• 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.

    See also:

    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.

    See also:

    Small business entity concessions

    Last modified: 13 Mar 2015QC 33714