Home – New Forums Starting your journey Buying an existing website. Tax deductable?

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  • #978377
    Anon
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    Just a tax question if everyone knows the answer. Please skip the ‘ask an accountant’ replies because I don’t have one and that is a given, so this is more for someone who already knows the answer.

    Say for example you run an e-commerce site and you buy out a competitors site to also sell products from (buying their domain/content etc) for $50k. The buy is to really expand on your existing business, so in some ways it would be a capital purchase. Would you be able to claim this on tax?

    #1106642
    Corey
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    Are you an Individual or a Business?

    Have you searched the Australian Tax Office site? @ http://www.ato.gov.au/

    Cheers
    Corey

    #1106643
    Sunnys
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    Anon, post: 118346 wrote:
    Just a tax question if everyone knows the answer. Please skip the ‘ask an accountant’ replies because I don’t have one and that is a given, so this is more for someone who already knows the answer.

    Say for example you run an e-commerce site and you buy out a competitors site to also sell products from (buying their domain/content etc) for $50k. The buy is to really expand on your existing business, so in some ways it would be a capital purchase. Would you be able to claim this on tax?

    Hi Anon

    The purchase will be tax deductible and can be considered either as an intangible asset for the company.

    #1106644
    James Millar
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    Sunnys, post: 118370 wrote:
    Hi Anon

    The purchase will be tax deductible and can be considered either as an intangible asset for the company.

    Sunnys can you expand on this. I’m interested to hear what precisely you mean by tax deductible in this case.

    Helping build better businesses and better lives with expert financial and taxation advice. [email protected] www.360partners.com.au 03 9005 4900
    #1106645
    Marc D
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    Hi All,

    I did have a quick read up on this when the question was first asked. I felt a small bulge begin in the left side of my brain so I stopped and hoped someone could give a simple answer but not to be i think. From what i read…..

    The purchase is capital in nature. It is not deductible as an expense. As it is intangible in nature, it does not degrade to any extent and would live on indefinitely therefore it is not amortised, rather, it is tested for impairment annually based on value in use with +/- taken to the P&L. Improvements in functionality are capital whereas maintenance and running costs are expensed as running costs. Functional improvement is considered “software” and is amortised over 2 1/2 years whereas content updates are running costs. TR 2001/6 seems to be the relevant document. It distinguishes between Hardware, Software and Content.

    James, if you have a read and can explain it simply in english then please do.

    Regards

    Marc

    #1106646
    James Millar
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    Sunnys, post: 118370 wrote:
    Hi Anon

    The purchase will be tax deductible and can be considered either as an intangible asset for the company.

    Marc D, post: 118414 wrote:
    Hi All,

    I did have a quick read up on this when the question was first asked. I felt a small bulge begin in the left side of my brain so I stopped and hoped someone could give a simple answer but not to be i think. From what i read…..

    The purchase is capital in nature. It is not deductible as an expense. As it is intangible in nature, it does not degrade to any extent and would live on indefinitely therefore it is not amortised, rather, it is tested for impairment annually based on value in use with +/- taken to the P&L. Improvements in functionality are capital whereas maintenance and running costs are expensed as running costs. Functional improvement is considered “software” and is amortised over 2 1/2 years whereas content updates are running costs. TR 2001/6 seems to be the relevant document. It distinguishes between Hardware, Software and Content.

    James, if you have a read and can explain it simply in english then please do.

    Regards

    Marc

    Hi Marc. Can you list more precisely what you are acquiring. In these circumstances we typically analyse all of the assets being acquired before the deal is structured and documented.

    Helping build better businesses and better lives with expert financial and taxation advice. [email protected] www.360partners.com.au 03 9005 4900
    #1106647
    Anon
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    Thanks everyone.

    Corey I’m a sole trader. I did try searching for something relevant on the tax website but could not find a single thing, but perhaps I was searching for the wrong terms.

    Marc, where did your read that paragraph in?

    And what someone else has told me, because the website will still be carrying on trading will that make it GST free?

    #1106648
    Marc D
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    Hi, if you Google TR 2001/6 you can read through what the tax office thinks. This ruling was withdrawn in 2009 as some of the legislation it relied on was replaced under the newer UCA laws. That 2 1/2 year period changed to a 4 year one as well. I would assume that the basic principles would remain the same even though the ruling was withdrawn. I would need to read further to give a better answer. If you pay 50k for a website it would be interesting to know just exactly what it is you are buying as different components of the purchase could possibly be treated differently. Goodwill comes to mind as an example

    #1106649
    Sunnys
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    JamesMillar, post: 118408 wrote:
    Sunnys can you expand on this. I’m interested to hear what precisely you mean by tax deductible in this case.

    James, correct me if I am wrong, when the website would have been valued for the purchase, part of it would have been goodwill due to traffic and customer database but it would still have a good chunk of $50,000.00 that would have been the actual cost of developing the website. Those costs can be deducted as a marketing expense and the goodwill portion of the purchase will be an asset.

    #1106650
    James Millar
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    No – it is highly unlikely that those items you have described would be on income account (when rolled into an acquisition transaction – a capital event). If you already owned the business and progressively spent money on marketing over time to build the business then that’s a different story. Buying goodwill off someone else for accumulated efforts and costs they have incurred is not the same.

    Helping build better businesses and better lives with expert financial and taxation advice. [email protected] www.360partners.com.au 03 9005 4900
    #1106651
    Anon
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    Okay… so now I’m even more confused lol. I’ve actually spoken to 2 accountants about this in the last week and neither of them knew!

    So are there 2 chains of thought here (excluding stock in examples):
    1) Tax Deductible are the total costs to build the actual site including marketing, databases etc., however as per (expired) TR 2001/6 this may be deductible over a period of 2.5 years. The rest is goodwill which is not deductible.
    2) The whole thing is considered goodwill and not deductible.

    #1106652
    akagrp
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    Hell Anon

    As previously state the treatment of the purchase would really depend on how the Sale Contract was prepared

    I would suggest that the seller dissect the selling price into various components

    Been an online business the site I would assume would have an ecommerce component to it (this would be deemed a software component and depreciable)
    The value associated to database domain and traffic (this would be deemed goodwill and not deductible but viewed as an asset of the business)

    The key is structure of the business sale
    It would be important the contract is that of a going concern to obtain GST exemption
    PS
    If they themselves have developed the site over a number of years and the development is sitting on the asset register and being depreciated it may be worth considering that value as part of sale which would mean you continue to claim remaining depreciation (documentation would be a key factor here)

    Hope this helps and have not made the situation even more muddy

    #1106653
    Anon
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    Hi Anna , that has actually helped a lot. Thanks heaps.

    #1106654
    Anon
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    I just wanted to turn this on it’s head. Reversing it and if I was the seller of the domains. Would the entire sum received need to be declared as in income? Or does the goodwill portion not need to be declared (just like how for the buyer it’s not deductible)?

    #1106655
    Divert To Mobile
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    Disclaimer-
    For the purpose of this answer tax deductable will also include anything which you can depreciate.

    Simple answer-
    Any expense related to the operation of your business is tax deductable.

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