Who can claim
This deduction is available to individuals and companies.
- The expense is incurred in carrying on an existing income-producing business.
- Any private, capital or non-income-producing component is reasonably apportioned or excluded.
- The royalty is incurred for intellectual property or another right used to earn assessable business income.
What you cannot claim
- Do not include private drawings or personal expenses.
- Do not treat a capital asset, improvement or acquisition cost as an ordinary operating expense.
- The capital cost of acquiring an enduring intellectual-property right is not an ordinary royalty deduction.
- Private, exempt-income and non-assessable non-exempt-income portions are excluded.
- A payment to a non-resident can require royalty withholding before a deduction is available.
How the amount is worked out
Claim the deductible revenue royalty for the business-income-producing period, apportioned where necessary and subject to non-resident withholding compliance.
Records the ATO expects
- Royalty or licence agreement
- Invoices and payments
- Recipient residency details
- PAYG withholding and remittance evidence where required
Where this rule comes from
Primary source: Income Tax Assessment Act 1997 section 8-1 (Section 8-1). Reviewed 30 July 2026. Covers the 2025-26 and 2026-27 income years.
Supporting sources:
- Income Tax Assessment Act 1936 section 128B (Section 128B withholding tax on royalties)
- Income Tax Assessment Act 1997 section 26-25 (Section 26-25 withholding compliance)