The ATO has provided business owners with further guidance on the deductibility of website costs in a recent Taxation Ruling.
The Tax Office considers a commercial website as a website which is used in the course of a business, irrespective of whether it is used directly to produce income. This does not include software provided on the website for installation on the user’s device.
Hardware, the right to use the domain name and content available on or incorporated into a website that has independent value to the business are considered separate from a commercial website.
The tax deductibility of a website depends on whether the expenditure on a commercial website is revenue or capital in nature under section 8-1.
Examples of expenditure which are tax deductible in the year incurred include:
– Periodic operating, registration and licensing fees
– Expenditure incurred in maintaining a website
– Modifications to a website that add minor functionality or make minor enhancements to existing functionality
– Domain name registration fees and server hosting costs
– Maintaining a social media presence and updating content mainly for marketing purposes
– ‘Off-the-shelf’ software that is licensed periodically
Costs that are ‘capital’ in nature are generally claimable over a number of years. Examples of capital expenditure include:
– Labour costs that are directly referable to the enhancement of the profit-yielding structure of the business
– ‘Off-the-shelf’ software products where the product provides an enhancement of the profit yielding structure of the business
– Acquiring or developing a commercial website for a new or existing business
– Modifications resulting in structural advantage
– Extended or new functionality
Expenditure that is not deductible under section 8-1 may be ‘in-house software’ and deductible under the capital allowances regime. The expenditure may be deducted over 5 years from the time the in-house software is first used or installed ready for use.
If the expenditure on in-house software is incurred through developing computer software, the expenditure may alternatively be allocated to a software development pool and deducted in accordance with the pool rules.
For small business entities that choose to use the simplified depreciation rules and do not allocate the expenditure to a software development pool, the expenditure is deductible:
– immediately where the asset costs less than the instant asset write-off threshold, and
– otherwise, in accordance with the general small business pool rules.