Royalties allow physical and intellectual property owners to earn money from their assets. The terms and conditions surrounding royalty payments can be confusing. It’s essential to consult with an intellectual property lawyer if you’re entering an agreement involving royalties.

Similarly, companies or individuals making royalty payments should understand how to manoeuvre the financial processes. This article acts as a guide for royalty payers and receivers in Australia. Read on to learn about royalty payments, the types, and whether royalties are taxed in Australia.

What Are Royalty Payments?

A royalty is a payment a person makes to an intellectual or physical property owner for using their assets. The intellectual properties can include copyrighted music, films, and books. For example, the artist receives a royalty payment if someone uses their song(s).

Various physical properties, such as businesses and minerals, may also be subject to royalty payments. For example, franchises like Baker’s Delight charge a royalty fee for investors who use their brand.

How Do Royalties Work In Australia?

Royalties are legally binding and involve signed documents. A royalty works by providing someone with a licence agreement, allowing them to use another person’s property without necessarily buying it wholly.

The royalty agreement outlines the payment amount and the frequency of the payments. It also mentions the rights and privileges the involved party has over your property and how long the contract will last.

Each industry has different standards and approaches to royalty payments. For example, publishing companies may pay authors a percentage of the net sales of their book(s). In some industries, the royalties might be a fixed amount.

Types Of Royalties In Australia

The types of royalty payments depend on the property being covered. These include music, book, mineral, and franchise royalties.

Music Royalties

Royalties for music may take different forms. The first type is music performance royalties, which artists receive when their songs are played on live radio or used in films and TV shows. The artist may also receive payment for performing their song(s) live.

Streaming services can charge users a small fee to play their favourite artists’ songs. In return, the platform pays composition royalties to the songwriter/artist. Recorded music may involve various people, including the producer, singer, and writer. Each involved party may own copyrights to certain elements and charge a royalty to use the element.

Book Royalties

Authors or their agents receive book royalties from their publishing companies. Depending on the agreement, the royalty may be a percentage of the book sales. In other scenarios, the publisher might be required to pay an upfront fee followed by proceeds from book sales.

Mineral Royalties

If you’re a property owner, you can receive royalties from companies extracting minerals from your land. These minerals may include coal and petroleum, which attract royalty payments. If you’re a miner entering a royalty agreement, it’s advisable to speak with an experienced lawyer for advice.

Mineral royalty rates vary by state. For example, in South Australia, royalties range between 3.5% and 5% of the mineral’s total value, depending on the mineral type. Extractive minerals attract a rate of 52 cents per tonne.

Franchise Royalties

Business owners usually pay a certain amount of money to franchise businesses in order to operate under their name. This amount may include an upfront fee and monthly franchise royalties to the company. Each franchise has its unique requirements and franchise fees.

What Are Collecting Societies?

Collecting societies help creators collect their royalty payments. They work with other parties in and out of Australia, ensuring you get paid whenever people use your assets. Collecting societies can also help creators track when people use their properties, like songs.

There are numerous collecting societies in Australia, depending on industries. These include Copyright Agency Limited (CAL) for literature-related payments and, Australasian Performing Right Association (APRA), and Australasian Mechanical Copyright Owners Society (AMCOS) for music royalties.

If you’re an artist, APRA AMCOS can help you collect royalties from people who use your music. This society uses the latest technologies like music recognition to know whenever someone plays your songs. After identifying the user, the society collects the payable fees and transfers the royalties to you.

Do You Pay Taxes On Royalties In Australia?

The Income Tax Assessment Act 1997 outlines that royalties form part of your assessable income. These include royalties paid to you directly or through copyright-collecting societies. Therefore, you must declare royalty payments while filing your tax returns.

The Australian Tax Office categorises royalty income as local or foreign, depending on whether you received the royalties within or outside Australia. Certain exemptions apply to royalty taxation, and it’s advisable to consult with a tax lawyer when dealing with royalty payments.

Australian law also expects individuals and companies paying royalties to declare them as business expenses on their tax returns. Royalty payments to Australian citizens can be straightforward, but you might require legal advice when paying royalties to non-residents. Payments from a resident to a non-resident may attract a 30% withholding tax.

Final Thoughts

Royalties allow artists and other property owners to earn passive incomes from their work or assets. However, it’s critical to understand the legal aspects of royalty payments, whether you’re paying royalties or receiving them.

If you own intellectual property, Aditum Lawyers can help you draft royalty agreements that protect your intellectual property and ensure you receive what you’re entitled to. Contact our commercial law experts today to request a free consultation.

Resources & Further Reading

  1. https://www.legislation.gov.au/C2004A05138/2021-06-17/text
  2. https://anulib.anu.edu.au/research-learn/copyright/overview/licensing-and-collection-agencies
  3. https://www.ato.gov.au/forms-and-instructions/trust-tax-return-2023-instructions/appendixes/appendix-2-royalties

 

Disclaimer: The information provided in this article is for general informational purposes only and should not be construed as legal advice. Consult with a qualified commercial lawyer for personalised advice regarding your specific situation.