About deductions for digital product expenses
- The type of expense – operating expense or capital expense – determines when you claim your deduction.
- Your business may be eligible to claim an immediate or accelerated deduction for a capital expense using a tax depreciation incentive.
- You can only claim deductions for the portion of your expenses that relate to running your business.
- You must keep records to prove your expenses and how you calculated your claim.
What expenses you can claim
As a business owner, you can claim a tax deduction for the cost of digital products used in running your business.
There are 2 types of expenses you can claim – operating expenses and capital expenses. The type of expense determines when you claim your deduction.
You must apportion your expenses between business and private use, only claiming a deduction for the business portion.
For a summary of this content in poster format, see Digital product expenses (PDF, 248KB)This link will download a file.
Operating expenses
Operating expenses are the expenses you incur in the everyday running of your business.
Examples include:
- internet service provider fees
- software subscription fees – for example, accounting, cybersecurity, point of sale (POS), learning, job, client and inventory management software
- cost of running a website – for example, site maintenance that preserves its character
- file-sharing services
- cloud storage
- lease payments.
You claim most operating expenses as a tax deduction in the year you incur them.
Example: scanner and photocopier lease
On 1 November 2024, Flowers R Best Pty Ltd entered a 12-month lease agreement for a scanner and photocopier. The monthly fee is $100.
Flowers R Best Pty Ltd can claim the lease cost as an operating expense in its 2024–25 tax return.
It does not qualify as a capital expense because ownership of the assets sits with the entity leasing them to Flowers R Best.
End of exampleCapital expenses
Capital expenses are either:
- the expense of a depreciating asset – including the amount you paid for the asset and the expense of transporting and installing it
- an expense associated with establishing, replacing, enlarging or improving your business.
Examples include:
- computers and computer accessories
- mobile phones and tablets
- connectivity boosters
- cameras
- Point of sale (POS) machines
- in-house software
- cost of acquiring or developing a website.
You generally claim capital expenses over time, reflecting the asset’s depreciation (decline in value).
Your business may be eligible to claim an immediate deduction for a capital expense under the simplified depreciation rules.
Example: laptops hire purchase
B Co Pty Ltd has an aggregated turnover of $9.5 million. The company purchased multiple laptops on a hire-purchase agreement, for its staff to work away from the office. The total cost (excluding any interest component) was $19,500.
The laptops were purchased on 15 March 2025, delivered on 19 March 2025, and immediately issued to staff for business use.
The hirer of the assets is treated as the holder of the assets under the hire-purchase agreement and is entitled to claim a deduction for the depreciation of a capital expense.
B Co Pty Ltd can claim the full purchase price of the laptops ($19,500) in the 2024–25 income year under the instant asset write-off because:
- it is the holder of the laptops under the hire-purchase agreement
- its aggregated annual turnover is less than $10 million
- the laptops were purchased between 1 July 2023 to 30 June 2025
- the laptops were first installed ready for business use before 30 June 2025
- the cost of the laptops is less than the $20,000 limit.
B Co Pty Ltd can also claim the interest component as an operating expense.
End of exampleSoftware expenses
You can claim some software costs as operating expenses in the year you incur them, including:
- software subscription fees
- the cost of commercial off-the-shelf software with an effective life of one year or less.
If the effective life is more than a year, you need to consider if it is in-house software.
Example: software subscription
Zoe’s hair salon subscribes to a software as a service (SaaS) provider, which allows her to access software for up to 300 of her customers per month to book appointments online. It is a standardised, cloud-based service where no modifications to her IT infrastructure were required.
Zoe can claim the month-by-month fee for this service as an operating expense in the year she incurs them.
End of exampleIn-house software
In-house software is computer software, or the right to use computer software that you acquire, develop or have someone else develop for your business use, not for sale.
Deductions for in-house software may be claimed in a number of ways, depending on the circumstances and your eligibility to use a tax depreciation incentive, such as simplified depreciation rules.
If the software is still in development and is not ready for use, you can use the software development pool rules. Once you make the choice to allocate these expenses to a software development pool, you must allocate all later in-house software expenses to a pool.
Example: in-house software – software development pool
Nguyen is a sole trader who runs an interior design business. He set up a software development pool in 2022 when he started his business's website. In August 2022 he paid $1,500 to have customised software developed to create bookings and store client information.
Nguyen must allocate this expenditure ($1,500) to a software development pool and claim a deduction over the next 5 years in his tax returns.
End of exampleCalculating your claim
When calculating your claim, you must apportion your expenses between business and private use, only claiming a deduction for the business portion.
If you are registered for goods and services tax (GST) and can claim the full GST credit, you must exclude the GST amount of the asset.
Records you need to keep
You must keep accurate records to substantiate your claims for digital product expenses. This includes:
- tax invoices
- loan or lease documents
- details of how you calculated your claim.