Expensing and Depreciating Software and Website Costs
Author │ Chris Ambler – MAS Tax Accountants Canberra
April 2018
For many new and innovative firms in Canberra, software and app development is a key component of their business model. Investing in a company website is a central part of both an integrated marketing campaign and successful client experiences. For some businesses, software and online systems can be costly to set-up and maintain, so it’s nice to know that you may be eligible to claim some of it back on tax. We can help you with claiming business website expenses and provide useful business tax solutions.
Perhaps the most commonly asked tax question relating to software and website development is whether these are an expense and are claimable immediately or are they an asset and will depreciated over time.
Expensing or depreciating websites
Expenditure on a commercial website can either be expensed or depreciated, depending on whether it is revenue or capital in nature.
Expenditures that are linked to revenue are generally deductions for the financial year in which they occurred.
Expenditures includes:
- Costs to maintain a website
- Spending that does not alter the functionality; improve the efficient functioning or extend the useful life of the website
- Migration of web content due to the replacement of hardware without material change to the website.
- Developing a social media profile, such as Facebook or LinkedIn, where the cost of setting up the profile is minor and the profile is maintained mainly for marketing purposes
Capital expenditure includes:
- The cost of establishing a new website
- The cost of migrating content to a new website
- Creating a social media presence
This distinction is important, as capital expenditure on a website cannot be used as deduction unless it is treated as ‘in-house’ software under Division 40 and 328 of the Income Tax Assessment Act 1997.
Further information on claiming website expenses can be found on the Business Gov website.
Expensing or Depreciating Software Development
Software development is in-house software where is its software that you acquire, develop or have another entity develop.
Newly developed in-house software may be depreciated on a prime cost basis at 20% per year in accordance with the basic capital allowance rules. Alternately businesses can create a software development pool. Under this scenario no deduction is allowed in the first year but 30 per cent per annum can be written off in each of the next three years and 10 per cent in the final year. However, a software development pool must be created for each financial year.
Find more information on the tax treatment of software development on the ATO website.
Have a question about your business-related website and software tax claims? Speak with our professional Tax Accountants today!
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