Are you a taxpayer?
There are special prepayment rules that govern the timing of deductions for certain prepaid expenses. You should be aware however, that some exclusion’s apply. The prepayment rules apply where a taxpayer has incurred expenditure for services to be fulfilled in a later income year. In these situations where the prepayment rules apply, the deduction for the expenditure must be apportioned over the duration of the services, up to a maximum of 10 years. However, some expenditure is specifically excluded from the prepayment rules.
The excluded expenditure includes:
– For individuals and small business entities, where the period of service is less than 12 months;
– Expenditure less than $1,000;
– Amounts required to be paid by law or court order. For example, business motor vehicle registration;
– Payment of salaries and wages [under a contract of service]; or
– Capital expenditure or expenditure on private or domestic items.
An immediate deduction can therefore be claimed for excluded expenditure in the year the expenditure is incurred, provided the expenditure meets the requirements under the general deductions rules and is not of a capital, private or domestic nature. You must visit the Australian Tax Office website for a detailed Tax Office guide on the prepayment rules. Please ensure you are aware of rules governing deductions for prepaid expenses. Remember to contact your accountant or the Australian Tax Office if you require any further clarification or advice.
This article was originally published on 09/03/2009 and is current as at that date.