Is your website tax deductible?
Like alot of small businesses, our financial year has just come to an end which has meant spending alot of time perusing our books and figuring out what our tax returns should look like and in particular what is deductible and what isn't. Often, one of the big ticket items in the year is a new website build, so it's a really important question to think about where your site sits from an accounting perspective. Remembering we aren't accountants or tax experts at all, below is a bit of a summary of how the Income Tax Act and the IRD look at things.
First up, before you have a website live, you'll need a domain name (website address/url). We organise those for our clients for $45 + GST per annum, however, if you are buying a prominent address (eg money.com), then you might end up paying a considerable sum. The IRD's advice on this one is a domain name is capital expenditure, non-deductible and not depreciable.
The website design itself on the other hand is seen in a slightly different light. It is generally a one off fee and creates a capital asset that may be depreciated. Like other computer software, that rate of depreciation would be 50% diminishing value or a 40% straight line. The tax man basically looks at your website as if it is just a digital asset that will lose value over time. But that raises the question - if you update the site regularly...what happens with those costs?
This is where it can get a little bit tricky. On one hand, regular maintenance/updating of a website is looked at as revenue, while 'upgrading' a site can be seen as capital. That has a few tax implications, so the courts have clarified it all for us - but there is still a little bit of interpretation involved.
An upgrade includes
The last cost to consider with a website is the hosting. This is a bit easier to quantify - being revenue that is deductible. The only grey area may be where you have a website design fee that is integrated into the hosting/maintenance cost. In those scenarios...we'd say a call with the accountant might be in order!
Tax can be a bit of a brain drain at the end of the financial year, but hopefully the above helps. If you want to read up a bit more thoroughly, head to theIRD's site on website and tax at this link.