Edited version of your written advice

Authorisation Number: 1051180685282

Date of advice: 17 January 2017

Ruling

Subject: Provision of an exclusive licence

Question 1

Does the provision of an exclusive licence from one company associated with a university to another company associated with the same university a constitute a benefit provided to an associate of an employee in respect of employment for the purposes of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

No

Question 2

Does the provision of a licence to a company associated with a university constitute a payment for the purposes of schedule 1 section 12-35 of the Taxation Administration Act 1953 (Cth) (TAA) which will result in a Pay As You Go Withholding obligation?

Answer

No

This ruling applies for the following periods

Year ended 31 March 20BB

Year ended 31 March 20CC

Year ended 31 March 20DD

The scheme commenced on

1 April 20AA

Relevant facts

Certain employees of a university have generated intellectual property (IP) during the course of their employment at the university. The university is the owner of the IP generated by the employees under the university's IP policy and their respective employment contracts.

Under the university's IP policy, the creators and contributors who may also be employees are entitled to a one-third share of the future profits from commercialisation of IP.

The university has established two trustee companies of fixed trusts.

IP held by the university will be licenced to one trustee company for no consideration, and that trustee company will then on-licence the IP to a second trustee company, for which consideration will be the issue of shares in the second trustee company to the first trustee company.

The second trustee company has issued shares to certain employees of the university.

The university's Intellectual property policy includes the following information:

Definitions

“contributor” means any other staff member, student or visitor who has substantially assisted with the development of the university's intellectual property other than a creator.

“creator” means a staff member, student or visitor who creates the university's intellectual property, and includes inventors of patentable subject matter, authors of works and makers of other subject matter subject to copyright and designers of industrial designs.

“University intellectual property” is intellectual property owned by, assigned or licensed to the university. This includes intellectual property created by staff during their course of employment at the university or assigned to the university by staff, students, visitors or third parties.

Roles and responsibilities

Persons dealing with university intellectual property

All staff, students and visitors generating intellectual property in the course of their university employment or association with the university, have an obligation to comply with the specific requirements of this policy and other relevant policies such as the university Code of Conduct and the university Code of Conduct for Research.

Ownership of intellectual property generated by staff

In accordance with general law principles, the university as an employer owns all intellectual property created by senior staff, academic and professional staff members in the course of their employment. Intellectual property created in pursuance of or incidental to the performance of a staff member's university employment contract is considered to have been created in the course of employment whether or not a staff member's express duties include a duty to develop intellectual property.

This ownership exists as a matter of law, and does not require any further documentation from staff members. However, staff may be required to formally sign documents to more fully record the university's ownership of the university intellectual property, for example, to enable patent applications to be made.

All research data must be managed in accordance with relevant policies, including Management of research data.

The university does not own intellectual property created by staff members outside the course of their employment.

Intellectual property in the university's education resources

The university owns the intellectual property in the university's education resources (including online education resources). This ensures the University has the unrestricted ability to use the university education resources for its teaching, research and training responsibilities.

The university consents to the use of the university's education resources by staff to fulfil their teaching, research and training responsibilities at the university. This use does not include any use for commercial purposes nor does it involve a transfer of ownership of the university's intellectual property.

Intellectual property generated by students

A student under this policy means a person enrolled as a student of the university, or in a course or program of study conducted by or on behalf of the university, at the time they create intellectual property. Students personally own the intellectual property that they generate.

In order to participate in certain projects students may need to assign their interest in the intellectual property to the university. The research thesis principal supervisor and the relevant executive dean or institute director (or delegate) is responsible for identifying circumstances when the assignment of student intellectual property is appropriate, in particular, where the project is externally funded or where the project has clear commercialisation potential or objectives.

Intellectual property created by visitors (including adjunct, conjoint and honorary roles)

Ownership and rights relating to intellectual property brought to the university or generated while at the university by a visitor (that is, any person other than a staff member or student who takes part in any research or scholarly activity at the university, including a person holding an adjunct, conjoint or honorary role at the university) should be resolved through negotiation between the university and the visitor or other third parties such as the visitor's employer before the visit or appointment commences at the university. This process should be initiated by the university, and may necessitate negotiation between the university and the owner of the intellectual property.

Commercialisation and commercialisation revenue

Obligations of creators and contributors

All creators of and contributors to the university's intellectual property with commercialisation potential must identify, keep confidential, be involved in and facilitate the commercialisation of intellectual property. In particular, all have a specific duty to fully disclose the university's intellectual property with potential commercial value, to the relevant executive dean in the case of education resources or to the university's subsidiary company, the first trustee company in the case of other university intellectual property.

Commercialisation of the university's intellectual property (education resources)

Any commercialisation of the university's education resources will be done by the university through the relevant office as determined by the relevant vice-chancellor.

Commercialisation of the university's intellectual property (other than education resources)

Commercialisation of the university's intellectual property (other than education resources) will be pursued through the first trustee company, which has the specific function of protecting and commercialising intellectual property developed at the university (other than as noted above) and supporting creators in the recognition and identification of commercialisable intellectual property.

In the absence of any other agreement reached between the relevant parties the University will ensure that net commercialisation revenue (excluding that derived from the commercialisation of education resources) is distributed as follows:

● one third between all of the creators and contributors

● one third between the creators' and contributors' faculties, divisions or institutes for its use as the executive dean, head of division or institute director determines; and

● one third to the first trustee company.

Transfer of rights to creators

Where the first trustee advises it will not further pursue commercialisation of the university's intellectual property, the relevant vice-chancellor may decide to Licence with an Option to Assign (LOA) the university's intellectual property to creators where is does not infringe a legal commitment to another party.

This decision to not further pursue commercialisation will be taken after assessing the commercialisation prospects for the intellectual property. This decision may be made only where the relevant vice-chancellor:

● is satisfied that there has been full disclosure by the creators regarding the intellectual property; and

● where the creators have fully cooperated with the assessment of the intellectual property by the first trustee company.

In general, the transfer of rights to creators will not be considered where:

● a determination is made that the intellectual property requires further work before a proper assessment of commercialisation prospects; or

● where there are a significant negative impacts on future university research activities or the interests of other creators and/or contributors.

The university may at its option impose a condition requiring the payment of a royalty to the university by the creators in the event of future successful commercialisation outcomes.

Decisions on the transfer of rights to creators will be managed in accordance with the Transfer of Rights to Creators Protocol.

The Transfer of rights protocol provides the following:

Terms of the LOA

The university will require the following under the LOA:

● Licences to the creators will transfer certain intellectual property rights to those creators that have accepted the offer in a reasonable period of time.

● The LOAs will also include a grant back to the university to use the intellectual property internally for research and teaching purposes.

The Licence and Option to Take Assignment contains the following information:

Parties

Name The two trustee companies

Background

A The university owns the Intellectual Property.

…

D Pursuant to an agreement (the University Licence) between the university and the first trustee company made on or about the date of this Agreement, the university has granted to the first trustee company:

(i) certain exclusive licence rights in relation to its interest in the Intellectual Property: and

(ii) an option to, if certain conditions are satisfied, have the university assign all of its interest in the Intellectual Property to the first trustee company by way of a deed of assignment (the University Assignment).

E The parties have agreed that the first trustee company will, under the terms of this Agreement, grant to the second trustee company:

(i) a sub-licence to commercialise the first trustee company's interest in the Intellectual Property upon the terms of this Agreement; and

(ii) an option to have the first trustee company's ownership of the Intellectual Property assigned to the second trustee company, if the University Assignment is executed.

Grant of licence

Licence

(a) On and from the Effective Date, the first trustee company grants the second trustee company a perpetual worldwide exclusive right and licence to Commercialise the Intellectual Property, including rights to grant sub-licences and to do any other act or thing the second trustee company considers desirable or necessary in order to perform its obligations under this Agreement.

(b) Notwithstanding any other provision in this Agreement, the first trustee company reserves the right to undertake further research and teaching activities in relation to the Intellectual Property, and to authorise the University and its research collaborators to do so.

The second trustee company's obligations

Commercialisation

The second trustee company must, at its expense:

(a) use its best endeavours to Commercialise the Intellectual Property;

(b) obtain and maintain all government approvals and licences necessary to allow it to Commercialise the Intellectual Property, and notify the Development Parties when such approvals and licences are granted;

(c) ensure that in relation to the Commercialisation of the Intellectual Property or otherwise in relation to this Agreement, the second trustee company complies with all applicable Laws and standards;

(d) commercialise the Intellectual Property on arm's length terms, including prices;

(e) exercise the level of diligence in the Commercialisation of the Intellectual Property as it might prudently be expected to use; and

(f) not do anything which could detract from the reputation and goodwill in the marketplace of itself, any of the parties to this Agreement, the university, the Intellectual Property, or any products, methods or processes resulting from the Intellectual Property.

Payments to the first trustee company

(a) The second trustee company must pay to the first trustee company a lump sum licence fee of $a.

(b) The amount in paragraph (a) is not the consideration for a periodical supplies, but the consideration for the entering into of this Agreement, and accordingly, no part of the amount referred to in paragraph (a) is repayable by the first trustee company to the second trustee company in the event that this Agreement is terminated earlier than its anticipated duration, or otherwise.

(c) The licence granted by this agreement being worldwide, and Australia representing 2% of the worldwide market for the production with which the Intellectual Property is concerned, the parties agree that the licence fee referred to in paragraph (a) is apportioned as follows:

(i) $b in respect to Australia

(ii) $c in respect to the remainder of the world.

Grant of option

(a) The first trustee company grants to the second trustee company an option to have the Intellectual Property assigned to it in accordance with clause 4(b).

(b) If:

(i) an Option Event takes place;

(ii) the second trustee company:

(A) certifies in writing to the first trustee company that an Option Event has taken place:

and

(B) notifies the first trustee company in writing that it elects to take an assignment of the Intellectual Property; and

(iii) the University Assignment is executed so that ownership of the Intellectual Property is assigned to the first trustee company,

The first trustee company must deliver to the second trustee company the Deed of Assignment executed by it.

Further development of Intellectual Property

Development by the second trustee company

The second trustee company must, at its expense, use its best endeavours to:

(a) develop the Intellectual Property so that products, methods or processes embodying the Intellectual Property are ready for commercial sale at the earliest reasonable time; and

(b) further develop the Intellectual Property for the purposes of developing additional intellectual property and identifying further products, methods or processes which may be Commercialised.

Ownership of the second trustee company's developments

Until the first and second trustee companies execute a further agreement in writing concerning the ownership of IPR created as a result of the second trustee company complying with clause 5.1, then the university will own such IPR.

Development by the University

(a) The University will retain ownership of all IPR arising from its further research after the effective Date of this Agreement (Licensor Developments), and for the sake of clarity, such Licensor Developments will only be included in the Intellectual Property licensed to the second trustee company under this Agreement provided such Licensor Developments fall within the definition of Intellectual Property (including Improvements to the extent stated in paragraph (1) of that definition).

(b) The first trustee company acknowledges that its rights and the university's rights to use the Licensor Developments (other than for the purposes of research and teaching) are subject to and may be limited by the second trustee company's exclusive licence and ownership rights granted in respect of the Intellectual Property under this Agreement and the Assignment Deed.

Intellectual Property Rights

The first trustee company's warranties

The first trustee company warrants to the second trustee company that, in respect of the Intellectual Property in which it has an interest, as at the Effective Date and until modified in accordance with this Agreement:

(a) it has under the University Agreement, a perpetual world wide exclusive right and licence to commercialise the University's interest in the Intellectual Property and the products derived from the university's interest in Intellectual Property, with the right to grant sub-licences; and

(b) if the University Assignment is executed, it has ownership of the University's interest in the Intellectual Property.

(c) it owns or otherwise holds that interest in the Intellectual Property both legally and beneficially;

(d) its interest in the Intellectual Property is not encumbered, mortgaged, or charged in any way, nor subject to any lien;

(e) the Intellectual Property does not infringe any rights of any persons;

(f) there is no litigation pending in respect to the Intellectual Property, and there is no claim or demand that has been received from any person in relation to the Intellectual Property;

(g) no licence or right of any type whatsoever has been granted in respect of the Intellectual Property by the first trustee company other than to the second trustee company, and to an earlier option; and

(h) it has not entered into any deed, contract, arrangement or understanding dealing any way with the Intellectual Property other than this Agreement, the earlier option, and the University Agreement.

Protection

(a) The second trustee company must:

(i) do all things within its power to protect the Intellectual Property, including, but not limited to, the following:

(A) paying all registration, application, prosecution and renewal fees, including registration and renewal fees in respect of the patents included in the Intellectual Property;

(B) including references to patent numbers where the absence of such reference could detrimentally affect the rights conferred by patents; and

(C) preventing any trade marks from losing protection as a result of non-use or by becoming generic names.

(b) The second trustee company must not:

(i) directly or indirectly deny or challenge the University's or the Development Parties' rights in the Intellectual Property; or

(ii) misrepresent the second trustee company's rights in the Intellectual Property.

Patents

Meaning of patent

In this clause 8, patent means a patent anywhere in the world in relation to or concerning any part of the Intellectual Property, and PBR means:

(a) a right as defined in the International Convention as revised from time to time,

(b) a right as provided for in the legislation of each country that is a member of that Convention.

What will be patented

(a) The parties shall consult with each other as to what Intellectual Property should be patented and/or the subject of a PBR application.

(b) Subject to the second trustee company paying patent expenses to the first trustee company in accordance with Clause 8.6, The first trustee company must expeditiously apply for the provisional patent applications, other patent applications, and PBR of that Intellectual Property:

(i) which the parties agree be patented or the subject of a PBR application; or

(ii) which the second trustee company wishes to be patented or the subject of a PBR application.

Patent Ownership

(a) All applications for provisional patents, patents and PBR will be in the University's name.

(b) All patents and PBR will be owned by the University.

The Commercialisation protocol sets out the reasons for commercialisation:

Why commercialise? - community benefit

Community benefit is often achieved by putting the university's research outcomes, the results of the university's staff and students' innovation and inventiveness, into the public domain.

…

In terms of industry adoption, this occurs when the innovation and inventiveness of the university's staff and students is disseminated into an industry or sector, and that industry or sector then adopts the new knowledge.

…

To achieve the community objective that the outcomes of the university's research be beneficial to the community, the university will facilitate and promote commercialisation of intellectual property, including by forming alliances with industry partners and investors.

Why commercialise? - increasing the university's resources

If commercialisation is successful other financial returns may flow to the university, including royalties or shareholdings in a spin out company, which will increase the sources of revenue for the university. This additional revenue may in turn facilitate further research activity.

Why commercialise? - rewarding innovation and inventiveness

Additionally, the university wants to personally reward staff and students whose inventiveness and innovation has resulted in successful commercialisation.

The employment contract includes the following information:

DISCRETIONARY BENEFITS

In addition to your total remuneration, the University may, at its discretion, provide you with other benefits. The University may cease providing these benefits, or change the basis upon which it provides them, from time to time and you do not have an entitlement to continue to receive these benefits.

Unless you are advised in writing that a benefit forms part of your total remuneration, it will be a discretionary benefit to which this clause applies.

The discretionary benefits presently provided by the University include:

a) business class air travel for University business unless advised otherwise by the Vice-Chancellor ('Travel policy');

b) reimbursement of basic home telephone rental plus the reasonable costs of business calls and broadband usage (as substantiated and declared); and

c) reimbursement of reasonable expenses incurred in relation to University business, where proof of expenses is produced.

INTELLECTUAL PROPERTY

You agree to assign to the University upon creation, all intellectual property rights in Intellectual Property created by you, either individually or jointly with one or more parties, in the course of your employment, whether or not within your working hours and whether or not using the University's facilities, funding or resources. Intellectual Property refers to the rights which protect intellectual and creative effort recognised by law and includes patents, inventions, trade marks, designs, copyright, circuit layout rights, plant breeders' rights, confidential information and trade secrets.

To avoid doubt, inventions are also included in the assignment of Intellectual Property whether or not your express duties include a duty to invent.

You must disclose all Intellectual Property Rights to the University.

You must do all things reasonably requested by the University to enable the University to exploit and assure further the rights assigned, and consents given, under this clause.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 Subsection 148(1)

Fringe Benefits Tax Assessment Act 1986 Subsection 148(2)

Fringe Benefits Tax Assessment Act 1986 Section 159

Income Tax Assessment Act 1936 Section 318

Taxation Administration Act 1953 Section 12-35

Reasons for decision

Question 1

Does the provision of an exclusive licence from one company associated with a university to another company associated with the same university a constitute a benefit provided to an associate of an employee in respect of employment for the purposes of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Is a 'benefit' being provided?

The term 'benefit' is defined in subsection 136(1) of the FBTAA as follows:

any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or is to be, provided under:

(a) an arrangement for or in relation to:

(i) the performance of work (including of a professional nature), whether with or without the provision of property;

(ii) the provision of, or of the use of facilities for, entertainment, recreation or instruction; or

(iii) the conferring of rights, benefits or privileges for which remuneration is payable in the form of a royalty, tribute, levy or similar exaction;

(b) a contract of insurance; or

(c) an arrangement for or in relation to the lending of money.

The proposed transaction involves the first trustee company granting a licence to commercialise IP owned by the university to the second trustee company. The university has arranged with certain of its employees to on-licence the commercialisation of its IP from the first trustee company to the second trustee company. The transaction will involve the conferring of rights for which payment will be received in the form of a royalty or similar exaction.

The proposed transaction will therefore be a benefit.

Is a 'fringe benefit' being provided?

The term 'fringe benefit' is defined in subsection 136(1) of the FBTAA as follows:

in relation to an employee, in relation to the employer of the employee, in relation to a year of tax, means a benefit:

(a) provided at any time during the year of tax; or

(b) provided in respect of the year of tax;

being a benefit provided to the employee or to an associate of the employee by:

(c) the employer; or

(d) an associate of the employer; or

(e) a person (in this paragraph referred to as the arranger) other than the employer or an associate of the employer under an arrangement covered by paragraph (a) of the definition of arrangement between:

(ea) a person other than the employer or an associate of the employer, if the employer or an associate of the employer:

(i) participates in or facilitates the provision or receipt of the benefit; or

(ii) participates in, facilitates or promotes a scheme or plan involving the provision of the benefit;

and the employer or associate knows, or ought reasonably to know, that the employer or associate is doing so;

in respect of the employment of the employee, …

For a benefit to be a fringe benefit the following three requirements must be met:

● the provider is the employer or an associate of the employer, or another person under an arrangement;

● the benefit is provided to an employee or an associate of an employee; and

● the benefit must be provided in respect of the employment of the employee.

The arrangement involves the university and employees of the university. The benefit involves the first trustee company granting a licence to the second trustee company. The provider of the benefit, the first trustee company, is not the employer, the university, and the recipients of the benefit, the second trustee company, are not employees of the university.

The arrangement involves the university and employees of the university. The benefit involves the first trustee company granting a licence to the second trustee company. The provider of the benefit, the first trustee company, is not the employer, the university, and the recipients of the benefit, the second trustee company, are not employees of the university. A fringe benefit will arise if the provider is the employer, an associate of the employer, or another person under an arrangement, and is provided to an employee, or associate of an employee, in respect of the employment of the employee.

Is the first trustee company an 'associate' of the university?

Subsection 159(2) of the FBTAA states the following:

For the purposes of this Act, but without limiting the generality of the expression “associate”:

(a) a company that is related to another company shall be deemed to be an associate of that other company:

The first trustee company is the corporate trustee of a trust, and a holding company is the corporate trustee of a holding trust.

The first trustee company is a wholly owned subsidiary of the holding trust which is wholly owned by the university.

The university is deemed to be a company which is related to both corporate trustees and is therefore deemed to be an associate of both corporate trustees. The university is therefore an associate of the first trustee company.

Is the second trustee an 'associate' of the university's employees?

The meaning of 'associates' of natural persons is discussed in subsection 318(1) of the Income Tax Assessment Act 1936 (ITAA 1936) as follows:

For the purposes of this Part, the following are associates of an entity (in this subsection called the primary entity) that is a natural person (otherwise than in the capacity of trustee):

(a) a relative of the primary entity;

(b) a partner of the primary entity or a partnership in which the primary entity is a partner;

(c) if a partner of the primary entity is a natural person otherwise than in the capacity of trustee - the spouse or a child of that partner;

(d) a trustee of a trust where the primary entity, or another entity that is an associate of the primary entity because of another paragraph of this subsection, benefits under the trust;

(e) a company where:

(i) the company is sufficiently influenced by:

(A) the primary entity; or

(B) another entity that is an associate of the primary entity because of another paragraph of this subsection; or

(C) another company that is an associate of the primary entity because of another application of this paragraph; or

(D) 2 or more entities covered by the preceding sub-paragraphs; or

(ii) a majority voting interest in the company is held by:

(A) the primary entity; or

(B) the entities that are associates of the primary entity because of subparagraph (i) of this paragraph and the preceding paragraphs of this subsection; or

(C) the primary entity and the entities that are associates of the primary entity because of subparagraph (i) of this paragraph and because of the preceding paragraphs of this subsection.

An employee of the university is a natural person and is the primary entity. The second trustee company is a company, and will be an 'associate' of an employee of the university if the employee of the university has a majority voting interest in the second trustee company, or the second trustee company is sufficiently influenced by an employee of the university.

None of the employees of the university hold more than 50% of shares, and therefore, none of the employees of the university has a majority voting interest.

Subsection 148(2) of the FBTAA expands the definition of 'associate' as follows:

Where, in respect of the employment of an employee, a benefit is provided by a person (in this subsection referred to as the provider) to a person other than:

(a) the employee; or

(b) a person who, but for this subsection, is an associate of the employee;

under an arrangement between:

(c) the provider, the employer or an associate of the employer; and

(d) the employee or a person who, but for this subsection, is an associate of the employee;

the recipient of the benefit shall be deemed to be an associate of the employee for the purposes of the application of this Act in relation to the provision of that benefit.

If the second trustee company is not otherwise considered to be an associate of employees of the university, it will be an associate of employees of the university if it receives a benefit under an arrangement between the employer, the university, and employees of the university.

The term 'arrangement' is defined in subsection 136(1) of the FBTAA to mean:

(a) any agreement, arrangement, understanding, promise or undertaking, whether express or implied, and whether or not enforceable, or intended to be enforceable, by legal proceeding; and

(b) any scheme, plan, proposal, action, course of action of conduct, whether unilateral or otherwise.

The university owns the IP, and in agreement with certain of its employees, have on-licenced commercialisation of the IP from the first trustee company to the second trustee company from which the employees are entitled to a share of future profits. The second trustee company receives a benefit under an arrangement between the employer, the university, and employees of the university, and therefore the second trustee company is an associate of certain employees of the university.

This view is confirmed in ATO Interpretative Decision ATO ID 2010/97 Fringe Benefits Tax: third party recipient deemed to be an associate: friend of an employee (ATO ID 2010/97).

Is the benefit in respect of the employment of the employee?

For the benefit to be a fringe benefit it must be provided in respect to the employment of the employee.

In J &G Knowles and Associates Pty Ltd v. FC of T (2000) FCA 196; 2000 ATC 4151; (2000) 44 ATR 22 the Federal Court considered the meaning of 'in respect of employment' in the FBTAA. The Court noted that:

…what must be established is whether there is a sufficient or material, rather than a causal connection or relationship between the benefit and the employment.

Application to your circumstances

IP is owned by the university and is governed by various policies including the Intellectual Property policy. Under these policies it is considered a benefit to the community to put the university's research outcomes into the public domain. The policies provide that the commercialisation of the IP allows for the dissemination of the innovation and inventions of the university's staff and students into the industry or sector.

As part of the commercialisation the university's IP may be assigned to creators under the Intellectual Property policy and the Transfer of rights protocol.

The employment contract sets out the terms and conditions of employment and provides for discretionary benefits. The provision of an exclusive licence to employees with respect to IP is not listed as a discretionary benefit in the employment contract.

The benefit of an exclusive licence is made pursuant to a separate arrangement between the university and the creators which is governed by the Intellectual Property policy. The benefit is linked to the commercialisation of a research discovery rather than through an existing employment relationship between the university and an individual. Not all discoveries from the university will give rise to such a benefit.

The licence is available to individuals with varying relationships with the university who fall within the terms of the Intellectual Property policy. Staff members, students or visitors in their capacity as creators have an opportunity to share in the commercialisation on the same basis.

The benefit is provided to persons who may or may not be employees of the university. The Intellectual Property policy identifies that being an employee of the university is not a necessary qualifying criteria for a receipt of the benefit.

The provision of the licence is not a reward for services which have been provided, but arises as part of the process of commercially exploiting the discovery as a creator. In addition, the success of the commercial product is not dependent on any work performed by the individual, but rather on the ability to commercialise that discovery.

The required nexus between the provision of the licence and employment is not sufficient for the licence to be considered a benefit provided in respect to the employment of the employee. It is not provided as a reward for services, it will not be provided to the relevant individuals as a consequence of their employment, and it will not be provided to an individual as a result of their employment with the university.

Therefore, the provision of an exclusive licence from the first trustee company to the second trustee company does not constitute a benefit provided to an associate of an employee in respect of employment for the purposes of the FBTAA.

Question 2

Does the provision of a licence to a company associated with a university constitute a payment for the purposes of schedule 1 section 12-35 of the Taxation Administration Act 1953 (Cth) (TAA) which will result in a Pay As You Go Withholding obligation?

Paragraph 14 of Taxation Ruling TR 2005/16 Income tax: Pay As You Go - withholding from payments to employees (TR 2005/16) states for the provision (Section 12-35 of Sch 1) to apply, there must be an employee, a payment of salary, wages etc. to an employee as a consequence of his or her employment and the payment must be made by an entity.

The entity, the university, will provide a licence to creators who are either current employees of the university, students or visitors. In relation to current employees it is accepted that recipients of the IP licence are 'employees'.

For the licence to fall within the provisions of section 12-35 of Sch1 it must either directly or indirectly relate to employment or to services rendered. .

As discussed above the provision of a licence to employees is not as a consequence of the employee's employment. It is provided to them as creators of Intellectual Property and not directly or indirectly in their capacity as employees. Therefore it is not considered salary or wages and there is no obligation to withhold from the provision of the licence to the second trustee company under section 12-35 of Schedule 1 of the TAA.

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