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Is the taxpayer entitled to claim a deduction for depreciation under Division 46 of the Income Tax Assessment Act 1997 (ITAA 1997) for share trading software?

Yes. The taxpayer is entitled to claim a deduction under Division 46 of the ITAA 1997 for depreciation for the share trading software as it is used for income producing purposes.

The taxpayer is a share investor and receives income from the sale of shares and the receipt of dividends. The taxpayer purchased share trading software to use in the share investing activity.

Division 46 of the ITAA 1997 allows a deduction to be claimed for depreciation of software that has been used for income producing purposes. In accordance with subdivision 46B of the ITAA 1997, the deduction is to be calculated using the prime cost method with an effective life of 2.5 years (i.e., a rate of 40%). This rate and method is prescribed by the ITAA 1997 and is the only rate available for calculating depreciation for software expenditure.

The taxpayer receives company dividends. The dividends are assessable income under subsection 44(1) of the Income Tax Assessment Act 1936. The taxpayer uses the software for income producing purposes.

The taxpayer will be entitled to claim a deduction for depreciation of the share trading software using the following formula: Software Depreciation = (Cost * Days Owned * 0.4) / Days in Year