ATO considers websites an asset

BUSINESSES setting up websites for promotional purposes have been dealt a blow by a recent Australian Tax Office ruling.

Websites were traditionally treated like advertising for tax purposes. The business would claim the cost of setting up the website as a business expense and depreciate the hardware required to run it.

But Tax Commissioner Michael Carmody has decided the hardware and software required to set up the website should be treated as an asset and depreciated over two and a half years.

Any expenditure on software required to upgrade the website to increase its functionality also will be depreciated over two and a half years.

However, ongoing operating expenses, such as administration and content upgrading costs, and site hosting fees can be deducted as business expenses.

RSM Bird Cameron senior tax partner Rami Brass said Mr Carmody was suggesting web development software had a useful life of more than 12 months.

“In reality what the software is used for has an effective life of less than 12 months,” Mr Brass said.

He said if businesses did not follow the ruling carefully they risked a penalty of up to 25 per cent in understated tax.

Pretzel Logic managing director Steve Pretzel said the ATO’s move could open the door for the financing of websites and help boost Application Service Providers.

ASPs “rent” software to their clients.

“I don’t think we’ll see less money spent on website development. I just see people spending their money in different ways,” Mr Pretzel said.

“But if it transpires that companies have to spend half of their web budget on consulting with their accountants, it will be bad for business.”

An Australian Tax Office spokesman said the public ruling issued on websites dealt with Division 46 of the Tax Act that allowed for a deduction for software over two and a half years.

“It wasn’t an ATO decision to make software depreciable, it is merely what the law said at the time,” he said.

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