When an expense is incurred
You can generally claim a deduction for an expense you incur in the everyday running of your business, in the year you incur it. You generally incur an expense when you have a current legal obligation to pay for the goods or services. An invoice is not necessary for an expense to have been incurred.
TR 97/7External Link Income tax: section 8-1 – meaning of 'incurred' – timing of deductions
Claiming expenses you pay in advance
There are different rules for expenses you pay in advance – that is, expenses you incur now for goods or services you will receive (in whole or in part) in a later income year.
If your aggregated annual turnover is less than $2 million, you can use the small business prepayments concession. This means you can claim a deduction for the total expense you prepaid if you receive the goods or services in full within 12 months. This applies even if the 12-month period extends into the next income year.
If you won't receive the goods or services in full within 12 months, or your aggregated annual turnover is $2 million or more, you will usually need to apportion the expense across the whole supply or service period where the expense is $1,000 or more.
Aggregated annual turnover means the total normal sales of your business and that of any associated businesses during the income year.
Small business entity concessions
You can generally claim a deduction for an expense when it has been incurred. If you pay in advance for something that won't be wholly delivered until a later income year, there may be limits on how much you can claim in the year you pay the expense.