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Appendix 2: Royalties

Last updated 29 May 2019

Royalties include consideration of any kind paid or credited for:

  1. the use of, or right to use
    1. any copyright, patent, design or model, plan, secret formula or process, trademark or other like property or right
    2. industrial, commercial or scientific equipment
    3. motion picture films
    4. films or video tapes for use with television
    5. tapes for use with radio broadcasting
    6. visual images and or sounds transmitted by satellite, cable, optic fibre or other similar technology, in connection with television or radio broadcasting
    7. capacity covered by a spectrum licence under the Radio Communications Act 1992
  2. the supply of scientific, technical, industrial or commercial knowledge or information
  3. the supply of any assistance that is ancillary and subsidiary to, and is furnished as a means of enabling the application or enjoyment of any property, right, equipment, knowledge or information mentioned in 1a, 1b or 2
  4. the reception of, or the right to receive, visual images or sounds transmitted to the public by satellite, cable, optic fibre or similar technology
  5. the total or partial forbearance in respect of the previously listed activities.

Show royalties derived by an Australian resident as income in the normal manner.

Royalties paid by a resident to a non-resident may be subject to withholding tax. The rate for royalties is 30% however if there is a double tax agreement, the rate may be reduced.

For more information, see Taxation Ruling IT 2660 Income tax: definition of royalties.

Record keeping

If the trust claims a deduction for royalties paid or credited, keep a record of the name and address and the amounts paid or due to each person. If payment was made to a non-resident, keep details on whether or not tax has been paid or an amount withheld to provide for tax payable by the non-resident.

Appendix 3: Thin capitalisation

The thin capitalisation provisions reduce certain expenditure (called debt deductions) incurred in obtaining and servicing debt where the debt used to finance the Australian operations of a trust exceeds the limits set out in Division 820 of the ITAA 1997. These rules ensure that taxpayers fund their Australian operations with an appropriate amount of equity.

What if the thin capitalisation rules affect you?

If the thin capitalisation rules affect you, the trust must complete the International dealings schedule 2019, unless the trust was a subsidiary member of a consolidated group or MEC group for the entire income year.

Where the trust is a member of a consolidated group or MEC group for the whole income year and the thin capitalisation rules apply, the responsibility for preparing the schedule will rest on the head company of the group.

Where a return is required because the trust had a period in the income year when it was not a member of a consolidated group or MEC group (a non-membership period) the trust should complete an International dealings schedule 2019 where the thin capitalisation rules apply to the trust during the non-membership period. For information about reporting multiple non-membership periods during the year, see the Consolidation reference manual, sheet C9-5-110.

The International dealings schedule is available through the PLS or complete and lodge the paper schedule.

What if the thin capitalisation rules are breached?

If the thin capitalisation rules are breached, some of the trust’s debt deductions may be denied. The amount denied for business income is shown in B Expense reconciliation adjustments item 5. If the trust incurred debt deductions for other types of income (for example, rental income, dividend income or foreign income) the amount of deductions shown at the relevant entries must exclude the debt deductions denied.