It’s no secret that designing, developing and maintaining a website can be costly. So if you’re a business owner, or run a commercial website of any kind, you might be wondering whether these costs are tax deductible.
Some of the common website costs we get asked about with regards to tax deductions include:
- Web hosting
- Licensing fees
- Maintenance and updates of software
- Website modifications ?
- Content migration
- Social media
- Domain names
- Labor costs.
The ATO recently announced their new tax rule regarding the expenses of commercial website. And we won’t lie, there is A LOT to think about when it comes to whether or not your website costs are tax deductible. But in short, it all comes down to one fundamental question:
Is the website expense capital or revenue in nature?
Expenses that are capital in nature may be tax deducible. Expenses that are revenue in nature are typically non-deducible. So how do you identify whether your website expense is capital or revenue in nature?
Capital
“A capital expenditure is assumed to be consumed over the useful life of the related fixed asset.”
Example: You have paid for a new functionality or upgrade to your website, which in turn assists with sales and profits.
Revenue
“A revenue expenditure is assumed to be consumed within a very short period of time.”
Example: Your business sets up a short-term landing page for a special promotion that is running for one month.
I know what you’re thinking – the costs incurred in relation to my website could potentially be revenue or capital in nature. That’s right. It ultimately depends on what prompted the payment in the first place!
Generally, the ATO considers commercial websites to be a capital gains asset (CGT), which means the expenditure relating to the website is non-deductible. But, if you can prove your website’s expense was revenue in nature, then good news, it could be tax deductible.
Are you following me so far? Well sorry, we’re about to throw another spanner in the works.
There is a catch! And it’s good catch. The ATO recognises some situations where an immediate deduction can be claimed on developing or acquiring a website, even if the expense is capital in nature. Your disbursement could still be tax deducible if it was to fund an intangible depreciating asset, in which case it you are able to claim depreciation deductions in relation to the expenditure.
As you can see, the tax treatment of commercial websites can be a huge grey area. So as always, we recommend you consult your accountant to discuss your individual circumstances and ensure you get the best tax return possible whilst being tax compliant.
If you’d like to chat to us about your business’s website and find out if its expenses are tax deductible, please contact us today on 07 3367 3155.
