Claiming Website Costs
Editor: The ATO is currently developing a public ruling on the deductibility of website development costs.
In the meantime, it has provided the following guidance on its website.
If a taxpayer incurs expenses creating or maintaining a website for their business, they may be able to claim the costs as a deduction. The timing of the deductions will depend on when they incur the expenses.
If the expenses are incurred before the business starts, the cost can be claimed over five years (20% of the cost per year), once the business starts up.
After the business has started
Small businesses (i.e., with an aggregated turnover of less than $2 million) can choose to use the simplified depreciation rules.
If they have chosen to do this and the cost is:
- Less than the instant asset write-off threshold (i.e., currently $20, 000), the taxpayer can claim a deduction for the full amount in the income year they incur the expense; or
- Equal to or more than the instant asset write-off threshold, then they allocate it to a general small business pool.
However, the tax payer cannot use the simplified depreciation rules if they have chosen to allocate expenditure on the software to a software development pool.
Note: A taxpayer can only allocate expenditure to a software development pool if it was to develop software, not to buy software off the shelf.
If the simplified depreciation rules do not apply, the taxpayer can claim a deduction for website costs over five years if they incurred them on or after 1 July 2015, as follows:
- If the expense is in-house software – the deduction is 20% of the cost per year; or
- If the expense is included in a software development poll – the taxpayer will deduct different proportions of the expense each year.
Claiming ongoing running and maintenance costs
A taxpayer can also claim an outright deduction for some ongoing expenses associated with running and maintaining their website in the income year the expense is incurred (e.g., domain name registration fees and server hosting costs).
In July 2015, a small business bought a $2,000 website hosting package. The business also has to pay service fees of $50 a year for the domain name.
The small business can claim a deduction of $2,000 in their 2015/16 tax return under the simplified depreciation rules, and a deduction for the monthly and yearly fees in the year they incur those expenses.
A taxpayer set up a software development pool in 2012 when they set up their business’ first website.
In August 2015, the taxpayer incurred $4,500 in costs to update the software behind the website.
The taxpayer has to allocate this expenditure to the software behind the website.
The taxpayer has to allocate this expenditure to the software development pool and can claim a deduction for it over 5 years.