Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: Tax treatment of website development costs
Position: Breakdown of components of the fees has to be done and classified depending upon their nature
Reasons: Position expressed in file 2000-001714 and 9818577 and analogy with an article published in tax notes
XXXXXXXXXX J. Desparois
(613) 957-8982
Attention: XXXXXXXXXX 2000-000499
May 15, 2000
Dear Sirs:
Re: Tax Treatment of Website Development Costs
We are replying to your letter dated January 23, 2000 wherein you requested our opinion with respect to the tax treatment of expenditures made to develop a website. We apologize for the delay in responding to your request.
As stated in Information Circular IC 70-6R3 dated December 30, 1996, the confirmation of the tax consequences applicable to a particular transaction involving a specific taxpayer will only be provided in response to a request for an advance income tax ruling following the procedures outlined in that circular. Where a completed transaction is involved the inquiry should be addressed to your local tax services office. Consequently, we can only offer the following general comments which may be of assistance in resolving your concerns.
We understand that the nature of website development costs depends on the degree of sophistication of the website developed. Some taxpayers use their website only for publicity when others use it to conduct their business. Development of a website may include purchasing or leasing the hardware (i.e. the server), purchasing and/or developing software, as well as other related costs such as consulting fees. In some cases consulting fees could, for example, be attributable to the purchasing of hardware when in other situations they may be simply current expenditures.
As the Income Tax Act does not contain any specific provision regarding website development costs, it is our opinion that the appropriate tax treatment of those costs requires an analysis of the different components of the various fees paid in order to determine whether they are current or capital expenditures. Although a website is not permanent and can be modified frequently and in some cases taken down and rebuilt, it is our opinion that some components of the development costs are capital in nature. Some costs may be attributable to the acquisition of "general purpose electronic data processing equipment" as defined in paragraph 1104(2) of the Income Tax Regulations (the "Regulations") and therefore included in Class 10(f) of Schedule II of the Regulations while other costs may be attributable to the acquisition of computer software and therefore included in Class 12(o) of Schedule II of the Regulations. Any other capital expenditure related to the website would probably be included in Class 8(i) of Schedule II of the Regulations.
In accordance with paragraph 21 of IC 70-6R3, the comments contained herein are not income tax rulings and are not binding on the Canada Customs and Revenue Agency.
Yours truly,
Marc Vanasse
Manager
Resources, Partnerships and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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