Daily Australia Tax Update: 9 September 2026 : Software Royalty Ruling Under Fire, Trust Tax Deadline Looms & SMSF Trustee Prosecuted

TITLE: Key Tax Compliance Updates: Software Royalties, Trust Minimum Tax, SMSF Lodgments, and Due Dates

Australia’s tax compliance landscape is moving quickly. Today’s key issues affect software and cloud businesses, discretionary trusts, SMSF trustees, employers and every organisation managing annual lodgments.

Review cross-border software payments after TR 2026/2

The ATO finalised Taxation Ruling TR 2026/2 on 4 September 2026. The ruling explains when payments under software licensing, distribution, intermediation, streaming and cloud arrangements may be treated as royalties.

Where a payment is consideration for the use of, or right to use, copyright or other intellectual property rights, Australian royalty withholding tax may apply. The general domestic rate is 10%, although an applicable tax treaty may reduce the rate or affect the outcome.

The ruling can be relevant where an Australian business pays an overseas provider or group company for:

• Software licences or the right to reproduce software.
• Rights to modify, adapt, communicate or distribute software.
• Cloud or hosted software access involving intellectual property rights.
• Know-how or technical assistance connected with licensed IP.
• Software embedded in hardware.
• A combination of software rights and implementation services.

The ruling applies to payments made both before and after its issue date.

Understand the PCG risk zones before changing your process

The ATO also released draft Practical Compliance Guideline PCG 2026/D4. Consultation closes on 2 October 2026.

The draft guideline provides a risk-zone framework for software intermediation and distribution arrangements. It includes a green zone for straightforward resale of existing software copies where the reseller does not receive or exercise additional copyright rights.

It also contemplates lower-risk treatment where taxpayers recognise a reasonable part of an outbound payment as a royalty, rather than treating the entire amount as a service or distribution fee.

Do not assume that a green-zone example automatically removes your legal obligations. First, compare the commercial reality with the contract. Then document:

1. What rights are granted.
2. Which entity owns the relevant intellectual property.
3. What the Australian entity actually does.
4. How the payment has been calculated.
5. Which part relates to royalties, services, goods or distribution.

The issue has attracted international attention. The US Software & Information Industry Association has urged Australia to overturn the ruling, arguing that it departs from the OECD Model Tax Convention. The Australian Financial Review reported on 9 September that US industry groups are concerned about software, streaming and cloud payments being treated differently in Australia from other jurisdictions.

The ATO’s final ruling and draft guidance newsroom page and PCG 2026/D4 should be reviewed by businesses with international software arrangements.

The ATO has also issued a decision impact statement on Oracle Corporation Australia Pty Ltd v Commissioner of Taxation [2025] FCAFC 145, in which the Full Federal Court stayed domestic proceedings while the Mutual Agreement Procedure (MAP) continues. As reported by Accounting Times, this underlines the importance of preserving treaty dispute rights where software payments create possible double taxation.

Prepare now for the proposed 30% discretionary trust minimum tax

Treasury consultation on exposure draft legislation for a proposed 30% minimum tax on certain discretionary trusts closes on 18 September 2026.

The draft includes an Excluded Election Trust (EET) option. This would allow eligible trusts to elect into a regime involving fixed beneficiary percentages rather than remaining subject to the proposed minimum tax rules.

An election may offer an alternative to restructuring, but trustees should not treat it as simple or easily reversible.

Complete this trustee review before considering an election

Trustees should:

• Review the trust deed to confirm the scope of beneficiary and distribution powers.
• Map current and intended beneficiaries, including companies and other entities.
• Test historical and expected allocations against the proposed fixed percentages.
• Check corporate beneficiary eligibility and the consequences of distributions to each entity.
• Document governance decisions, approvals and the commercial reasons for the chosen approach.
• Model tax outcomes under both the minimum-tax rules and the proposed election.
• Consider a private ruling where the application of the draft rules is uncertain.

Businesses in Sydney, Melbourne, Brisbane, Perth, Adelaide and Canberra should begin gathering trust deeds, distribution resolutions and beneficiary records now. Waiting until legislation is finalised may leave too little time to test the practical consequences.

Read the Treasury consultation material and monitor the final legislation before making an irreversible structural decision.

An SMSF trustee’s conviction reinforces personal responsibility

A South Australian Supreme Court appeal has reinforced that an SMSF trustee remains responsible for lodging the fund’s annual returns, even when an accountant has been engaged.

The trustee failed to lodge returns for the 2021, 2022 and 2023 financial years. The trustee was prosecuted, received a criminal conviction and was fined $3,981. The appeal was dismissed.

The case, reported by SMS Magazine, demonstrates that outsourcing preparation does not transfer the trustee’s legal responsibility.

The ATO can use prosecution for repeated lodgment failures. A conviction may also create wider consequences for people holding public positions or roles involving government.

If an SMSF return is overdue, act immediately:

1. Confirm which returns and audits are outstanding.
2. Contact the fund’s accountant or tax agent.
3. Check whether the fund’s records are complete.
4. Lodge the outstanding returns and address any ATO correspondence.
5. Keep evidence of every instruction, response and lodgment.

Confirm your actual income tax due date

The ATO uses several common income tax lodgment dates:

• 31 October : often applies to self-lodgers, clients with overdue prior-year returns, clients added to an agent’s client list after the relevant cut-off, and taxpayers the ATO has specifically advised they must lodge by that date.
• 31 January : generally applies to taxable large and medium entities (other than individuals), including taxable head companies of consolidated groups that include a medium or large member.
• 28 F : applies to certain other entities and scenarios as advised by the ATO.