Creating and maintaining a website is expensive because it’s complicated. Lots of small businesses pay hefty costs to have their sites run because they don’t have the time or expertise to do it themselves. It’s just as well then the Tax Office has provided guidance on how you can go about claiming a deduction for your website development costs.
If you incur the expense before you actually start running your business, you can claim the cost over five years (20% of the cost per year) once you start up.
After you start Small business entity
If you’ve already started up and your “aggregated turnover” is less than $2 million, you can use the simplified depreciation rules. That means:
- If the cost is less than the instant asset write-off threshold of $20,000, you can claim a deduction for the full expense amount in the income year you incur the expense
- If the cost is equal to or more than the instant asset write-off threshold, you allocate it to a general small business pool.
You cannot use the simplified depreciation rules if you’ve chosen to allocate expenditure on the software to a software development pool.
Non-small business entity
From 1 July 2015, software development pool expenditure is deductible over five years. The rules work like this:
- for in-house software, you deduct 20% of the cost per year
- if the software is included in a software development pool, you deduct different proportions of the expense each year.
Note that in-house software costs can only be added to the software development pool if they were incurred to develop software, not to buy software “off the shelf”.
You can also claim an outright deduction for certain “ongoing running and maintenance costs”, like domain name registration fees and server hosting costs in the same income year the expenses are incurred.
The Tax Office has provided some examples to illustrate its rules:
In July 2015 your small business bought a $2,000 website hosting package. You also have to pay service fees of $50 a month, plus $50 a year for the domain name. You can claim a deduction of $2,000 in your 2015-16 tax return under the simplified depreciation rules, and a deduction for the monthly and yearly fees in the year you incur those expenses.
You set up a software development pool in 2012 when you set up your business’ first website. In August 2015, you incurred $4,500 in costs to update the software behind the website. You have to allocate this expenditure to the software development pool and can claim a deduction for it over 5 years.