The choice of allocating expenditure in developing in-house software to a software development pool was available before 1 July 2001 and continues under the UCA.
Under the UCA rules, you can choose to allocate to a software development pool expenditure you incur in developing (or having developed) in-house software you intend to use solely for a taxable purpose. Once you do allocate expenditure on such in-house software to a pool, all such expenditure incurred in that year or a later year must be allocated to a software development pool. A different pool is created for each income year in which you incur expenditure in developing (or having developed) in-house software.
Expenditure on developing in-house software you do not intend to use solely for a taxable purpose and expenditure on acquiring in-house software cannot be allocated to a software development pool.
If you are entitled to claim a GST input tax credit in relation to expenditure allocated to a software development pool, the expenditure in the pool for the income year in which you are entitled to the credit is reduced by the amount of the credit. Certain adjustments under the GST legislation in relation to expenditure allocated to a software development pool are treated as an outright deduction or income. Other adjustments reduce or increase the amount of the expenditure that has been allocated to the pool for the adjustment year.
You do not get any deduction for expenditure in a software development pool in the income year in which you incur it. You are allowed deductions at the rate of 40% in each of the next two years and 20% in the year after that.
If you have allocated software development expenditure on a project to a software development pool and the project is abandoned, the expenditure remains to be deducted as part of the pool.
If you have pooled in-house software development expenditure and you receive consideration for the software (for example, insurance proceeds on the destruction of the software), you must include that amount in your assessable income unless you can choose for roll-over relief to apply and do so. Choice of roll-over relief is only available in this context where a change occurs in the holding of, or of interests in, the software see Roll-over relief.
Any recoupment of the expenditure must also be included in your assessable income.
If the receipt arises from a non-arm's length dealing and the amount is less than the market value of what it was for, the amount of the receipt is taken to be that market value.