ATO increases software royalty withholding tax coverage in new guidance

The ATO has released Taxation Ruling TR 2026/2 1 , providing its final views on when cross-border payments relating to software and intellectual property rights constitute royalties for Australian tax purposes and may therefore be subject to royalty withholding tax. The ruling addresses whether payments made by Australian businesses to foreign software providers, distributors and licensors constitute royalties for Australian tax purposes. Where a payment is characterised as a royalty, it may be subject to Australian royalty withholding tax, typically at rates of between 5% and 15% depending on the applicable tax treaty.