Royalty Withholding Tax (RWT)
The recent Federal Court decision on whether payments made by the Australian distributor to a Canadian resident entity were “royalties” relied on the distribution agreement and the definition in the Double Tax Agreement (“the DTA”).
The Court found that the payments were not excluded from the definition of “royalties” in the DTA because the nature of the rights acquired under the distribution agreement, as it related to the use of the software, were not limited to such rights as were necessary for the effective use or operation of the software by the distributor itself. Rather the rights were for the commercial exploitation of the software through the rights to copy the software for sale to end users and the right to use the copyright for the purposes of developing its own templates to sell in conjunction with the software.
Australian distributors of computer software who pay amounts to a non-resident need to review the distribution agreement to ensure that no underpayments or overpayments of RWT exist.
In many cases we have found that overpayments of RWT have occurred because the agreements are dated a long time ago and technology has changed on the delivery of the software. As a result, the distribution agreements need to reflect the facts. RWT refunds have been obtained in many cases.
Action Point: Contact Steve Callanan, Director of ITC Group, to identify and resolve any of these issues.
International Cross Border GST Issues
GST registration of non-residents can be worthwhile to obtain any GST input tax credits or refunds.
We understand that the Federal Government is proposing to soon amend the GST law to give effect to recommendations by the Board of Taxation so that non-resident businesses not registered or required to be registered for GST, are not caught up in the GST net by virtue of the place of provision of a supply. These new amendments should resolve the complexity and double indirect taxation problems for non-residents.
The date of effect is likely to be a prospective one from the date of announcement, possibly in the Federal budget to be delivered on 13 May 2014.
Action Point: Contact Steve Callanan, Director of ITC Group, to discuss maximising any GST concessions from these new measures for Australian supplies to non-resident businesses overseas.
NZ GST Refunds for Non-Residents of NZ
The NZ GST law has recently been amended to allow non-residents of NZ who make no output supplies in NZ to register for NZ GST in order to obtain refunds of NZ GST paid as input tax credits. This new measure prevents double indirect taxation for many Australian corporate entities. NZ GST registration from 1 April 2014 is now available, subject to certain regulations being satisfied.
Action Point: Australian entities who travel to NZ and incur local costs, including NZ GST, but make no output supplies there, should register for NZ GST to obtain any NZ GST input tax credits as NZ GST refunds. Contact Steve Callanan, Director of ITC Group.
Tax Impediments facing Small Business
The Acting Assistant Treasurer recently announced that the Board of Taxation will conduct a fast track review to identify features of the tax system that are hindering small business. Our Stephen Baxter has been appointed by Federal Treasury to the Expert Panel which will assist the Board of Taxation. This is an extension of his existing role on the Board of Taxation Advisory Panel.
Action Point: If your small business clients are concerned about indirect taxation provisions, reporting requirements or ATO practices which hinder them from achieving their business goals please email their concerns to email@example.com
NSW Land Tax Changes for Fixed Trusts
The NSW Government has re-introduced a bill which may affect fixed trusts that currently qualify for the land tax free threshold. The further conditions that must now be satisfied for a fixed trust to receive the land tax threshold include:
- There must be only one class of units issued, and
- The proportion of trust capital to which a unit holder is entitled must be fixed and be the same as the proportion of income of the trust to which the unit holder is entitled.
Trustees and unit holders of fixed trusts will need to review their trust deed to determine if the new conditions are currently satisfied. If not, then they will need to commence the process of varying the trust deed (for the second time in some cases) to satisfy the new conditions and save at least $6,590 in land tax on an ongoing basis. The amendments apply for the 2014 land tax year.
Action point: Trustees and unit holders of fixed trusts that, until recently, have qualified for the land tax free threshold need to review their trust deed to ensure the additional criteria are satisfied. If the criteria are not clearly and completely satisfied, the process of varying the trust deed needs to commence.
Payroll Tax: De-Grouping
The Commissioner has power under the Payroll Tax Act 2007 to de-group businesses which are otherwise technically grouped for payroll tax purposes, provided he is satisfied that they are ‘carried on independently of’, and are ‘not connected with the carrying on of’, each other.
In a recent interesting decision of the NSW Civil and Administrative Tribunal, it directed the Commissioner to de-group 3 businesses operated by members of the same family, notwithstanding that one of the businesses was a labour-hire business which only provided labour to the other two business (albeit on commercial terms). Historically, the Commissioner has rejected de-groupings of this nature, on the basis that if a labour-hire firm only deals with other entities in the group then the businesses fail to satisfy either or both of the abovementioned conditions.
Action point: The decision creates support for the broader range of businesses to be de-grouped than was previously the case. Contact Shane Peters for further details.
This newsletter is issued as a helpful guide. It is not intended to, and does not cover all aspects of the topics discussed. Professional advice should be sought before any action upon these topics is taken.