• Service: Tax
  • Industry: Technology
  • Type: Business and industry issue, Regulatory update
  • Date: 29/05/2013

Tax Insights

KPMG's analysis of tax issues and developments.

Paul Sorrell

Paul Sorrell
Partner, Tax

+61 2 9335 8613

Draft ruling: treatment of deferred revenue in software industry 

by Paul Sorrell, Technology Industry Specialist

Today, the Australian Taxation Office (ATO) released the much anticipated draft taxation ruling on the tax treatment of deferred revenue in the software industry, TR 2013/D2. This follows an earlier technical discussion paper released in July 2012, and is the outcome of subsequent submissions/consultations. Most notably, in November 2012 a consultation meeting, hosted by KPMG, was held on this topic between the ATO and software industry representatives.

The draft ruling provides a more considered and less narrow approach compared with the earlier discussion paper, and also provides multiple examples that aim to assist with understanding and applying the ATO's proposed tax treatment. Further, there are now observations about hosted software arrangements (i.e. cloud computing).


The ATO introduces the concept of a “contingency of repayment”. Broadly, deferral is possible where a contractual amount is subject to a contingency of repayment in the event of non-performance, being:

  • a contractual obligation to make a refund
  • a demonstrated commercial practice to make a refund, or
  • contractual exposure exists for damages.


Various factors need to be considered, including precise contractual terms, empirical evidence, marketplace pricing, contextual relevance/value, corporate policies, contractual damages (vs tort/consumer law), record keeping and accounting treatment.


Software businesses need to undertake a careful review of all relevant factors to determine how they may be impacted by the proposed tax treatment in the draft ruling. Changes to contractual terms, as well as documentation/ record keeping procedures may be required.


The draft ruling is proposed to apply both retrospectively and prospectively. Submissions are due by 26 June 2013.


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