2008-09 Federal Budget Follow-up - Depreciation rate for in-house software

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Also following the passing of the Tax Laws Amendment (Budget Measures) Bill, there are amendments to ITAA 1997 to increase the period over which taxpayers write off depreciable in-house software from 2½ years to 4 years. However, the requirement that in-house software be depreciated using the prime cost method is unchanged.

In-house software is essentially software that is used in-house, rather than as trading stock, and that is a capital asset, rather than fully deductible in the year of purchase. It includes software, or a right to use software, that the taxpayer has acquired, developed or has had another entity develop.

The new statutory effective life applies from 7:30pm AEST on 13 May 2008, in relation to newly held software assets.

Current law

Currently, the effective life for in-house software is 2½ years and is deductible in accordance with the following schedule:

Income year	Amount of expenditure deductible for that income year
Year 1	Nil
Year 2	40%
Year 3	40%
Year 4	20%

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