One of the very first steps most businesses take upon commencing is to create their own website, and rightfully so. The internet is an invaluable source for gaining clientele / sales and growing your business.
The correct tax treatment for deducting your website depends on the nature of the site and can be deducted in one of two ways:
- For a simple website (please see criterion below), the full expense may be deducted in the year incurred.
- Should the website be of a complicated nature, the ATO will deem that an “in-house software” has been created and require the software portion to be deducted over 4 years (should the expense be over the immediate write-off threshold)(expenses incurred prior to 13 May 2008 are to be written off over 2.5 years).
In deciding whether your website is simple or of a complicated manner, the ATO provides the following guidelines:
- Having a “user login” feature which allows for individual client interaction.
- A validation process was undertaken in order to implement the website (ie web designers debugging html codes etc).
- Whether the website was custom designed to meet certain criteria (not of a generic nature).
- The website went through an extensive development process with developers as opposed to being designed (colors, layout etc) using a conventional layout.
Should one or more of the above indicators be present, the “software component” of your website must be separated from the website expenses (ie web hosting, domain registration, designer etc (all deducted immediately)) and be deducted over 4 years (or 2.5 if incurred before 13 May 2008).
If your website simply consists of content on a series of webpages, it is generally regarded that there is no software component for your site.