Expenditure on a commercial website


The ATO has finally released a new ruling dealing with the treatment of website expenditure. The previous ruling on this issue was withdrawn in 2009.

A website is considered an intangible asset consisting of software and the content available on the website to the extent it has no separate identity or value.

The ruling considers whether various expenses incurred in relation to websites would be revenue or capital in nature.

Expenditure incurred in developing a website is a capital expense, while expenditure in maintaining the website is of a revenue nature. The costs of modifying a website can be capital or revenue in nature, depending on the facts in each case.  The more the modification relates to improving the profit yielding structure of the business, the more likely the expense will be capital in nature.

Capital expenditure incurred in relation to creating or modifying a website can be deducted under the depreciation rules if it is classified as in-house software. In-house software is defined as software, or the right to use software, that is mainly for the taxpayer (or their associate) to use in performing the functions for which the software was developed.  The cost incurred in the development of in-house software may be deducted over 5 years from the time it is used or installed ready for use.  Alternatively, the expenditure may be allocated to a software development pool or (if applicable) dealt with under the small business simplified depreciation rules (including the instant asset write-off provisions).

Any expenditure that is capital in nature but does not form part of the cost of in-house software will form part of the cost base of a cgt asset. This means that deductions will not generally be available under the blackhole expenditure provisions in section 40-880.

The ruling contains a wide range of examples as well as a useful flowchart for characterising commercial website expenditure.