When running a website it can be difficult to determine what you can claim upfront as a tax deduction and what you need to depreciate over time. It’s important to understand the tax implications if you are planning to launch a new website or refreshing an existing one.
Capital cost – can’t immediately claim
If an expense relates to the initial development of the website, it’s considered an expense capital in nature, so it can’t be claimed for an immediate deduction.
Other costs you can’t claim for immediate deduction include:
- changes to your website that improve the business’ ability to make a profit
- costs incurred when migrating content from an old to a new website
- cost of securing the right to use a domain name.
It’s important to check with us when it comes to any software you have developed in-house. For these expenses to be immediately deductible, it must be complex and seen as significantly improving your website.
Revenue cost – can immediately claim
Costs related to the running and usage of your website – such as operating and routine maintenance costs – are considered to be revenue in nature by the ATO.
Costs that you can claim immediate deductions in full for include:
- periodic domain name registration fees
- monthly hosting fees
- upgrading website software to appear correctly on new mobile devices, browsers and operating systems
- Updating your website content with new articles, graphics or advertising.
Reprieve for small business
Before you start combing through all your website expenses to try and work out whether you can claim them upfront, it’s worth noting there is a reprieve for smaller businesses.
If your business qualifies as a Small Business Entity, you may not need to work out whether your website expenses are capital or revenue in nature. Under the government’s popular $25,000 instant asset write-off concession, the business portion of website capital expenses can be written off immediately, rather than depreciated over five years.
To qualify to use the simplified depreciation rules and claim an immediate deduction, your turnover must be under $10 million and the capital expense for your website must have been first used or installed ready for use during the income year you are claiming the expense.
This means if you are a small business and do not have large website costs, you can avoid the problem of working out what is and is not deductible.
Call us on 03 5443 0344 to find out more about how to correctly claim expenses relating to your business website or the instant asset write-off concession.