Certain types of expenditure are excluded from the prepayment rules. These are:
- amounts of less than $1,000
- amounts required to be paid by a Commonwealth, State or Territory law or by a court order
- payments of salary or wages (under a contract of service)
- amounts that are capital, private or domestic in nature.
Example: Amount required to be paid under a State law
John operates a cartage business and paid $1,200 on 31 December 2001 to register his truck for 12 months from 1 January 2002 to 31 December 2002. The truck is used exclusively for business purposes. Although the registration fee is in excess of $1,000 and it covers a period spreading across more than one income year, it is excluded expenditure. This is because the registration fee is required to be paid under a State or Territory law. The prepayment rules do not apply to this type of expenditure and the fee is deductible in the year it is paid.
End of example