
- $20,000 instant asset write-off. Small businesses with aggregated turnover under $10 million can still immediately deduct eligible assets costing less than $20,000 each for 2025-26. The ATO confirms the $20,000 threshold is now permanent from 1 July 2026.
Before lodging the partnership tax return, check your software is on the 2026 version, move any GIC or SIC out of deductions, and review asset purchases against the write-off rules. For more on concessions, see our small business tax concessions guide.
How is partnership profit split between partners?
Partners share income and losses as set out in their partnership agreement. The agreement doesn’t have to split things equally. If there is no written agreement, the ATO says income and losses are split equally between the partners.
What a partner declares is their share of the partnership’s net income, not the cash they drew. Good bookkeeping keeps drawings, partner salaries and business expenses in separate accounts, which makes the year-end allocation much easier.
Worked example: how much does each partner declare?
The facts
- Mia and Sam run a gardening business in Melbourne’s west as a partnership.
- In 2025-26 the business earns $200,000 of assessable income and has $100,000 of deductible expenses.
- Net income: $200,000 – $100,000 = $100,000.
- During the year Mia withdrew $50,000 and Sam withdrew $20,000. The other $30,000 stayed in the business account.
Option 1: written agreement, 60/40 split
| Partner | Calculation | Share to declare | Cash withdrawn |
|---|---|---|---|
| Mia | $100,000 × 60% | $60,000 | $50,000 |
| Sam | $100,000 × 40% | $40,000 | $20,000 |
| Total | $100,000 | $70,000 |
Option 2: no written agreement, equal split
| Partner | Calculation | Share to declare | Cash withdrawn |
|---|---|---|---|
| Mia | $100,000 × 50% | $50,000 | $50,000 |
| Sam | $100,000 × 50% | $50,000 | $20,000 |
| Total | $100,000 | $70,000 |
The partnership tax return shows net income of $100,000 either way, and the full amount is taxed in the partners’ hands, even though only $70,000 was withdrawn. Under option 2, Sam declares $50,000 despite taking out $20,000.
What if Mia gets a $20,000 “salary”?
Say the agreement gives Mia a $20,000 partner salary, with the rest split equally. The salary isn’t deducted, so net income stays at $100,000. The remaining $80,000 is split $40,000 each. Mia declares $20,000 + $40,000 = $60,000 and Sam declares $40,000. Total: $100,000.
To estimate the tax on a partner’s share alongside their other income, try our tax refund calculator.
Can a partner use a partnership loss?
Not automatically. An individual partner can only offset their share of a business loss against other income if they pass the non-commercial loss rules. They must meet the income requirement (income for these purposes under $250,000) and pass at least one of these tests:
- Assessable income: at least $20,000 from the business
- Profits: a profit in at least 3 of the past 5 years, including the current year
- Real property: at least $500,000 of real property used in the business
- Other assets: at least $100,000 of other assets used in the business
For partnerships, the ATO applies the dollar tests to the whole partnership where all the other partners are individuals. See non-commercial losses for partnerships. If no test is passed and no exception applies, the loss is generally deferred.
What mistakes should partnerships avoid?
- Declaring drawings instead of the share of net income. Tax follows the allocation, not the cash.
- Claiming partner salaries as wages. They are profit distributions, not deductions.
- Lodging a partnership tax return for a jointly owned rental when no business is being carried on.
- Finalising partners’ returns too early. Lock in the partnership figures first.
- Claiming a loss without checking the non-commercial loss rules for each individual partner.
- Rolling over last year’s settings. GIC and SIC are no longer deductible from 1 July 2025.
Tip: GST is a separate test
GST registration depends on GST turnover, not profit. A partnership must register once its GST turnover reaches $75,000, or straight away if it provides taxi or ride-sourcing services, according to the ATO’s GST registration rules. Our GST registration guide explains the steps.
Is a partnership better than a company or trust?
It depends on the business. A partnership is simple and cheap to run, but all the profit is taxed at each partner’s own marginal rate. A company pays tax at the company level and keeps the business separate from its owners, but costs more to set up and run. A trust has its own rules for distributing income.
If you are weighing up a change, read our small business tax guide or look at company registration. Get advice before moving assets or the business between entities, as other taxes such as stamp duty can apply.
FAQ about partnership tax returns
Does a partnership pay income tax in Australia?
No. A partnership lodges its own tax return, but it does not pay income tax. Each partner declares their share of the net income or loss in their own return and pays tax at their own rate.
When is the 2025-26 partnership tax return due?
If you lodge it yourself, the due date is 31 October 2026. If a registered tax agent lodges it, a later date may apply under their lodgment program, as long as you are on their list by 31 October 2026.
Who lodges the partnership tax return?
The return is lodged for the partnership by a resident partner. Where interests are unequal, it is the resident partner with the greatest individual interest in the net income or loss.
How is profit split if there is no partnership agreement?
Without a written agreement, partnership income and losses are split equally between the partners. Each partner declares their share even if they did not withdraw it.
Do joint owners of a rental property need to lodge a partnership tax return?
Generally not. If the owners only receive rent from a jointly owned property and are not carrying on a business, each owner reports their share of the income and expenses in their own tax return.
Talk to specialist before it costs you
15-minute discovery call. No obligation, no jargon.
Talk to a registered tax agent
Need your partnership tax return prepared, or your profit split checked? Speak with a registered tax agent at Nanak Accountants & Associates on 1300 626 258, or book a consultation with our team. We prepare partnership tax returns and accounts for businesses across Australia.
This article is general information only and is not personal financial or tax advice. Information checked against ATO and ATO legal database sources on 21 October 2026.
