Is My Website Tax Deductible?
Turns out your Website is not only tax deductible, it’s also somewhat of an anomaly.
Some Australian Business Stats
Who would have thought that in this day and age just under 20 per cent of medium-sized Australian businesses1 (those having 20 – 199 employees) still don’t have a web presence!? According to the Australian Bureau of Statistics (ABS), this contributes to more than half of all Australian businesses being invisible online.
In its June 2015 the ABS, in partnership with the Department of Communications, released a survey about “IT Use and Innovation in Australian Business”. It surveyed a sample of 6640 businesses.
A key finding of the report was that a surprising number of Australian businesses still lack an active web presence. Just 47.1 per cent of Australian businesses have an online presence; a figure that had remained stable since the previous year.
Tax Deductibility + Your Website
Back to the point of website tax deductibility – businesses that have websites will know that there are a number of costs associated with building and maintaining a website.
In January 2017, KPMG Australia wrote that The Australian Taxation Office (ATO) recently finalised its ruling on the deductibility of expenditure on a commercial website (TR 2016/3) and the principles of determining what is tax deductible outright and what is not.
Capital or Revenue?
Given we web and marketing geeks at Web-Sta are in no way qualified to provide taxation advice, we’re told the question you (or more accurately your bookkeeper/accountant) need to ask is whether the expenditure is related to capital or revenue. If it is related to revenue, the expenditure can be claimed as a general deduction. If it is capital, it can be claimed as a deduction under the capital allowance regime. But that’s about as tax-deductible-technical as we’re willing to get.
Here is a bit of a summary of the expenditure the ATO considers to be capital vs revenue in TR4 2016/3:
- Expenditure incurred in acquiring or developing a commercial website for a new or existing business.
- Expenditure on a microsite where the expenditure represents a permanent improvement to the business structure.
- Labour costs directly referable to the enhancement of the profit-yielding structure of the business.
- Expenditure on ‘off the shelf’ software products is of a capital nature where the product provides an enhancement of the profit yielding structure of the business. This may be depreciable as ‘in-house software’
- Expenditure for new functionality to a website or upgrade existing functionality of website that adds to the profit yielding structure.
- Expenditure incurred to migrate content from old to new website or migrated to a new platform as part of an upgrade.
- Social media presence is considered to be a capital asset of a business separate from its website.
- Expenditure to secure the right to use a domain name
- Labour costs incurred as ordinary business expense that doesn’t enhance the profit yielding structure.
- “Off the shelf” software product expenditure that is licenced periodically.
- Periodic lease payments if a commercial website is leased from a web developer provided the business does not also have a right to become the owner of the website.
- Expenditure for maintaining a website eg periodic operating, registration, web hosting and licensing fees.
- Expenditure on a temporary microsite.
- Periodic registration fees for a domain name including initial registration fee.
- Expenditure for regularly upgrading existing website software to allow webpages to appear correctly with new mobile devices, browsers and operating systems.
In Australia, Microbusinesses have 1–4 employees, small businesses 5–19, medium businesses 20–199, large businesses 200+. Australian Small and Medium Businesses (SMBs) make up 97% of all Australian businesses, produce one third of total GDP, and employ 4.7 million people. source: Wikipedia
Source: KPMG Australia
TR stands for Taxation Ruling
Technology is moving so quickly.
The amount of searching, browsing and purchasing taking place on mobile devices, including tablets and phones, is ever-increasing.
If you’re thinking of making modifications or upgrading your website, doing so before the end of this financial year could be a perfect time.