Taxes etc.....

[goldnugget]

For those that are aware...what are tax obligations on domains?

Are they classed as assetts...appreciate/depreciate? A source of income? Naturaly if you have to declare earnings then losses would also apply (inc cost of maintaing and purchase/transfer costs, finance (if applicable) as well as any other costs incured in the course of producing an income).

Obviously there would be a few that make/maintain an income from domaining here, so what are some of the benifits/issues handling this aspect of the business?

 

[Nobel]

Hi goldnugget,

As an accountant, my advice is that you should be treating them as investments. Only those domainers that flip them quickly may be required to treat them like trading stock - however as we know, none of us buy for the purposes of resale so we all should be treating them as investments.

You can't claim depreciation on domains if you are treating them as investments. Only once you sell them will you be required to pay tax on any gains. Either way [whether you treat them as an investment or not], reg fees are deductible as an expense.

There are many more taxing issues to discuss so happy to answer questions via PM.

Cheers

 

[goldnugget]

Thanks Nobel.

You can't claim depreciation on domains if you are treating them as investments

I'm guessing that maybe those that purchase (or have purchased) domains that have later proved a loss via resale or failure to renew would be able to claim them as a loss? (I havent done this yet but would assume others have)

The other main aspect I was looking at, I get that income generated from domains through parking etc would be treated as income and taxed accordingly, but if the opportunity came to sell domains/projects at a half decent (or decent) profit would it be treated as assett sales and maybe open to capital gains etc rather than a regular income for tax purposes.

Will definitely be looking for services (paid) by someone associated and who understands the ins and outs of the financial side of the industry when the time comes rather than just a regular bricks and mortar local accountant....Will be in touch hopefully sooner rather than later

Cheers Jay

 

[acheeva]

I have a different view on this, particularly the reference to investments (and hence the capital gains legislation)
In my view domains will always be trading stock or a component of the website cost (even, if parked)

 

[Nobel]

That is correct gold nugget. If you purchase a domain for $500 excl GST + $50 reg fee = $550 total cost, you can claim the $50 reg fee immediately. If you later sell that domain for $100 excl GST, then you have made a $400 capital loss which you can offset against any capital gains. If you fail to renew the domain, then at that point in time you have realised a capital loss of $500.

You are correct in saying that income from parking is taxed accordingly [i.e. as income].

Suppose that as an investment you spent $10,000 to build a website and a few years later sold the site for $50,000, you are correct in saying that you would be open to capital gains, in this case an amount of $40,000. Note that there maybe capital gains tax discounts available [to reduce the capital gains amount]. However, if your core business is to buy domains, build websites and then flip them, you are likely to be taxed on any gains as income [as opposed to capital gains].

I have been involved in the domain industry for 3 years and my clients don't regard me as a bricks and mortar accountant. Happy to have a chat if you're still looking for someone to help you with the tax and accounting side of things.

 

[Nobel]

I thought that I would add a disclaimer as such as I don't want people acting upon the advice without speaking to myself or their accountant [as different circumstances can warrant different advice]. I should have added at the bottom of my posts: "This advice is general in nature and you should contact your accountant or financial advisor ............................ "

 

[goldnugget]

I thought that I would add a disclaimer as such as I don't want people acting upon the advice without speaking to myself or their accountant [as different circumstances can warrant different advice]. I should have added at the bottom of my posts: "This advice is general in nature and you should contact your accountant or financial advisor ............................ "

Thanks......yes agreed. There is general guidelines and those where exceptions could form part of an ATO ruling that apply to individual cases.

 

[Honan]

Hi goldnugget,

As an accountant, my advice is that you should be treating them as investments. Only those domainers that flip them quickly may be required to treat them like trading stock - however as we know, none of us buy for the purposes of resale so we all should be treating them as investments.

You can't claim depreciation on domains if you are treating them as investments. Only once you sell them will you be required to pay tax on any gains. Either way [whether you treat them as an investment or not], reg fees are deductible as an expense.

There are many more taxing issues to discuss so happy to answer questions via PM.

Cheers

Thank you Nobel
However there are plenty of people who read DNTrade and buy domains for the purposes of resale e.g. Dot com buyers.
Even dot.com.au rules only preclude us from registering .com.au or .net.au for the sole purpose of resale. What if the purpose is 50% monetization and 50% for resale of the same one name? Mind reading is an essential requirement to administer our much loved .au policies.

 

[Nobel]

Hi Honan,

.com domainers who buy for the purposes of resale and admit this to the ATO are very likely to be taxed as income instead of capital gains. It must be noted that 9 times out of 10 the taxpayer is better treating any profits made as capital gains instead of income because of the Capital Gains Tax Concessions that are available.

If the intention is 50% resale and 50% monetisation, then I know the ATO will push for the one that makes them more money. I think if you admit to the ATO that from day one you had the domain for sale, then you will be likely be required to pay tax as income and not as a capital gain. It's all a question of fact.

 

[Blue Wren]

reg fees are deductible as an expense.

Excellent!

Thank you.

 

[acheeva]

There are only two different scenarios

1) The ATO is not concerned about AUDA rules; traders are traders

2) If you are not a trader then imo the CGT legislation does not apply due to the "black hole" legislation introduced several years ago

The "investment" option can be viewed as domains=land; sites=buildings; excepting that the domains are "intellectual property" & subject to a depreciation equivalence

The sites themselves are actually covered by the general depreciation provisions

 

[Cooper Mills DomainLawyer]

Thanks Nobel / Acheeva, very useful information. This is a topic which most accountants can't get their heads around, let alone most of us, who aren't accountants.

 

[Nobel]

You are correct Cooper Mills. Some accountants wouldn't know where to start!!

 

[acheeva]

In Australia we operate in a world of self-assessment for taxation purposes

Therefore tax returns are lodged every day based on the assumption that they are correct because the returns are accepted by the ATO

The problem arises when the ATO audit team move in

 

[goldnugget]

In Australia we operate in a world of self-assessment for taxation purposes

Therefore tax returns are lodged every day based on the assumption that they are correct because the returns are accepted by the ATO

The problem arises when the ATO audit team move in

Which is why the need for correct information in these matters. As the market/demand increases in domains and the trading that goes with it, this is an area that will pop up at some point as 'audit alerts'.

Like most matters relating to law and the ATO, its what they declare and persue that matters, not what individuals may think. Better to know in advance and work within their parameters I think.

Jay

 

[acheeva]

Jay

Understood

Over 30+ years in the industry I have had numerous assignment where the people did not know they had a problem until they were exposed to massive debts

Mostly they are a result of assumptions that are not based on specific & individual circumstances

The other problem is that legislation does change and with 10K+ pages of legislation general practitioners often apply broad assumptions to market niches at their peril

The tax legislation has never dealt with "IP" very well but the more recent "black hole" changes have added a degree of clarity that did not exist prior

You are right in that $100K+ price tags will attract attention at some time in the future and it will be the individual least able to defend their position that the ATO will use if there is any chance of an interpretation that does not favor their coffers

The private tax rulings system is an effective system for gaining clarity if anyone has any doubts about the tax treatment relevant to their position; otherwise deal with experience and people who understand your industry

And finally all tax agents are required to hold professional indemnity insurance so you should be protected if you seek advice

 

[Ashman]

I have a different view on this, particularly the reference to investments (and hence the capital gains legislation)
In my view domains will always be trading stock or a component of the website cost (even, if parked)

I agree with you on this one.

 

[acheeva]

I agree with you on this one.

Yes; this class of asset has been effectively removed from the CGT legislation by stealth

I say "by stealth" because I do not believe they had domain names explicitly in the frame at the time