Website expenditure falls into 2 categories:

Revenue expense – generally deductible outright in the year it is incurred; or

Capital expense – the expenditure is either non-deductible, or deductible over a number of years as in-house software under the capital allowance provisions.

However small business entities can obtain an immediate deduction for capital expenditure costing less than $20,000 (see below).

Common types of commercial website expenses

The following table categorises the most common types of website expenditure as either revenue or capital in nature:

Type of commercial website expenses Revenue expense Capital expense
Labour costs (e.g. contractors, wages, superannuation, on-costs etc.)
  • Website labour costs for operational matters
  • Website labour costs that enhance a business’s profit-yielding structure
Off-the-shelf software costs
  • Periodic licence fees
  • Periodic payments to lease a commercial website from a web developer, provided the lessee does not have a right to become the website’s owner
  • Costs to acquire off-the-shelf products that enhance a business’s profit-yielding structure
Usage fees
  • Examples include monthly hosting fees and website monitoring costs
  • N/A
Website acquisition or development costs
  • Expenditure on a temporary microsite set up for a transient marketing purpose
  • Costs of acquiring or developing a website, or adding a permanent microsite, for a new or existing business (note: such expenditure might be for in-house software)
Website maintenance/modification costs *
  • Costs to make changes that add minor functionality or enhancements to an existing website
  • Costs to remedy software faults
  • Periodic costs to upgrade existing website software so webpages appear correctly on new mobile devices, browsers and operating systems
  • Costs to make routine or piecemeal modifications
  • Costs to preserve the useful life of a website
  • Costs to make changes that add new functionality (back-end or front-end), or that materially expand existing functionality, and which provide a structural advantage ^
  • Costs to replace a material part of a website
  • Modification costs related to a work program that significantly upgrades or improves a website
  • Costs to extend the useful life of a website
Content migration costs
  • Content migration costs involved in upgrading an existing website, that do not significantly enhance or replace the website
  • Content migration costs involved in establishing a new website
Social media costs
  • Costs of maintaining a social media presence (e.g. updating social media content)
  • Costs of establishing a presence on a social media site
* Some website maintenance activity requires no modifications (e.g. website monitoring). Other maintenance requires modifications, such as: updating content, embedding (plug-in) applications and security software, bug fixes, search engine optimisation (SEO), and data restoration after a power surge.
^ The factors considered to determine whether a modification represents a “structural advantage” to a business include:

–          The website’s role in the business

–          The nature of the modification to the website

–          The degree of planning and amount of resources employed in the modification

–          The level of approval required for the modification

–          The expected useful life of the modification

Domain name registration costs

Domain name registration costs (periodic fees to register a domain name) and server hosting fees that relate to a taxpayer’s business are usually deductible revenue expenses.

The right to use a commercially desirable domain name can have considerable market value which does not diminish over time. A one-off payment to secure the right to use a domain name (e.g. through a public auction) is likely to be capital expenditure and non-deductible, although it will form part of the cost base of the asset for Capital Gains Tax purposes.

Small business entities

Small businesses with an aggregated turnover of less than 10 million are entitled to an immediate deduction for capital expenditure in developing a website costing less than $20,000 and first used or installed ready for use by 30 June 2018.

Capital expenditure of $20,000 or more (which cannot be immediately deducted) should be placed into a small business simplified depreciation pool and depreciated at 15% in the first income year and 30% each income year thereafter.

Questions or further information
If you have any questions or require assistance with ensuring you correctly claim website expense tax deductions, Nobel Thomas today at  03 9999 5900.