Section 327
Section 327: change in constitution of a firm
Section 327 addresses how a firm is assessed when its partners, or their profit shares, have changed during the year - the assessment is made on the firm as it is constituted at the time of assessment, not as it was earlier in the year.
Assessment on the firm as currently constituted
Where, at the time of making an assessment under section 270 or 271, it is found that a change has occurred in a firm's constitution, the assessment is made on the firm as constituted at the time of making the assessment.
What counts as a "change in constitution"
For the purposes of Section 327, there is a change in the constitution of the firm:
- If one or more partners cease to be partners, or one or more new partners are admitted - provided at least one person who was a partner before the change continues as a partner after it; or
- Where all partners continue, but with a change in their respective shares, or in the shares of some of them.
Exception: dissolution on a partner's death
The first limb of the "change in constitution" definition (partners ceasing/new partners admitted) does not apply to a case where the firm is dissolved on the death of any of its partners.
Frequently asked questions
If a firm's partners change during the year, which version of the firm gets assessed?
The firm as constituted at the time the assessment is actually made, under Section 327(1) - not the firm as it was constituted earlier in the tax year.
Does adding or removing a partner always count as a "change in constitution"?
Yes, provided at least one continuing partner links the old and new firm, per Section 327(2)(a). A change in the partners' respective profit shares, even without any change in who the partners are, also counts under Section 327(2)(b).
Does a firm dissolved by a partner's death count as a "change in constitution"?
No - Section 327(3) carves this out from the "change in constitution" definition where the firm is dissolved because of a partner's death.
Related sections
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