Private ruling: Assessability of royalty income
Published: December 2013
Ruling period: Year ending 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: 1. Is the royalty payment you receive assessable in Australia? Yes. 2. Is the royalty payment you receive assessable in the year of receipt? Yes.

Relevant facts and circumstances: You are a resident of Australia for taxation purposes. You receive royalty payments. These payments are made to you from an organisation overseas. You have been taxed at the top marginal rate.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | International Tax Agreements Act 1953 Section 4 | International Tax Agreements Act 1953 Section 5

Reasons for decision: Summary: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes income according to ordinary concepts (ordinary income) derived directly or indirectly from all sources, whether in or out of Australia, during the income year. In determining your liability to pay tax in Australia it is necessary to consider not only the domestic income tax laws but also any applicable double tax agreements. Section 4 of the International Tax Agreements Act 1953 (Agreements Act) incorporates that Act with the Income Tax Assessment Act 1936 (ITAA 1936) and the ITAA 1997 so that all three Acts are read as one. The Agreements Act overrides both the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations). Section 5 of the Agreements Act states that, subject to the provisions of the Agreements Act, any provision in an Agreement listed in section 5 has the force of law. The Country Y Agreement is listed in section 5 of the Agreements Act. The agreement operates to avoid the double taxation of income received by residents of Australia and Country Y. Article xx of the agreement between Australia states that royalties which arise in Country Y and are beneficially owned by a resident of Australia will be taxed in Australia. As you are a resident of Australia for tax purposes, the royalties you receive are assessable in Australia and should be included in your tax return. Section 6-5(4) provides that in working out whether (and if so when) a taxpayer has derived an amount of ordinary income, the taxpayer is deemed to have received the amount as soon as it is applied or dealt with in any way on the taxpayer's behalf or at the taxpayer's direction. You received the royalty payment in the xxxx income year and it will therefore be required to be declared in your tax return ending 30 June xxxx.