Deductibility of Website Costs
Your website is probably one of your most important business assets. In the digital and social age, most of your prospective customers start their search online and your website serves as your electronic shopfront, operating 24/7/365. It is your silent salesperson and could be your most important ‘employee’.
Your website could be the difference between gloom and boom and it’s no surprise to find a lot of business owners are ramping up their investment in their website. Before you rush out and build a new website or invest in a makeover, it’s important to understand that not all website expenses are fully tax deductible. The ATO have issued Taxation Ruling TR 2016/3 that states that expenditure on a website can be treated in one of three ways:
- Immediate Tax Deduction
- Deductible Over Time (Capital Allowance); or
- Not Deductible but can form part of the Cost Base of a Capital Gains Tax asset.
In some instances, the expenditure may need be apportioned, with part of the expenditure being an immediate tax deduction and the balance deductible over time (or included in the cost base of a Capital Gains Tax asset). Below is a table that broadly summarises the tax treatment of website expenses, however, we urge you to consult with us if you have any concerns about the treatment of your website expenditure.
|TYPE OF WEBSITE EXPENDITURE
|Immediate Tax Deduction
|Acquiring or developing a commercial website for a new or existing business
|Recurring operating costs
|Labour costs (employee or contractor expenses) excluding costs relating to a major enhancement
|Maintaining a website (routine or expected expenses)
|Modifying a website which adds minor functionality and enhancements
|Major upgrade adding new functionality
|Acquiring a domain name excluding recurring registration or licence fees
This table is not exhaustive and Taxation Ruling TR 2016/3 contains twenty five different examples of various website costs to help in categorising the expenditure. If commercial website expenditure does not qualify as a general deduction (that is, the amount is a capital outgoing), it may still be deductible over time if the expenditure is in relation to in-house software.
In-house software broadly includes software that allows the website owner to interact with the
website users and to provide a user interface. It does not include downloadable software which
the website user can use offline. As such, costs incurred by a business to engage an IT developer to significantly upgrade software and improve website usability would typically constitute in-house software according to example 17 of TR 2016/3.
From 1 July 2015, expenditure relating to in-house software can generally be claimed over a five year period from the date that it is installed ready to use. Further, in-house software expenses may be immediately deductible to small business entities for the income year ending 30 June 2017 (provided the expenditure is less than $20,000 per asset).
We invite you to contact us today if you require further clarification regarding the deductibility of commercial website expenditure or the definition of in-house software.