Prepaid expenses - taxpayers, other than individuals or simplified tax system taxpayers, incurring deductible non-business expenditure

The prepayment rules determine how much you can claim in an income year for certain prepaid expenses. The rules for non-business expenditure differ depending on whether you are an individual taxpayer or a non-individual taxpayer such as a company or a trust. This fact sheet explains the general prepayment rules for taxpayers, other than individuals and small business entities, with deductible non-business expenditure.

Broadly, a 'small business entity' is an individual, partnership, company or trust carrying on a business that has an aggregated turnover of less than $2 million.

What is a prepaid expense?

A prepaid expense is expenditure you incur for things to be done under an agreement (in whole or in part) in a later income year. If expenditure is incurred for something to be done in full within the same income year, it is not a prepaid expense to which the prepayment rules apply.

Example: expenditure constituting a prepayment

On 1 June 2007, XYZ Ltd paid $1,500 for an annual subscription for the monthly provision of a professional journal. The subscription covers the period 1 June 2007 to 31 May 2008. Because the thing to be done under the agreement - the provision of the professional publication - will not be completed wholly within the expenditure year, the prepayment rules will apply.