The tax implications of building a website

The internet is a cornerstone of our daily lives these days.  Indeed, many small businesses are so dependent on their “online” presence that they couldn’t survive without it. But what are the tax implications?

Businesses use the internet in different ways.  Some businesses use their website just for promotions and marketing, while others provide location and contact details. Increasingly, many businesses require eCommerce capabilities as they generate ever larger amounts of revenue through online sales.

Depending on whether a complex or basic web presence is needed, the costs involved in creating, running and maintaining a website can vary greatly. Therefore, estimating the financial demands of website development and maintenance — and the resulting tax consequences — can be far from straightforward.

From a tax point of view, the sticking point with website expenditure is determining whether such costs are essentially of a “capital” nature or are operational outgoings. The latter would normally be tax deductible straight away, the former would normally be written off over several years.

The software that allows the website to operate is typically deemed by the ATO to be “in-house software” and would be classified for tax purposes as a depreciating asset which would be written off over time.

Hardware (such as a computer server) would likely be considered “plant and equipment” and would be depreciated over its effective life for such assets, generally four years.

Costs dedicated to maintaining the website, and expenses associated with uploading content, for example price lists, stock lists, text or pictures, are generally treated as operating costs incurred in the ordinary course of business. These types of costs are usually deductible in the same year that they are incurred. The hosting of a website would also typically be treated this way as this is part of the regular ongoing cost of operating the business.

The following are the tax treatments available for website expenses:

Depreciable assets (written off over the life of the asset)

• Dedicated hardware (server, CPU and other physical assets)
• “In-house software”, which is usually depreciated on a straight line basis at 20% of cost (but see below). This software typically includes:
  • interactive functions
  • e-commerce tools
  • membership or “sign-in” functions
• Note that it is possible instead to allocate in-house software to a specific software development pool and write it off over five years at the following rates:
  • Year 1 – Nil
  • Year 2 – 30%
  • Year 3 – 30%
  • Year 4 – 30%
  • Year 5 – 10%

Once you make the choice to allocate these expenses to a software development pool, you must allocate all later in-house software expenses to a pool. A different pool is created for each income year in which you incur development expenses.

• Wages or contractor fees to the extent that they are in respect of the items above.

Note that capital costs like these may be written off immediately by small businesses where the cost is less than $20,000 and the cost is incurred before 30 June 2025[1]. A small business is one with an aggregated turnover of less than $10 million, which will include many independent retailers. From 1 July 2025, this cost threshold is currently scheduled to fall to a far less generous $1,000.

Immediately deductible expenses

• Cost of third-party hosting
• Upload of simple text content, company information, price lists (replaced periodically)
• Operational costs in the ordinary course of business.

The ATO’s view of a website being “in-house software” or not — and therefore treated as depreciable capital expenditure — can also be coloured by the simplicity and/or complexity of the website. It all comes down to what the ATO refers to as “a question of fact” and degree of complexity.

A very general assertion can be made that the simpler a website is (that is, if it is merely a few documents converted to code) the more likely it is that the business can argue that costs — for example, the periodic uploading of content — are of a revenue nature carried out in the normal course of business. Expenses incurred in creating and uploading content for a bare-bones website are likely to be fully deductible in the year such costs are incurred.

But in cases where more sophisticated website elements come into play, such as adding a shopping cart, the Tax Office will likely take the view that an in-house software asset has been created and deployed, and the business involved may be denied an upfront deduction in the year the costs are incurred, with these costs instead required to be depreciated over time.

[1] This date is still to be legislated. Therefore, technically, the $20,000 threshold expired on 30 June 2024, although the government has announced its extension and is currently locked in a battle in Parliament to get the necessary legislation passed.

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