• In-house software

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    In-house software is computer software, or a right (for example, a licence) to use computer software:

    • that you acquire or develop (or have another entity develop) that is mainly for your use in performing the functions for which it was developed, and
    • for which no amount is deductible outside the UCA or the STS.

    If expenditure on software is deductible under the ordinary deduction provisions of the income tax law, the software is not in-house software. A deduction for such expenditure is allowable in the income year in which it is incurred.

    Expenditure to develop software for exploitation of the copyright is not in-house software. The copyright is intellectual property which is a depreciating asset and the decline in value would be calculated using an effective life of 25 years and the prime cost method.

    Under the UCA, expenditure on in-house software may be deducted in the following ways:

    • the decline in value of in-house software acquired - such as off the shelf software - is worked out using an effective life of two and a half years and the prime cost method
    • expenditure you incur in developing (or having developed) in-house software may be (or may need to be) allocated to a software development pool - see Software development pools.
    • if expenditure incurred in developing (or having developed) in-house software is not allocated to a software development pool, it can be capitalised into the cost of a resulting unit of in-house software - its decline in value can then be worked out using an effective life of two and a half years and the prime cost method from the time the software is first used or installed ready for use
    • if in-house software costs $300 or less and it is used mainly for producing non-business assessable income, an immediate deduction may be allowable - see Immediate deduction (for certain non-business depreciating assets costing $300 or less).

    The termination value of in-house software you still hold but stop using and expect never to use again or decide never to use is zero. As a result, you can claim an immediate deduction for the cost of the software at that time.

    You can also claim an immediate deduction for expenditure incurred on an in-house software development project (not allocated to a software development pool) if you have not used the software or had it installed ready for use and decide that you will never use it or have it installed ready for use. The amount you can deduct is your total expenditure on the software less any amount you derive in relation to the software or a part of it. Your deduction is limited to the extent that, when you incurred the expenditure, you intended to use the software, or have it installed ready for use, for a taxable purpose.

    Last modified: 01 Oct 2006QC 27597