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  • Eligible service period ending more than 13 months later



    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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    Your deduction for prepaid non-business expenditure is apportioned over the eligible service period or 10 years, whichever is less, where it ends more than 13 months after the expenditure has been incurred. Transitional rules do not apply to any later year amount in these situations. For each year of income containing the eligible service period, the deduction must be worked out using the following formula:

    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

    Example: Deduction for expenditure where the eligible service period is more than 13 months

    MNO Ltd operates a business within the finance 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. MNO Ltd's income year ends on 30 June.

    On 31 December 2001, MNO Ltd made an interest-only payment of $15,000 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 March 2003.

    Because the eligible service period is longer than 13 months, MNO Ltd cannot claim an immediate deduction for the prepayment nor do the transitional rules apply. Instead, the deduction must be apportioned over the eligible service period. MNO Ltd is entitled to the following deductions:


    $15,000 × (181 ÷ 455) (1 January 2002 to 30 June 2002) = $5,967


    $15,000 × (274 ÷ 455) (1 July 2002 to 31 March 2003) = $9,033

    The total deduction allowed proportionately over the 2002 and 2003 income years is $15,000.

    End of example
    Last modified: 10 Dec 2019QC 27429