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Calculating your deduction for a prepayment made under a tax shelter arrangement

Last updated 9 December 2019

Use the following formula to work out your deduction for prepaid expenditure that is affected by the tax shelter rules:

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

Start of example


Investment in a tax shelter arrangement On 30 April 2002, Marian invested in an olive grove venture. The investment has all the characteristics of a tax shelter arrangement and is not subject to any of the exceptions.

Under the terms of the agreement, Marian was required to pay an initial management fee of $10,000 on 1 May 2002 to cover the provision of services over the period 1 May 2002 to 30 April 2003 (a period of 365 days). Marian made this payment on 1 May 2002. Marian is required to apportion her deduction over the 2002 and 2003 income years.

Marian's deductions are calculated as follows:


$10,000 × (61 ÷ 365) (1 May 2002 to 30 June 2002) = $1,671


$10,000 × (304 ÷ 365) (1 July 2002 to 30 April 2003) = $8,329

Over the 2002 and 2003 income years, Marian is entitled to a total deduction of $10,000.

End of example