GST for the royalty payment


Q: Back in 2008, my client got into a deal to use some computer software owned by another company. They agreed to pay ongoing royalties of about $110,000 a year, which is 15% of the software's earnings. Now they've decided to change the deal. Instead of paying yearly, they're giving a one-time payment of $650,000 for ongoing use of the software. There was no GST during the original deal.

Here are the questions:

  1. Do they have to pay GST on the one-time payment?
  2. Should they have paid GST on the yearly royalty payments?
  3. How do they handle this one-time payment in their accounts?
  4. Is this payment an expense? Can they spread it out over time, and if so, how long?

A: Yes, they need to pay GST on both the one-time payment and the previous yearly royalties because it's considered a taxable supply. The one-time payment might be treated as a non-current asset if they now own the software, and they can write it off over its useful life. If they don't own the software outright, they can deduct the one-time payment over the remaining term of the deal.

If you have any questions, feel free to contact Tax Ideas Accountants & Advisers. You can also book an appointment through our live calendar.

Written by Ideas Group

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