On 20 December 2016 the ATO issued Taxation Ruling TR 2016/3, which sets out the deductibility of expenditure incurred in acquiring, developing, maintaining or modifying a website for use in carrying on a business. The Ruling also covers the deductibility of expenditure on content migration, development of microsites, social media accounts, domain names and copyright. However, it notes that assets such as hardware, the right to use the domain name, and content that has independent value to the business are identified separately and are not considered a part of a commercial website.

According to the ATO, expenditure in relation to commercial websites includes labour, off-the-shelf software products, registration, licensing and other periodic usage fees. Generally, it states that where the expenditure (labour, software, registration, etc) is directly referable to the enhancement of the profit-yielding structure of the business, it would be considered capital. Specifically in relation to off-the-shelf software products that are licensed periodically, or where a website is leased from a web developer and the business does not have a right to become the owner of the website, any expenses incurred are likely to be of a revenue nature, the Ruling states.

The Ruling indicates that expenses incurred to acquire or develop a commercial website for a new or existing business are considered to be capital, and that maintaining a website, including remedying software faults, is a revenue expense. It notes that any modification to a website that adds new functionality to both back-end and front-end (ie interactivity available directly to the website or management of background operations) or materially expands existing functionality is capital. However, the Ruling says that expenditure on regularly upgrading existing website software to allow web pages to appear correctly with new mobile devices, browsers or operating systems is generally considered deductible, as it is considered to be operational and directed at facilitating continued access. Similar principles apply to determining whether expenditure incurred in acquiring or developing a microsite is of a capital or revenue nature; however, expenditure on a temporary microsite is more likely to be of a revenue nature where it is set up for a transient marketing purpose.

In some instances, the Ruling says, modifications to a website may be made in a piecemeal manner but may together result in a significant improvement to the website. Some indicators that piecemeal modifications are part of a program of work for improving the website (and thus considered capital) include documentation for a program of work; the extent to which the end-state is planned, and the importance of incremental enhancements to achieving that end-state; and casual or temporal links with other modifications.

In relation to content migration, the Ruling indicates that if content is migrated as part of establishing a new website, the cost is capital. However, it says if content is migrated as a part of a website upgrade, the cost is capital if the upgrade itself is capital, but otherwise it is a revenue expense. Further, the Ruling states that the migration of content due to replacement of hardware without a material change to the commercial website is a revenue expense.

According to the Ruling, establishing a presence on a social media website is a capital asset that is separate from a business's website, and is not "in-house software", as it resides on the social media platform. Expenditure incurred on the profile may be treated as a revenue expense where the cost of setting up the profile is trivial and the profile is maintained for marketing purposes.

Where a business's website costs are not otherwise deductible under s 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997), the expenditure may be classed as "in-house software" and deductible under the capital allowances regime. The Ruling states that:

  • expenditure may be deducted over five years from the time the software is first installed or ready for use;
  • the expenditure may be allocated to a software development pool; or 
  • small business entities may choose to use the simplified depreciation rules in Subdiv 328-D of ITAA 1997 (ie immediate write-off where asset cost is under the threshold or depreciated in accordance with general small business pool rules).

In-house software

The Ruling defines in-house software to include:

  • software in a commercial website that enables the website owner to interact with the user, where any independent benefit to the user is no more than incidental to the interaction; 
  • software provided on a commercial website for installation on the user's device if its purpose is solely to provide a user interface with the business; and
  • content on a website which is incidental to the website and not an asset having value separate from the website.

The Ruling also outlines what is considered not "in-house software".

CGT issues

Where business website costs are deductible under neither s 8-1 nor under the capital allowances regime, the CGT regime will recognise the expenditure as a part of the cost base of a CGT asset, the Ruling states. It also states that s 40-880 of ITAA 1997 will generally not apply (as it is a provision of last resort), since commercial websites will usually be considered "in-house software" or, if not, are likely to be part of the cost base of a CGT asset.

In relation to domain names, an amount paid once-and-for-all to secure the right to use a domain name is capital expenditure and the right to use a domain name is a CGT asset; thus, the right to use a domain name forms part of the cost base of that asset. However, the Ruling notes that periodic registration fees for a domain name, including the initial registration fee, are revenue expenses and are deductible when paid, unless the fees relate to a period greater than 13 months, in which case the expenditure is deductible over the period to which the fee relates.


The Ruling notes that copyright can subsist in parts of a website, but not in a website as a whole. Hence, it states where a website owner holds copyright in a component of the website held for taxable purposes, the decline in value of the copyright may be deducted. If the component is both copyright and a part of an in-house software asset, the most appropriate treatment will be to deduct the decline in value of the in-house software asset. The Ruling also says that copyright in software or content is not considered a part of the website, and whether the copyright can be depreciated will depend on whether the commercial website expenditure can be depreciated.

Previous draft

The Ruling was previously issued as Draft Taxation Ruling TR 2016/D1; the current Ruling contains significant changes. It contains 25 examples (also significantly changed from the draft) to illustrate the deductibility of expenditure in various scenarios.

Date of effect

Taxation Ruling TR 2016/3 applies to income years commencing before and after its date of issue (20 December 2016).

Source: ATO, Taxation Ruling TR 2016/3, 20 December 2016, https://www.ato.gov.au/law/view/print?DocID=TXR%2FTR20163%2FNAT%2FATO%2F00001&PiT=99991231235958.