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At a glance
- TR 2024/D1 provides the ATO’s updated draft view on when payments under a software arrangement will be royalties.
- The use of or the right to use IP rights will give rise to a royalty.
- The draft ruling provides two detailed scenarios to illustrate the draft view.
- The ATO interpretation of the royalty definition is a legalistic one, focussing on a rights based approach.
- Consultation is open with submissions closing on 1 March 2024.
- How EY can help.
The ATO has issued its updated draft software royalty withholding tax ruling, Draft Taxation Ruling (TR) 2024/D1, Income Tax: royalties – character of payments in respect of software and IP rights (‘TR 2024/D1’) for consultation (link). This draft TR is an update following the ATO’s publishing of draft TR 2021/D4 in 2021.
TR 2024/D1 (the draft ruling) is a substantial rewrite of the previous draft but fundamentally maintains the draft ATO view reached in TR 2021/D4 that payments made for the grant of a right to use IP or for the use of IP will be a royalty.
Comments on the draft ruling are due by 1 March 2024.
The ATO’s views in the updated draft may apply very broadly and will require detailed analysis and review of covered arrangements to determine potential impacts and required actions in response.