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General deductions and research and development

Last updated 24 May 2023

Find out about general deduction provisions and R&D provisions.

General deduction provisions

The prepayment rules apply only to expenditure which would otherwise qualify for immediate deduction:

  • under the general deduction provisions of section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997), or
  • for eligible companies, under the R&D provisions in sections 355-205 (R&D expenditure) or 355-480 (earlier year associate R&D expenditure) of the ITAA 1997.

The prepayment rules do not apply where the expenditure is deductible under a specific deduction provision of the tax law other than those for R&D (that is, other than sections 355-205 or 355-480 of the ITAA 1997).

The general deduction provisions generally allow you to deduct from your assessable income any loss or outgoing incurred in:

  • gaining or producing your assessable income, or
  • carrying on a business.

You cannot claim a deduction under these provisions for expenditure:

  • of a capital, private or domestic nature, or
  • incurred in gaining exempt income.

Unless specifically stated otherwise, expense and expenditure refer to expenditure that is only allowable as a deduction under the general deduction provisions of section 8-1 of the ITAA 1997 or, for eligible companies, under the R&D provisions in sections 355-205 or 355-480 of the ITAA 1997.

R&D expenditure prepaid before 1 July 2011

Sections 355-205 and 355-480 of the ITAA 1997 apply to R&D expenditure incurred since 1 July 2011. Undeducted amounts of prepaid expenditure incurred prior to 1 July 2011, but taken to be incurred over the eligible service period to which they relate, may be a deduction under the transitional rules for the R&D tax incentive for income years beginning on or after 1 July 2011. The expenditure must be incurred on activities that the company has registered under section 27A of the Industry Research and Development Act 1986 for the relevant year.

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