Tax Treatment of Domains
The tax treatment of domain names in New Zealand depends on the nature of the expenditure. Generally, annual registration and renewal fees are treated as deductible revenue expenses. However, purchasing an existing premium domain is typically classified as a capital expenditure (intangible asset) with an indefinite life, meaning it generally cannot be depreciated for tax purposes.
Navigating the digital landscape requires more than just technical savvy; it requires a robust understanding of financial compliance. For New Zealand businesses and digital asset investors, the tax treatment of domain names remains a nuanced area of accounting often misunderstood by general practitioners.
Whether you are a local business securing your brand identity or a digital brokerage firm holding a portfolio of high-value URL assets, the distinction between revenue and capital expenditure can significantly impact your bottom line and tax obligations with the Inland Revenue Department (IRD).
Expensing vs. Capitalizing Domain Names
The primary source of confusion regarding the tax treatment of domain names NZ businesses face is determining whether the cost is an operational expense (Opex) or a capital expense (Capex). The IRD distinguishes these based on the enduring benefit test.
Standard Registration and Renewals
For the vast majority of New Zealand businesses, a domain name is leased annually from a registrar (like Crazy Domains, GoDaddy, or a local NZ provider). These costs are typically low (e.g., $30–$50 per year).
Because these payments are recurrent and required to maintain the presence of the business online without acquiring a permanent asset, they are generally treated as Revenue Expenditure. These are fully deductible in the tax year they are incurred. They are viewed similarly to rent; you are paying for the temporary right to use the address.
Acquiring Premium Domains
The situation changes drastically when a business purchases a pre-existing domain name from a third party. For example, if a Christchurch-based insurance brokerage buys “insurance.co.nz” from a squatter or investor for $50,000, this is not a simple registration fee.
This transaction is treated as Capital Expenditure. The business has acquired an identifiable intangible asset that provides an enduring benefit to the company. Consequently:
- You cannot claim the full $50,000 as an immediate tax deduction.
- The asset must be capitalized on the balance sheet.
- It sits as an “Intangible Asset” alongside trademarks and goodwill.
Depreciation of Digital Assets in NZ
Once a domain is capitalized, the next logical question is: can you depreciate it? In New Zealand tax law, the answer is usually no, which surprises many business owners who are used to depreciating software.
The Indefinite Life Rule
Under Schedule 17 of the Income Tax Act 2007, depreciable intangible property usually requires a “legal life” that is finite. Software, for example, becomes obsolete and has a recognized depreciation rate (often 50% diminishing value).
Domain names, however, are generally considered to have an indefinite useful life. As long as the renewal fees are paid, the domain does not expire, wear out, or become obsolete in the eyes of the tax law. Therefore, the depreciation rate for a standalone domain name is 0%.
Website vs. Domain Name
It is critical to separate the costs of the website from the domain name.
- The Website: Costs to design and build the website code are generally depreciable software development costs.
- The Domain: The cost to acquire the URL address is a non-depreciable intangible asset.
If you bundle these costs into one invoice when buying an online business, your accountant must separate the value of the domain from the value of the website code to ensure correct tax treatment.
March (EOFY) Valuation Requirements
For New Zealand companies with a standard March 31st balance date, the End of Financial Year (EOFY) brings specific valuation requirements for digital assets.
Impairment Testing
Since capitalized domain names are not amortized or depreciated, they must be tested for impairment annually if you are following standard accounting principles (though for strict tax purposes, capital losses are only realized upon sale or write-off).
If the market value of the domain has dropped significantly—perhaps the extension (.co.nz) has lost favor to a new gTLD (.shop), or the brand associated with it has been tarnished—you may need to adjust the carrying value on your financial statements. However, note that for tax purposes, a deduction for a decline in value is generally not available until the asset is disposed of.
GST on Domain Transactions
Goods and Services Tax (GST) compliance is another hurdle, particularly given the global nature of the internet.
Buying from NZ Registrars
If you purchase a domain from a New Zealand-based registrar (e.g., a local ISP), they will charge 15% GST. If you are a GST-registered business, you can claim this back in your regular GST return.
Buying from Overseas (The “Netflix Tax”)
Since 2016, New Zealand has applied GST to remote services supplied by non-residents. Large international registrars (like GoDaddy or Namecheap) are required to collect NZ GST if their supplies to NZ exceed $60,000 per annum.
- If you are not GST registered: The overseas provider will charge you 15% GST.
- If you are GST registered: You should provide your GST number to the overseas supplier. They will typically zero-rate the supply (charge 0% GST). You do not claim GST back because you didn’t pay it, but you may need to account for it under the reverse charge mechanism if the domain is used for non-taxable activities.
Selling Domains
If you sell a domain name and you are GST registered, and the sale is part of your taxable activity, you must charge 15% GST on the sale price to the buyer. This applies even if you are selling to an overseas buyer, although exports of services (intellectual property rights used outside NZ) can sometimes be zero-rated. Professional advice is required here to avoid penalties.
Domains as Trading Stock
The rules described above apply to businesses that use domains as “plant and equipment” to generate leads or sales. However, the tax treatment of domain names NZ style shifts entirely for Domain Investors (Domainers).
The Revenue Account
If your business model is buying and selling domain names for profit, the domains are considered trading stock (inventory), not capital assets. In this scenario:
- Acquisition Costs: These are deductible as the cost of goods sold, but only when the stock is valued or sold.
- Sales Proceeds: The full sale price is treated as taxable income.
- Valuation: At the end of the financial year, you must value your unsold domain portfolio. You can generally choose the lower of cost or market selling value.
The IRD looks at “intent” to determine this. If you have a history of buying domains and selling them shortly after for a profit, they will likely classify you as a trader, denying you the capital gains advantages that might otherwise apply to a one-off sale of a business asset.
People Also Ask
Is a domain name a current asset or non-current asset?
If the domain is held for use by the business (e.g., the company website), it is a non-current intangible asset. If the domain is held by a domain investor for the purpose of resale, it is a current asset (inventory/trading stock).
Can I claim GST on a domain bought from overseas?
If the overseas supplier charged you GST, you might be able to claim it if you have a valid tax invoice. However, usually, if you provide your NZ GST number to a major overseas supplier, they should zero-rate the transaction, meaning no GST is charged, and therefore none can be claimed.
What is the depreciation rate for a website in NZ?
While domain names generally have a 0% rate, the software development costs of a website can typically be depreciated at 50% Diminishing Value (DV) or 40% Straight Line (SL) under the “Software” asset category.
Are domain renewal fees tax deductible?
Yes. Annual renewal fees are considered an operating expense (revenue expenditure) necessary to maintain the business’s online presence and are fully tax-deductible in the year they are paid.
How are sold domains taxed in New Zealand?
If you are a domain trader, the profit is taxable income. If you are a business selling a capital asset (your brand domain), any amount sold above the original cost may be a capital gain (generally tax-free, subject to specific anti-avoidance rules), but you cannot claim a loss if sold below cost due to the 0% depreciation rate.
Is a website considered an intangible asset?
Yes, both the website source code and the domain name are intangible assets. However, they are treated differently for depreciation purposes. The code has a finite life (depreciable), while the domain has an indefinite life (non-depreciable).
