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How to Treat Your Website for Tax Purposes

As the end of the financial year approaches, thoughts turn to tax. So how should you treat your website investment to best advantage your tax situation?

Your Website is an Asset!

No doubt your website is an asset to your company bringing in leads and opportunities and establishing your brand in the market place (if not, come see Exa!).

The Australian Tax Office also sees your website as an asset. As per ATO rulings, websites are in the nature of 'in-house software'. It is therefore a depreciable asset, with a taxation life of 2.5 years. This is a short life cycle compared to other business assets such as tractors (12 years) and carpets (7 years).

You have a choice of deducting the expenditure either by prime cost (which means a quicker schedule of deductions) or diminishing value (a slower level of deduction which lasts longer).

Accordingly, assuming your $50,000 website goes live on July 1st 2011, this is how it would be deducted:

Income year ending
30th June
Prime Cost Diminishing Value
 
2011 $20,000 $30,000
 
2012 $20,000 $12,000
 
2013 $10,000 $4,800
 
2014 0 $1,925
 
2015 0 $765
 
2016 0 $306
 
2017 0 $122
 
2018 0 $49
 
2019 0 $19
 
2020 0 $8
 
2021 0 $3
 
2022 0 $1
 
2023 0 $1
 

Notes:

  • The depreciation only commences from the time the website goes live.
  • Payments in a financial year are calculated pro rata from the time of payment to 30th June that year, so if your website goes live on 25th June you would only be able to claim a very small amount of depreciation.
  • If you use the Simplified Tax System (STS) then you can automatically claim 15% depreciation in that financial year - regardless of how close the website is launched to 30th June.

WebMagnet is 100% deductable

Websites that work well for companies as a lead generating asset will no doubt have ongoing expenditure to ensure that they are ranked consistently on Search Engines. Exa's WebMagnet is such an annual investment that delivers maximum traffic to your website.

WebMagnet is viewed by the ATO in the nature of an ongoing service. As per taxation ruling 2003/931 these fees are classed as enhancement and support fees for in-house software. Therefore, WebMagnet should be fully deductible as an expense in the year in which it was incurred.

Support and Hosting Fees are 100% deductible

All websites should incur some sort of support and/or hosting fee. Exa's monthly Exacare Total Support covers comprehensive 24x7x365 website support that includes hosting, maintenance and updates, reports and hacker insurance.

This is simply an illustration of Exa's interpretation of current tax laws, we advise all readers to consult their tax professional for more advice.

OTHER TAX TIPS AND REMINDERS

There are a number of options available when considering year-end tax planning strategies. The following lists some of the items that should be considered, but should not be taken as a fully comprehensive list.

Small Business Entities - SBE

If your business qualifies and elects to be classified as a SBE, additional deductions may be available. Examples of concessions available include accelerated depreciation, upfront deductions for eligible assets, capital gains concessions and certain prepayment deductions.

Superannuation payments

Superannuation payments must be cleared by year end to be claimed as a deduction in that year. Therefore if cash flow allows, the June quarter superannuation liability should be paid by 30 June, instead of waiting to pay by the due date of 28 July. However consideration should be given to ensure the contribution caps are not exceeded for the year.

Interest

Any general interest charges incurred by the Taxation Office in the financial year are deductible, however penalties remain non-deductible. Also consider requesting for remission of these interest charges (and penalties) to the Tax Office.

Dividend payments

If the business structure is a company and it has paid tax in the past, there may be franking credits that can be utilised by the shareholder. This can be particularly beneficial where the shareholder is a low income earner for the same financial year.

Motor vehicle deductions

There are a number of different methods of claiming motor vehicle deductions, each with different record keeping requirements. Generally the better the records you keep, the greater the options of methods of motor vehicle deductions available. This means that you will be able to choose the method with provides the maximum deduction, instead of being limited in choices and possibly a smaller motor vehicle deduction.
Other opportunities to consider

  • Accruals
  • Write-off scrapped depreciating assets
  • Review effective lives of depreciating assets

In all circumstances due to the complex nature of tax law, it is recommended that you seek specific advice from your accountant.

Source: Sothertons Melbourne
For further information on Tax and other Accounting Services contact Sothertons here.
Sothertons is a client of Exa.

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