A partnership is not a separate legal entity, and therefore does not pay tax in its own right. The income of a partnership is taxed in the hands of the individual partners.

However, the partnership is required to lodge a separate partnership tax return each year. This tax return is used to determine each partners share of the partnership income (or loss) for the financial year.  The income is then split between the partners and they pay tax on it at their relevant individual tax rate. This is essentially the same tax treatment as for sole traders.

Any losses from the partnership can also be used to reduce other taxable income for the individual partner. This can be a significant advantage over other structures, particularly if the kind of venture you are engaged in is expected to incur losses initially, or on an occasional ongoing basis.