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  • Calculating your deduction for a prepayment made under a tax shelter arrangement



    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    Use the following formula to work out your deduction for prepaid expenditure that is affected by the tax shelter rules:

    A × (B ÷ C)


    A is expenditure

    B is number of days of eligible service period in the income year

    C is total number of days of eligible service period


    Investment in a tax shelter arrangement On 30 April 2002, Marian invested in an olive grove venture. The investment has all the characteristics of a tax shelter arrangement and is not subject to any of the exceptions.

    Under the terms of the agreement, Marian was required to pay an initial management fee of $10,000 on 1 May 2002 to cover the provision of services over the period 1 May 2002 to 30 April 2003 (a period of 365 days). Marian made this payment on 1 May 2002. Marian is required to apportion her deduction over the 2002 and 2003 income years.

    Marian's deductions are calculated as follows:


    $10,000 × (61 ÷ 365) (1 May 2002 to 30 June 2002) = $1,671


    $10,000 × (304 ÷ 365) (1 July 2002 to 30 April 2003) = $8,329

    Over the 2002 and 2003 income years, Marian is entitled to a total deduction of $10,000.

    End of example
    Last modified: 10 Dec 2019QC 27429