In-house Software: What You Need to Know

In-house software development is gaining traction among Australian businesses for its ability to deliver customised, secure, and cost-effective technology solutions. Unlike off-the-shelf products, in-house systems are purpose-built to align with internal workflows and industry-specific requirements.

Why In-House Software is a Smart Business Move

Customisation to Fit Your Business

Off-the-shelf software often requires businesses to adapt their processes to suit the software. In-house solutions flip that around. You can build exactly what your team needs—from features and user interfaces to integrations and reporting functions.

Enhanced Data Security and Control

With complete ownership over your codebase and infrastructure, your business maintains tighter control over data, ensuring compliance with strict privacy standards—critical for industries like finance, healthcare, and law.

Cost Control Over the Long Term

While initial development costs can be high, in-house software eliminates recurring licence fees and reliance on third-party vendors. Over time, this can represent substantial savings—especially for medium to large enterprises.

The Drawbacks: Consider the Commitment

Developing your own software is not for the faint-hearted. It requires:

• Skilled developers and ongoing maintenance

• Infrastructure investment (cloud servers, security layers)

• Long-term planning and project management

Before committing, weigh these costs against your business’s strategic goals and seek advice on the best approach.

Claiming Tax Deductions for In-House Software

Under Australian tax law, software developed for internal business use can qualify for tax deductions. Common deductible costs include:

• Developer wages and contractor fees

• Software tools, libraries, and subscriptions

• Staff training related to the development

• Overheads like rent and electricity associated with the dev team

Tax Treatment of In-House Software

There are two main pathways for depreciation depending on whether the software is ready for use or still in development.

1. Simplified Depreciation Rules

If the software is installed and ready for use, it can be claimed under the simplified depreciation regime—offering an immediate write-off (subject to thresholds) or depreciation over time.

2. Software Development Pool

If the software is still under development, it falls into a special software development pool, amortised as follows:

• Year 1 – Nil

• Year 2 – 30%

• Year 3 – 30%

• Year 4 – 30%

• Year 5 – 10%

A separate pool is created for each financial year of new development expenses.

What Happens on Disposal?

When software is no longer used or becomes obsolete:

• Software development pool: The value continues to depreciate under existing rules.

• Simplified depreciation: You may claim an immediate deduction for the remaining book value.

This allows businesses to claim a final benefit even when software is retired or replaced.

Final Thoughts

In-house software development offers agility, security, and cost savings, but it must be approached strategically. With careful tax planning, Australian businesses can significantly reduce the financial impact of custom software projects. As with all deductions, it’s best to consult a registered tax agent to ensure compliance with current ATO rules.

If you're considering developing in-house software or have already invested in your own tech tools, get in touch with Dolman Bateman. We’ll guide you through the tax implications and ensure you’re making the most of every available deduction.

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Disclaimer:

The information provided in this article is general in nature and does not constitute personal financial, legal or tax advice. While every effort has been made to ensure the accuracy of this content at the time of publication, tax laws and regulations may change, and individual circumstances vary. Dolman Bateman accepts no responsibility or liability for any loss or damage incurred as a result of acting on or relying upon any of the information contained herein. You should seek professional advice tailored to your specific situation before making any financial or tax decision.