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Ruling
Subject: Royalties and withholding tax
Question and answer:
Are you required to withhold tax in Australia on payments you make to clients from the distributions which you receive from overseas?
No
This ruling applies for the following periods:
Year ended 30 June 2012
Year ended 30 June 2013
Year ended 30 June 2014
The scheme commences on:
1 July 2011
Relevant facts and circumstances
You are an Australian resident for income tax purposes. You moved to Australia in the 2011 income year.
You run two businesses.
You receive royalties from overseas countries.
The distributions have been subject to royalty withholding tax in the overseas countries.
You pay the distributions to your overseas clients after deducting your charges for acting for your clients.
Relevant legislative provisions
Income Tax Assessment Act 1936 Subsection 6(1)
Taxation Administration Act 1953 Section 12-280
Reasons for decision
Royalties
Subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936) provides that the term 'royalty' includes any amount paid or credited for the right to use any copyright. Taxation Ruling IT 2660 deals with the definition of royalties. It describes a royalty as a payment made in return for the right to exercise a beneficial privilege or right. Amongst other things a copyright can cover music, literary and artistic works.
You are an Australian resident for tax purposes. You are currently involved in two businesses. Your activities as a result of these two businesses fall within the royalties provisions.
Withholding tax
Section 12-280 of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953) provides that 'payers' of royalties are required to withhold tax if:
· the recipient or any of the recipients has an overseas address according to any record that is in the payer's possession, or is kept or maintained on the payer's behalf, about the transaction to which the royalty relates; or
· the payer is authorised to pay the royalty at a place outside Australia (whether to the recipient or any of the recipients or to anyone else).
You run two businesses. You receive distributions (royalties) from overseas countries. The distributions have been subject to royalty withholding tax in the overseas countries. You pay the distributions to your overseas clients after deducting your charges for acting for your clients.
As you are the recipient of overseas distributions on behalf of others, which have been subject to withholding tax, you are not required to withhold tax with regard to payments which you make to your overseas clients.