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– with the Toll <strong>Group</strong> Tax Team<br />
phases relate to determining how the software is to<br />
be used and may relate to initial scoping such as<br />
business process re-engineering and mapping. On<br />
the basis that at this stage there is no acquisition or<br />
development of software at this initial stage, costs<br />
incurred would generally be on revenue account<br />
and deductible immediately because they are<br />
incurred earlier than the actual build / implementation<br />
and do not entail the creation of software.<br />
■ Off the shelf software purchase, in-house building<br />
software development and testing phases. These<br />
costs are depreciable on a 40% straight line basis<br />
over 2.5 years. In some instances, the costs of<br />
testing may be immediately deductible where there<br />
is no modification to the source code of software or<br />
the creation of new functionality.<br />
■ Implementation phase. Once the software system<br />
is built and tested, the system is implemented in the<br />
relevant business unit for operation. These costs<br />
are generally depreciable on a 40% straight line<br />
basis over 2.5 years. These costs may include<br />
training, change management, business process<br />
re-engineering, human resource costs and data<br />
conversion costs.<br />
Treatment of in-house employee<br />
costs in developing software<br />
Employees’ remuneration (salaries, wages, bonuses,<br />
superannuation and fringe benefits tax) and oncosts<br />
(payroll tax, Workcover, travel expenses and office<br />
overheads) are immediately deductible on revenue<br />
account in all cases where they are permanent<br />
employees and they were not recruited specifically to<br />
perform software development with no ongoing<br />
tenure once the development is complete.<br />
External contractors and consultants’ costs are on<br />
capital account and, for tax purposes, must be<br />
capitalised and depreciated on a 40% straight line<br />
basis over 2.5 years.<br />
Software development pools<br />
Software development costs that are capital in nature<br />
can be allocated to software development pools<br />
(treats all costs for a financial year on a ‘one in all in’<br />
basis). Regardless of whether costs are allocated to a<br />
pool or not, they are depreciable on a 40% straight<br />
line basis over 2.5 years.<br />
The only difference between pooled and non-pooled<br />
costs is when depreciation can commence. For<br />
pooled costs, depreciation commences at the start of<br />
the next financial year, regardless of whether the<br />
software is installed and ready for use by then.<br />
For non-pooled costs, tax depreciation commences<br />
when the software is installed and ready for use.<br />
Therefore, there may be timing advantages in<br />
electing to pool software expenditure, ie in bringing<br />
forward the timing of the tax depreciation<br />
deduction before the software is operational or installed<br />
ready for use.<br />
Annual software license fees<br />
paid to third parties<br />
Are immediately deductible as they are incurred on<br />
revenue account.<br />
Withholding tax – payment of<br />
license fees offshore for access<br />
to source code<br />
Payments of license fees to a licensor for the right<br />
to use software (whether immediately deductible or<br />
not) will ordinarily constitute the payment of a royalty<br />
for tax purposes. Accordingly, if the payee is a<br />
non-resident (eg a US or European software<br />
developer), and Toll is paying for the right to access<br />
source code, then the payments are likely to be<br />
subject to Royalty Withholding Tax* (RWT) which<br />
means Toll would be required to deduct and remit<br />
RWT to the ATO (* generally 10% of the gross<br />
payment for dealings with most OECD countries).<br />
Toll Central – Tax Site (Under the<br />
Finance home page)<br />
We continue to populate our evolving Toll Taxation<br />
intranet site with useful and practical tax material<br />
and developments, including the Toll Tax Policy<br />
& Procedures Manual and training material. The<br />
tax policy manual also includes (at page 42)<br />
a more elaborate analysis of the taxation treatment<br />
of software expenditure, including hardware costs.<br />
We recommend the taxation site be regularly visited<br />
by all Toll personnel involved in managing each<br />
business units’ tax compliance activities.<br />
The site link is:<br />
http://intranet/HomeLink/Finance/Taxation/index.jsp<br />
New Corporate Appointments<br />
Teree Bradley<br />
joins Toll as<br />
Assistant Property<br />
Manager Toll Property.<br />
13<br />
T OLL CORPORATE