If you are a songwriter, composer or music publisher, you can allow others to play your song in exchange for royalty payments, also known as royalties. Similarly, if you are an author, you can assign or license your rights to a publisher for the payment of royalties. Therefore, owners of certain types of intellectual property (IP) receive royalty payments for allowing others to use their work. This article outlines how royalty payments operate through royalty agreements and collecting societies, and considers whether royalties are taxable.
A royalty agreement sets out the terms of your royalty payments, including how often you will receive them. Before entering into an agreement, you should carefully understand and review the clauses. Importantly, you should take note of key terms including the duration of the contract and what rights to your IP the other party can retain. You may also want to confirm whether the other party can alter your work without your permission.
Typical royalty agreements include:
- music record deals;
- live performance agreements;
- publishing deals; and
- photo licensing agreements.
You should research standards for royalty payments in your industry. Once you have a better idea of your agreement and industry standards, you can negotiate your royalties and any unfair terms with the other party before finalising the deal. It is best practice to have a lawyer review your royalty agreement before you sign it.
Collecting societies assist with the collection of royalties. While you may already have a royalty agreement, these societies make it easier to allow others to use your work. Collecting societies often work with third parties within Australia and internationally to assist in paying creators when others use their work.
There are a variety of collecting societies, depending on what industry you are in. For example, Australasian Performing Right Association (APRA) and Australasian Mechanical Copyright Owners’ Society Ltd (AMCOS) assists songwriters, composers and music publishers by collecting and then distributing music royalties. Copyright Agency Limited (CAL) assists authors by collecting and distributing royalties for literature.
Collecting societies can also help you with any copyright enquiries and identify the unlicensed use of your work. For example, APRA AMCOS operate through an online portal which uses music recognition technology to see how many times your song has played at the local cafe and other licenced venues. The collecting society will then collect the fee from the cafe and any other venues and pay the royalties to you.
Taxable Royalty Payments
Royalties are considered to be income. Therefore, if you receive royalty payments, you should declare them on your tax return. Your royalties may be a part of your Australian income or a foreign sourced income. It depends on whether or not your work is sold overseas.
Likewise, if you pay royalties to another party for using their work, you need to declare them as part of your business expenses. You also need to record the name, address and amounts paid or due to each person. If the payment is to a non-resident, you must note whether tax has been paid or an amount withheld. Royalties paid by a resident to a non-resident are subject to a 30% withholding tax unless there is a tax treaty or double tax agreement with the non-resident’s country.
Royalties may seem like a straightforward process. However, they usually depend on the terms of a royalty agreement or industry standards. Therefore, you should understand the key terms of your agreement and your rights or obligations. You can also receive royalty payments from third parties who use your work via the relevant collecting society. As royalties are considered income, you must declare any payments on your tax return.
If you need any assistance navigating royalty payments, get in touch with LegalVision’s intellectual property lawyers on 1300 544 755 or fill out the form on this page.
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