QUEEN THEN KING, AND RIGHTS
FOR THE PEOPLE!
Royalties were named originally when mineral deposits were extracted from the landowners. They are payments made to use the rights of another. They are legally binding and are paid as a contractual right for the use of another’s property for as long as the right is being used and often have no expiry date. They continue on in succession and are a great way to earn income in business!
A Royalty payment can be calculated as a percentage of generated earnings, a one-off or as regular payments. An example of a Royalty can be payments for using:
- Copyrights, patents, formulas and trademarks or a similar right of intellectual property,
- Use of equipment; scientific, commercial or industrial
- Music songs or tunes, films, or video tapes or recordings for broadcasting
- Receiving or transmitting technology such as satellites, cable, optic fibre or similar,
- Literature, study of works, formulae or plan.
Royalties have always been an excellent source of generating wealth. Royalties in Business exist across many diverse sectors including mining, industry, commerce, music, medical and technology. Royalty businesses provide a stable source of income during times of inflation, as they are not capital equity based and not influenced from product cost manufacturing but align to the wealth creation of a business.
They are often used as a form of debt financing, providing a percentage of sales in return for investment. Royalties are also used by some investors to reflect their personal views and in support of their opinions. For example, opting for a music business with a royalty income that supports your favourite musician, or selecting a company with a portfolio of pharmaceutical royalties to demonstrate your interest in medical innovation and design.
Royalties you earn in Australia are taxed as Assessable income and included in your tax return. Royalties paid to residents are taxed at marginal rates, net of any expenses. Royalties paid to non-residents have been identified by the Australian Taxation Office (ATO) as an area currently being focussed on. The program focused on non-resident withholding tax relating to royalties paid to non-residents for the 2019 and 2020 year. Royalties paid to non-residents have additional reporting requirements and obligations that must be met. This includes withholding and remitting the tax to the ATO, claiming deductions and lodging a PAYG Annual Report. Unless an exemption is in place, or a double tax treaty applies there is an obligation to withhold tax when a royalty is paid to a non-resident.
Royalties continue to be an essential tool in business used to protect the rights of others and can generate wealth. If this article has inspired you to seek further information, please contact our office.