Over the past few decades, the advent of the internet, computers and digital software has formed part of a full-scale renovation of how construction firms choose to run their business.
Those still using pen and paper to manage their operational affairs are now truly the last of the ‘construction dinosaurs’ as the industry takes advantage of the endless digital applications on offer to help streamline their office procedures.
In 2024, computer software, online tools, and downloadable programs are not only indispensable parts of managing a trade business but also help on the job, providing an additional set of tools to design, measure, and plan projects.
But beyond their operational benefits, these digital tools offer a financial advantage too: they are all tax deductible.
This means that investing in new digital software can help Aussie firms get ahead of their competition and lead to significant tax savings.
Build-it has looked at the ins and outs of digital product expenses to reveal how our readers can claim a tax deduction for their new digital tools.
Who can claim digital tool tax deductions?
If you work as a sole trader or independent contractor or operate your own company you can claim a tax deduction for the cost of digital products you used in the operation of your business.
These tax deductions, however, are divided into operational expenses and capital gains expenses, depending on several factors regarding each claim.
Whether a deduction is an operation expense or capital gains purchase can determine how quickly your refund is applied to your tax return and the amount.
Additionally, you can only claim for a tax refund on the business proportion of any digital tools usage. Any tools that form part of your private use are only partially deductible.
Operational expenses
Popular digital tools that fall into the operation cost category include software subscriptions to services that provide accounting, cybersecurity, point of sale, educational, inventory tracking, and data storage solutions, just to name a few.
Meanwhile, sharing services, interest, website running costs, and cloud storage often fall under the operational expense category.
An example would be a subscription to a Software as a Service (SaaS) provider that facilitates the booking of clients on behalf of the business, such as Calendly, or an accounting software service platform, such as Xero, to manage accounts on the go throughout the year and save on accountancy fees.
Both of these examples would be classified as a fully tax-deductible operational expense.
Capital expenses
Capital expenses, in relation to digital tools, can include in-house software that requires a one-off purchase for several years or lifetime use.
These are often found in design and editing suites that allow users to plan individual projects better; however, they can extend from one-off purchases to management software, too.
This could include a one-off purchase of a cyber-security platform or a digital architectural design program.
Generally, this type of digital tool can be claimed over time, reflecting its depreciating value over a number of years until it is no longer used. However, this depends on eligibility and
