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Edited version of your private ruling
Authorisation Number: 1012445994434
Subject: Capital gains tax - royalties - ordinary income
Question 1:
Will the proceeds you receive from the association be assessed as royalty payments?
Answer:
Yes.
Question 2:
Are your copyrighted songs capital gains tax (CGT) assets?
Answer:
Yes.
Question 3:
Does the assignment of your royalty rights to the association result in a CGT event occurring?
Answer:
Yes.
This ruling applies for the following period:
Year ended 30 June 2013
The scheme commenced on:
1 July 2012
Relevant facts:
You have written songs and composed music which has been recorded and performed live.
These were undertaken prior to 20 September 1985 and afterwards.
You have collaborated with another person on some of these activities.
You wish to join an organisation, which will collect royalties on your behalf, if your songs are played on radio, television or other channels or if they are performed live.
You will assign your rights to this organisation.
The length of the assignment is death plus a number of years.
Under the terms of the assignment, the only amounts to be received by you are the amounts collected by the organisation.
The organisation will enforce your rights if someone infringes your copyright.
Relevant legislative provisions:
Income Tax Assessment Act 1997 subsection 6-5(1)
Income Tax Assessment Act 1997 section 6-10.
Income Tax Assessment Act 1997 section 15-20.
Income Tax Assessment Act 1997 section 104-10.
Income Tax Assessment Act 1997 subsection 104-10 (5)
Income Tax Assessment Act 1997 section 118-20.
Reasons for decision:
The definition of a CGT asset is very broad and encompasses intangible assets. As a result the performance of the songs and composed music are CGT assets. A subsequent disposal of the CGT asset would cause CGT event A1 to occur. The time of the CGT event would be the date when a contract to end the ownership of the asset is entered into. Where an asset is acquired prior to 20 September 1985 any capital gain or capital loss on the disposal of the asset is disregarded.
Where the disposal of an asset gives rise to assessable income and a capital gain, the amount of the income is included in assessable income and the capital gain is reduced by that amount or to zero in accordance with subsections 118-20(2) and 118-20(3) of the Income Tax Assessment Act 1997 (ITAA 1997).
Section 15-20 of the ITAA 1997 includes in assessable income amounts received as or by way of royalty within the ordinary meaning of 'royalty' if the amount is not assessable as ordinary income under section 6-5 of the ITAA 1997.
Royalties can be included in your assessable income as either;
· ordinary income under section 6-5 of the (ITAA 1997), or
· statutory income under section 15-20 of the ITAA 1997 where the amount is not ordinary income.
As the amounts you have received will be included in your assessable income as a royalty under either section 6-5 or 15-20 of the ITAA 1997 and any capital gain you make would not exceed the whole amount you have received, that capital gain will be reduced to zero.