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  • Capital assets and expenses

    Assets that have a longer life are called capital assets. Examples include buildings, motor vehicles, furniture, machinery and equipment.

    A capital expense is either:

    • the cost of an asset that has a longer life (usually more than one income year)
    • an expense associated with establishing, replacing, enlarging or improving the structure of your business.

    Website development and software expenses can be claimed differently depending on the type of expense and how much it costs.

    On this page:

    Claiming capital expenses

    You may be able to claim deductions for certain small value assets in the year of purchase. Otherwise, you claim an amount for the decline in value (that is, depreciation) of the asset each year over a number of years.

    You can also ‘pool’ most capital assets and claim depreciation for the pool, which is simpler than depreciating the individual assets.

    If you're an eligible small business you can use the simplified depreciation method, which allows you to claim expenses for assets (up to a certain limit) in the year the expense was incurred.

    See also:

    Claiming website costs

    If you incur expenses creating or maintaining a website for your business, you may be able to claim the costs as a deduction.

    You can depreciate the costs of a website over time. You do this by various depreciation methods, including putting the expenses into a pool.

    However, special rules apply to in-house software you acquire or develop for business use, not for sale.

    If your expense is:

    • in-house software – use the prime cost method to deduct the cost each year
    • included in a software development pool – deduct the different proportions of the expense each year.

    If you have chosen to allocate expenditure on your software to a software development pool, website costs will have an effective life of five years if you incur them on or after 1 July 2015.

    Ongoing running and maintenance costs

    You can claim a deduction in the year you incur some ongoing expenses associated with running and maintaining your website. Some examples include domain name registration fees and server hosting costs.

    Example 1: Simplified depreciation rules

    In July 2015, your small business bought a $2,000 website hosting package. You also have to pay service fees of $50 a month, plus $50 a year for the domain name. You can claim a deduction of $2,000 in your 2015–16 tax return under the simplified depreciation rules, and a deduction for the monthly and yearly fees in the year you incur those expenses.

    End of example

     

    Example 2: Software development pool

    You set up a software development pool in 2012 when you set up your business’ first website. In August 2015, you incurred $4,500 in costs to update the software behind the website. You have to allocate this expenditure to the software development pool and can claim a deduction for it over five years.

    End of example

    See also:

    Last modified: 08 May 2018QC 33866