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  • Calculating your deduction for pre paid non-business expenditure where the transitional rules apply



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

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    Example: Transitional rules for a prepayment of non-business expenditure made in the 2002 income year

    HIJ Ltd operates a business within the transport industry. It also owns a negatively geared rental property which is purely a passive investment-this activity does not constitute the carrying on of a business. HIJ Ltd's income year ends on 30 June.

    On 31 December 2001, HIJ Ltd made an interest-only payment of $8,500 in relation to a loan used to finance the acquisition of the property. This payment covers interest incurred during the period 1 January 2002 to 31 December 2002. As HIJ Ltd has incurred prepaid non-business expenditure in an income year which commences after 30 June 2001 it will no longer be entitled to an immediate deduction for the expenditure incurred.

    HIJ Ltd's current year amount and later year amount are calculated as follows:

    Current year amount

    $8,500 × (181 ÷ 365) (1 January 2002 to 30 June 2002) = $4,215

    This amount is immediately deductible in the 2002 income year.

    Later year amount

    $8,500 − $4,215 = $4,285

    Applying the transitional rules, HIJ Ltd is entitled to deduct 40 per cent of this later year amount in the 2002 income year. The balance (60 per cent) will be deductible in the 2003 income year. HIJ Ltd is entitled to the following deductions:


    Current year amount


    40% of later year amount ($4,285 × 0.40)


    Total deduction



    60% of later year amount ($4,285 × 0.60)


    The total deduction allowed proportionately over the 2002 and 2003 income years is $8,500.

    End of example
    Last modified: 10 Dec 2019QC 27429