The cost in creating, running and maintaining a website can vary greatly. From a tax point of view, the website expenditure needs to be classified as either “capital” in nature, or operational in nature.
The Tax Office wants to deem your website as an asset. As per ATO ruling, which now has been withdrawn, only adds to the confusion. Up to now website establishment costs which have been viewed by the ATO in the nature of Capital, have been classified as either an “‘in-house software”, a depreciable asset, with a taxation life of 2.5 years, otherwise depreciated over an effective life of 4 years.
If the expense incurred is substantial, and the functionality of the website is extensive (indicators – number of pages, shopping cart, extensive products or service items, video links, membership logins, etc.), the Tax Office more so consider it capital in nature.
A simple website with simple functionality and lower establishment costs may be in the nature of operational expenditure, and or likely to be covered by the small business concessions (see below).
Costs to engage a website developer to construct a website can range from $500 to $50,000, the higher the cost the more likely the cost will be considered to be capital by the Tax Office
Costs to provide ongoing updates of content, such as changes to price list or changing details of goods or services on offer, replacing text or pictures, hosting, can generally be seen as operating costs in the ordinary course of business.
Small Business Entities (SBE) (under $2 million turnover)
For the 2012-13 tax year, under the instant asset write-off provisions, you were able to write off a $6,500 immediate deduction, and website capital cost over this amount could be claimed at 15% in the first year, and 30% in subsequent years.
From the 1st January 2014, the instant asset write-off has been reduced to $1,000, assets over $1,000 will go into the general pool of 15% in the first year, 30% in subsequent years.
Many small business that spend smaller amounts on developing a website, may benefit from the various instant asset write-off’s available for any amounts deemed to be capital.
Non Small Business Entities (NSBE) (over $2 million turnover)
Businesses turning over more than $2 million have a much greater need to separate capital from operational cost of their websites for tax treatment.
In-house software Development Pool.
Website Development costs considered to be capital in nature, have been allowed “In-house software” classification, can be pooled and written off over 2.5 years.
NSBE however will not get any deduction for expenditure in a software development pool in the income year in which they incur it. Instead NSBE are allowed deductions at the rate of 40% in each of the next two years and 20% in the year after that.