• Calculating your deduction for a prepayment

    Generally, your deduction must be claimed proportionately over each income year containing all or part of the eligible service period. This deduction is calculated using the following formula:

    expenditure     X

    number of days of eligible service period
                        in the income year                    

     

    total number of days of eligible service period

    Example: deduction for prepaid business expenditure

    Green Ltd is not a small business entity taxpayer and its income year ends on 30 June. On 31 December 2007, Green Ltd entered into a contract for the supply of maintenance services for the period 1 January 2008 to 31 December 2008. Green Ltd paid $120,000 for these services on 31 December 2007.

    Green Ltd's deduction must be claimed proportionately over each year that contains all or part of the eligible service period. Green Ltd's total deductions for prepaid expenditure are, therefore:

    2007-08

    $120,000

    x

    182
    366

    (1 January 2008 to 30 June 2008)

    =

    $59,672

    2008-09

    $120,000

    x

    184
    366

    (1 July 2008 to 31 December 2008)

    =

    $60,382

    The total deduction allowed proportionately over the 2008 and 2009 income years is $120,000.

      Last modified: 25 Jun 2008QC 16667