TITLE: ATO Software Royalties, Contractor Super and CGT Concession Changes: What Australian Businesses Need to Know
Review software payments under final ATO royalties ruling
The ATO released Taxation Ruling TR 2026/2 on 4 September 2026. It explains when payments made under software intermediation and distribution arrangements may be treated as royalties for Australian tax purposes.
The key issue is whether a payment is made for the use of, or the right to use, copyright or other intellectual property. This can include implied rights, even where the contract does not expressly describe a copyright licence.
The ruling may affect:
- Cloud software and SaaS distribution arrangements.
- Subscription platforms and app marketplaces.
- Australian entities distributing offshore software.
- Businesses that do not own, host or develop the underlying software.
- Cross-border payments to software owners or licensors.
This means a payment may potentially attract Australian royalty withholding tax even where the Australian business only facilitates access, distribution or subscriptions. The ATO position is relevant to major multinational technology groups, including businesses operating in ecosystems associated with Apple, Google, Microsoft and Amazon.
The ruling applies to arrangements both before and after its release. You should therefore review existing agreements, payment flows and withholding processes rather than limiting your review to new contracts.
The ATO also issued draft Practical Compliance Guideline PCG 2026/D4. It proposes five colour-coded risk zones:
- White.
- Green.
- Yellow.
- Amber.
- Red.
Many SaaS and subscription distribution models may fall within the amber zone unless the business recognises a royalty position and manages the related withholding obligations appropriately.
Consultation closes on 2 October 2026. Businesses with affected arrangements should review the draft guideline and document their position before the deadline.
Read the final ATO software royalties ruling and the draft PCG 2026/D4 compliance framework.
Separate contractor labour costs before calculating super
The ATO has released draft Superannuation Guarantee Determination SGD 2026/D1. It clarifies how businesses should calculate superannuation obligations for contractors who are treated as employees under the extended definition.
The core rule is straightforward. You must identify the part of a contractor payment that relates to the individual’s labour. Superannuation applies to that labour component.
Non-labour amounts may generally be excluded where they relate to items such as:
- Materials.
- Plant or equipment hire.
- Genuine reimbursements.
- Third-party costs.
- Costs paid as the client’s agent.
- The GST component.
Invoices that clearly separate labour and non-labour costs are easier to process. If an invoice combines everything into one amount, you need a reasonable and documented methodology for calculating the labour component.
Your records should explain:
- What services the contractor provides.
- Which costs relate directly to personal labour.
- Which costs are materials, reimbursements or third-party charges.
- How you calculated the labour proportion.
- Why the methodology is reasonable for the relevant industry and contract.
This guidance is particularly important now that Payday Super is in effect. Payroll and accounts payable systems must identify qualifying contractor payments accurately and process superannuation on time.
Review contractor agreements and invoice templates now. Doing so will reduce the risk of underpayments, correction work and ATO compliance action.
See the ATO draft SGD 2026/D1 and the ATO information on working out whether you must pay super for contractors.
Prepare for the proposed Innovative Business CGT Concession
Treasury released exposure draft legislation for the Innovative Business CGT Concession on 11 September 2026.
The proposed concession is intended to support investment in eligible innovative Australian companies. It would provide a 50% capital gains tax discount where the relevant requirements are met.
The exposure draft proposes:
- A 15-year eligibility window for qualifying companies.
- An aggregate company turnover threshold of $50 million.
- A minimum holding period of three years.
- Removal of the previously proposed $10 million lifetime cap on eligible gains.
The concession remains proposed. It is not yet a final law. Eligibility will depend on the detailed legislation, the company’s structure, the nature of its innovation, the timing of the share issue and the investor’s holding period.
This could be relevant to Australian startups, technology businesses, digital companies and investors holding qualifying equity. However, you should not assume that every early-stage or high-growth company will qualify.
Treasury submissions close on 28 September 2026. Businesses and investors should review the official Treasury exposure draft consultation and monitor the final legislation before relying on the proposed concession.
Keep records ready for wider ATO visibility
The ATO’s passenger movement data-matching program will provide broader visibility over selected individuals entering and leaving Australia through the 2028–29 financial year.
The program can match passenger information with tax registration, lodgment, payment and residency records. This may affect internationally mobile directors, contractors, employees and business owners.
Keep your records consistent across:
- Travel dates.
- Residency positions.
- Payroll records.
- Australian and offshore income.
- Company management activity.
- GST, income tax and superannuation reporting.
The ATO is also continuing its push to address approximately $115 billion in unpaid tax debt. On-the-spot late interest waivers are capped at $4,500. Requests above that amount may require formal review by a specialist team.
Accurate bookkeeping and timely filing remain the best way to avoid preventable interest and debt escalation.
Use a structured global compliance process
These developments show why Australian businesses with cross-border operations, contractor workforces or investor arrangements need a structured compliance process.
A coordinated approach should cover:
- Reviewing software and distribution agreements against TR 2026/2 and PCG 2026/D4.
- Documenting contractor labour splits for superannuation purposes.
- Monitoring the Innovative Business CGT Concession as it progresses through Parliament.
- Keeping residency, payroll and reporting records aligned.
- Addressing ATO debts early to avoid interest escalation.
Given the pace of reform across royalties, superannuation, capital gains tax and data matching, seeking advice specific to your circumstances is essential. The ATO’s positions apply to existing arrangements as well as new ones, so a proactive review now can reduce the risk of unexpected withholding liabilities, superannuation shortfalls and compliance action.
