Sian Suds (a resident of Australia) and Luke Suds (a non-resident) own a handcrafted soap shop in partnership, and trade as Suds Soaps. Gross income for the current income year is $40,000. $8,000 of this amount was made on Suds Soaps sales outside Australia. No expenses are incurred for these sales. Business expenses of $25,000 include a salary of $5,000 paid to Sian. All expenses relate to Australian source income.

Required B (10 marks)

Assume that the assets of Suds Soaps are sold. How are capital gains or losses relating to partnership assets dealt with?

In your response give reasons and refer to sections of legislation and cases, where relevant.