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IRD re-thinks decision on failed software

Wed 22 Jun 2011
FYI, this story is more than a year old

Businesses will once again be able to invest in IT with confidence thanks to the reversal of a decision made recently by the Inland Revenue Department.

Revenue Minister Peter Dunne today announced that businesses will continue to be able to claim tax deductions on failed software developments because to not do so would inhibit productivity and innovation.

"Software development can represent a significant investment for any business,” Dunne says, "and not allowing an immediate deduction if a project fails simply discourages businesses from undertaking the kind of innovation that could lead to increased growth and productivity.”

The Inland Revenue Department recently released a determination that re-interpreted the deductibility of failed software projects and found that in some circumstances software projects that failed could never be treated as a business expense – either in the year they failed or in subsequent years through depreciation.

Today’s decision overturns that determination, a move which has been welcomed by New Zealand’s IT industry.

Paul Matthews, chief executive of the New Zealand Computer Society, says the decision will provide New Zealand businesses the confidence to invest in IT. 

"If this determination remained it would have had a very significant effect on the willingness of companies to invest in software,” Matthews says, "especially in relation to smaller local software providers. 

"This is not a minor matter. This decision has the effect of safeguarding investment in software which will see our economy grow through increased innovation, efficiency and productivity.”

The new rule will be backdated to the date the previous determination took effect to ensure that expenditure incurred this year is deductible.

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