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27 Jun 2017

Tax Deductions for Commercial Websites

In late 2016, the Australian Tax Office (ATO) released a Tax Ruling (TR 2016/3) which set out their approach to the deductibility of costs relating to commercial website expenses, including expenditure in acquiring, developing, maintaining, or modifying a business website.

The ATO considers a website to be an intangible asset consisting of software, and including software integrated into the website for online use for a user, such as a website which allows users to connect to a database and update their own details.

Other expenses relating to the website are treated separately such as:

  • Software available for users to download from a website (for example, where you have a software program on your website that customers can download – the software that is hosted on the website is treated separately to the website itself).
  • The hardware required to use or maintain a website (such as servers and computers).
  • The domain name (e.g. www.ipsumadvisors.com.au).

 

Understanding Your Commercial Website Expenses

Broadly speaking, revenue-type expenditure on commercial websites will generally be deductible, whereas capital-type expenditure will generally not be deductible.

The following table categorises the most common types of website expenditure as either revenue or capital-type.

Type of commercial website expense

Revenue expense

(Generally deductible immediately)

Capital expense

(Generally non-deductible or deductible over several years)

Labour costs (e.g. contractors, wages, superannuation, on-costs etc.)
  • Website labour costs for operational matters
  • Website labour costs that enhance a business’s profit-yielding structure
Off-the-shelf software costs
  • Periodic licence fees
  • Periodic payments to lease a commercial website from a web developer, provided the lessee does not have a right to become the website’s owner
  • Costs to acquire off-the-shelf products that enhance a business’s profit-yielding structure
Usage fees
  • Periodic operating or usage fees
  • N/A
Website acquisition or development costs
  • Expenditure on a temporary microsite set up for a transient marketing purpose
  • Costs of acquiring or developing a website, or adding a permanent microsite, for a new or existing business (note: such expenditure might be for in-house software)
Website maintenance/modification costs (*)
  • Costs to make changes that add minor functionality or enhancements to an existing website
  • Costs to remedy software faults
  • Periodic costs to upgrade existing website software so webpages appear correctly on new mobile devices, browsers and operating systems
  • Costs to make routine or piecemeal modifications
  • Costs to preserve the useful life of a website
  • Costs to make changes that add new functionality (back-end or front-end), or that materially expand existing functionality, and which provide a structural advantage (^)
  • Costs to replace a material part of a website
  • Modification costs related to a work program that significantly upgrades or improves a website
  • Costs to extend the useful life of a website
Content migration costs
  • Content migration costs involved in upgrading an existing website, that do not significantly enhance or replace the website
  • Content migration costs involved in establishing a new website
Social media costs
  • Costs of maintaining a social media presence (e.g. updating social media content)
Costs of establishing a presence on a social media site
(*) Some website maintenance activity requires no modifications (e.g. website monitoring). Other maintenance requires modifications, such as: updating content, embedding (plug-in) applications and security software, bug fixes, search engine optimisation (SEO), and data restoration after a power surge.
(^) The factors considered to determine whether a modification represents a “structural advantage” to a business include:

  • The website’s role in the business
  • The nature of the modification to the website
  • The degree of planning and amount of resources employed in the modification
  • The level of approval required for the modification
  • The expected useful life of the modification

 

Domain Name Registration Costs

Domain name registration costs (periodic fees to register a domain name) and server hosting fees that relate to a taxpayer’s business are usually deductible revenue expenses.

The right to use a commercially desirable domain name can have considerable market value which does not diminish over time. A one-off payment to secure the right to use a domain name (e.g. through a public auction) is likely to be capital expenditure and non-deductible, although will form part of the cost base of the asset for Capital Gains Tax purposes.

Questions?

Building, redeveloping or maintaining your business website can be a significant investment of time and money.  Talk to your Stewarts advisor to find out if your expenses are tax deductible!

General advice disclaimer The information provided is general in nature and does not take into account your personal situation and is not to be construed as advice. We specifically disclaim any losses or damages suffered by any party who may rely on this information in relation to their personal taxation or financial affairs.