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IRD seeks feedback on software development expenditure for income tax

19 Jul 2016

The IRD is seeking consultation and feedback on how software development expenditure should be classed for income tax purposes in the IRRUIP10: Income tax treatment of software development expenditure draft.

The IRD classes "software development expenditure" as "expenditure incurred by taxpayers in developing software for the purposes of commercial exploitation as part of a business or other income-earning activity carried on by them. It does not include costs incurred in obtaining software developed by others for resale (ie, retailers acquiring shrink-wrapped software for resale)."

"Software in this context is software that has an independent form, as opposed to software that is an integral part of a tangible asset. It includes bespoke software commissioned primarily for a single client or product-based software developed for general exploitation," the IRD continues.

The IRD also believes that the current regulatory approach, which treats software development expenditure as the cost of producing trading stock, is out of date. The regulations were originally published in the appendix to Tax Information Bulletin dated May 1993.

The IRD believes this approach may not be the best approach any more. Instead, the IRD believes expenditure should be capitalised and depreciated like other assets.

The consultation aims to gain feedback as to whether the current approach has the right scope, and "Any change would apply prospectively and include transitional arrangements for those affected".

Comment deadline closes on August 25, 2016.

In addition, the IRD is investigating whether the use of electronic signatures for tax administration purposes are acceptable in the EPR616: Standard for the use of a valid electronic signature on documents provided to the Commissioner draft.

The paper outlines how customers will be able to submit electronic signatures to IRD in future, including through IRD's online services, directly or through an intermediary that complies with IRD standards.

Comment deadline closes August 22, 2016.

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