- Special prepayment rules apply to certain types of advance
payments made by businesses and individuals that relate to something to
be done, or services to be provided, in one or more subsequent years.
Generally, a prepaid expense is deductible over the eligible service
period, or ten years if that is less, rather than being immediately
deductible. However, certain prepaid expenses may be immediately
deductible under the prepaid rules if:
- The expenditure is considered to be excluded prepaid expenditure; or
- The expenditure comes within the 12-month rule where the entity is a
small business or an individual incurring deductible non-business
Large businesses and small businesses and individuals that do not
satisfy the prepayment rules are required to apportion the expenditure.
In addition, specific deductible expenditure can be claimed
immediately if they fall within a specific part of the tax law, such as:
- Expenses incurred in managing your tax affairs;
- Expenses incurred for repairs on a property used to produce assessable income;
- Expenses incurred in preparing, registering or stamping a lease property;
- Making payments of pensions or retiring allowances to employees or past employees; and
- Payment of rates and land taxes on income producing property.
To be able to claim an immediate tax deduction, the expenditure must
be an existing liability and there must be a commercial advantage to the