Is Website Domain Registration an Allowable Deduction?
The answer depends on whether the expense is classified as capital or revenue in nature.
Capital vs. Revenue Expenditure
The distinction between capital and revenue expenses is critical because capital expenses must be depreciated over time, while revenue expenses can be deducted in full in the year they are incurred.
According to established case law, three key tests help determine whether an expense is capital in nature:
- Is it of a one-off nature?
- Does it provide an enduring benefit?
- Is it part of the business structure of the taxpayer?
Based on these tests, the cost of acquiring a domain name is generally considered capital expenditure because:
- It is typically a one-off cost.
- It provides long-term benefits.
- It forms part of the taxpayer’s business structure.
Conclusion
For most businesses, website domain registration is considered capital expenditure and must be written off through depreciation. However, businesses purchasing domains for less than $1,000 may be eligible for an immediate tax deduction.
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