Prepayments and deductible expenses

Small business entity taxpayers and individual taxpayers incurring deductible non-business expenditure (e.g. rental property expenses and work-related expenses) can apply the 13-month prepayment rule.

Such taxpayers are eligible to claim prepaid expenses, provided the period covered by the prepayment does not exceed 12 months and concludes before the end of the following financial year.

All other business taxpayers, other than individuals who incur deductible non-business expenses, are required to apportion such prepaid expenses over the service period to which the prepayment relates.

It’s also important to look at commerciality issues. Are your suppliers likely to be around in 12 months? They could sell their business.

Expenses such as advertising, subscriptions and conferences can be prepaid 12 months. Other expenses such as materials and fuel are more likely to be short term.

Often, some loans allow future payments, but usually the principal isn’t tax deductible.

Contact your nearest TaxAssist Accountants today for a free, initial consultation.

Date published 26 Jun 2017

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.