Issue
Does computer software developed by the taxpayer and embedded into their business website to be used by clients accessing that website to create their own website satisfy the definition of in-house software in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. The computer software developed by the taxpayer does not satisfy the definition of in-house software in subsection 995-1(1) of the ITAA 1997.
Facts
In setting up an internet website business, the taxpayer developed computer software which was embedded into the business website they were setting up to be used by clients accessing their website as a tool to create their own website. The taxpayer's income is generated when the computer software on the website is used by clients creating their own website.
Reasons for Decision
Computer software, or a right to use computer software, that you acquire, develop or have another entity develop that is mainly for you to use in performing the functions for which the software was developed is 'in-house software' (subsection 995-1(1) of the ITAA 1997). In-house software is a depreciating asset (paragraph 40-30(2)(d) of the ITAA 1997) in respect of which a deduction for decline in value is available (subsection 40-25(1) of the ITAA 1997).
The function of the computer software developed by the taxpayer is to create websites but the taxpayer did not use the computer software to create a website. Rather, they developed the computer software and embedded it into their website for use by other entities to create their website. Accordingly, the computer software does not satisfy the definition of in-house software in subsection 995-1(1) of the ITAA 1997.