It is becoming increasingly important for businesses in the retail and commercial world to build a strong competitive and interactive online presence, usually through establishment of a website, its maintenance and upgrades as required. As websites become more complex, hence costly, the tax deductibility becomes significant.
The tax treatment afforded website development costs depend on the nature of the expense – i.e. hardware, software and content.
Hardware definition – plant and equipment used to support a website (e.g. server to host website).
Tax treatment: Depreciable over the asset’s effective life.
Software definition – computer program designed to perform particular tasks. Indicators of the presence of software in a website are:
1. Website includes interactive features – e.g. member login.
2. Testing and debugging for errors required.
3. Website specifically designed to meet set criteria.
4. Supportive document required to assist with the various phases in the lifecycle of the website.
Tax treatment: Depreciable on a straight line basis over four years, or elect as an option to allocate to a ‘software pool’ to be depreciated at a rate of 40% in year two or three, and at 20% in the final year. Software not depreciated in the first year.
Content definition – description given to information on a website – e.g. graphics, video files and catalogue of goods.
Tax treatment: Immediately deductible if the content relates to an existing business, or deductible over five years as a “black-hole” expenditure if the content relates to establishing a new business.
It should be noted the foregoing refers to the treatment of development costs – e.g. a new website or an upgrade of an existing website and ordinary ongoing maintenance of an existing website, including content update, is of course deductible immediately.
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