As part of the 2008 Federal Budget, the government announced a change to the statutory period over which capital expenditure on depreciating assets that are 'in-house software' can be written off. The effective life prescribed for in-house computer software was increased from 2 1/2 years to four years.
This measure applies to items of 'in-house software' that start to be held after 7.30pm (AEST) on 13 May 2008.
'In-house software' is computer software, or the right to use computer software, that you acquire, develop or have someone else develop and that is mainly for you to use in performing the functions for which the software was developed (that is, not for resale). This could include off-the-shelf software acquired for use by the taxpayer. Computer software is not 'in-house software' if a deduction for its cost is available outside the capital allowance provisions.
The cost of 'in-house software' will continue to be written off on a straight line basis.
For in-house software you purchased prior to 7.30pm (AEST) on 13 May 2008, the statutory period of write-off is 2 1/2 years.
Example 1
Natarshia acquired a software licence on 1 July 2007 for $4,400 including $400 GST to use AccountsSoft for preparing the annual accounts for her business. The licence entitles Natarshia to use AccountsSoft on a permanent basis. The licence fee would be on capital account and so written off over the statutory period.
As the licence was acquired before the commencement of the new four year statutory effective life measure, Natarshia would write off the purchase over a 2 1/2 year period.
For the year ended 30 June 2008, Natarshia would be able to claim a deduction for her expenditure on the software of $1,600 ($4,000 (net of $400 input tax credits) x 100% / 2 1/2).
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For in-house software you purchased after 7.30pm (AEST) on 13 May 2008, the statutory period of write-off is 4 years.
Example 2
James acquired a capital item of software on 1 July 2008 for $11,000 including $1,000 GST. James uses the item 100% for business. The software qualifies as in-house computer software.
James is affected by the in-house computer software amendments.
For the year ended 30 June 2009, James can claim a deduction of $2,500 for his expenditure on the software ($10,000 (net of $1,000 input tax credits) x 100% / 4).
Prior to the in-house computer software amendments, he would have been able to claim $4,000 ($10,000 x 100% / 2 1/2).
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For items of in-house software that were already held prior to the 2008 change, any modifications that represent a second element of cost of the existing asset would be written off over the remainder of the asset's effective life.
Example 3
Using example 1, on 1 July 2008 Natarshia acquired an upgrade for $2,200 including $200 GST that allowed AccountsSoft to prepare consolidated accounts. The modification is on capital account and is a second element of cost of the existing AccountsSoft asset. Natarshia would write off the additional cost over the remainder of the asset's 2 1/2 year statutory write-off period.
In the absence of further capital expenditure on that asset, for the year ended 30 June 2009, Natarshia would claim a deduction for her software of $2,933 ($2,400 (opening adjustable value) plus $2,000 (second element cost net of input tax credits) x 100%) / 1 ½ (remaining effective life)).
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An item of in-house software that you started to hold before 7.30pm (AEST) on 13 May 2008 but which you modified after 7.30pm on 13 May 2008 to create a new and different depreciating asset will be subject to a four year statutory write-off period.
Example 4
Using example 1, on 1 July 2008 Natarshia engages a specialist to merge AccountsSoft with another item of in-house software she acquired on 1 July 2007 to produce a unified tax and accounting system at a cost of $5,500 (including $500 GST). This joined software represents a new and different depreciating asset from the two original assets, such that Natarshia started to hold the new asset on 1 July 2008.
As this new software started to be held after the commencement of the new four year effective life measure, Natarshia would write the cost of the new asset off over the new four year statutory period.
In the absence of further capital expenditure on that asset, for the year ended 30 June 2009, Natarshia would claim a deduction of $2,450 ($2,400 (adjustable value of AccountsSoft) plus (say) $2,400 (adjustable value of other in-house software) plus $5,000 (capital cost of joining the two items of software) x 100% / 4).
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Last Modified: Friday, 19 April 2013