Prepaid expenses - investments in tax shelter arrangements - fact sheet

Summary of rules

• If you invest in a tax shelter arrangement, you need to be aware that the rules for prepayments may apply to limit your immediate deductions.
• If you prepaid expenditure under a tax shelter agreement for a service that will not be wholly done within the expenditure year, and it is not covered by one of the exclusions listed above, you cannot deduct all of the expenditure in the income year in which it was incurred. The deduction must be apportioned over the eligible service period or 10 years, whichever is less.
• An agreement for a tax shelter arrangement is one that covers any activities that relate to the arrangement, including those that give rise to deductions or assessable income. For example, if you invest in a tax shelter arrangement and prepay interest on a loan from a third party to pay management fees for the tax shelter, the prepaid interest on the loan will also be subject to the tax shelter rules.
• Certain prepaid expenditure incurred under a plantation forestry managed agreement is subject to a '12-month rule'.