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On 12 March 2014, the ATO issued Taxation Ruling TR 2014/1 entitled "Income tax: commercial software licencing and hosted agreements: derivation of income from agreements for the right to use proprietary software and the provision of related services".

It was previously released in draft form as TR 2013/D2.

The Ruling deals with when commercial software developers derive income for the purpose of section 6-5 of ITAA 1997 from:

(i) licence agreements for proprietary software; and
(ii) "hosted" or "cloud" arrangements for use of proprietary software.

Specifically, the Ruling considers the point of derivation of income in respect of the contractual fee for:

(i) the granting of the proprietary licence;
(ii) the hosted arrangement; and/or
(iii) other "additional services" which may or may not be bundled together with (i) or (ii) in contract.

Where there is bundling of "additional services", the Ruling also considers the proper apportionment of the contractual fee between the licence or access fee and/or the additional services.

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