What is non-business expenditure?
Non-business expenditure is any expenditure you incur in gaining assessable income from activities that don't relate to carrying on a business.
The most common forms of non-business expenditure are amounts incurred by individual taxpayers in gaining their assessable salary and wage income. Other examples include certain expenditure made for a rental property or shares held purely as a passive investment.
Example: non-business expenditure
Ian is employed as a bank manager and the primary source of his income is the salary received from his employer. Ian also owns a rental property from which he receives assessable income. Ian’s rental property activities don't constitute the carrying on of a business. Ian may prepay expenses for the rental property or for work-related expenses. This will be subject to the prepayment rules that apply to deductible non-business expenditure incurred by an individual.
End of exampleSummary of rules including the 12-month rule
Summary of rules including the 12–month rule for non-business expenditure:
- Prepaid expenditure that is subject to the tax shelter rules is apportioned over the eligible service period or 10 years, whichever is less.
- If you're an individual, your prepaid non-business expenditure is immediately deductible under the 12-month rule if either
- the eligible service period for the expenditure is 12 months or less
- the period ends no later than the last day of the income year following the year in which the expenditure was incurred.
- When the eligible service period is more than 12 months or it ends after the last day of the next income year, you apportion your deduction for prepaid non-business expenditure over the lesser of either
- the eligible service period
- 10 years.
Calculating your deduction if the 12-month rule is satisfied
You're entitled to deduct that expenditure in the income year it was incurred if all the following apply:
- you incur prepaid non-business expenditure
- its eligible service period is 12 months or less
- the eligible service period ends on or before the last day of the next income year.
Example: deduction for non-business expenditure with an eligible service period of 12 months or less
On 1 June 2025 Jasmin, an employed solicitor, paid $1,750 for a subscription for a monthly professional journal for 1 June 2025 to 31 May 2026. The provision of the journal is the 'service to be done under the agreement'. The period of subscription is wholly within a 12-month period ending before the last day of the next income year. So, Jasmin is entitled to a deduction for the expenditure in 2024–25.
End of exampleCalculating your deduction if the 12-month rule isn't satisfied
If you incur prepaid non-business expenditure and the eligible service period is more than 12 months or it ends after the last day of the next income year, you must use the following formula to work out your deduction:
A multiplied by (B divided by C)
Where:
- A is expenditure.
- B is the number of days of the eligible service period in the income year.
- C is the total number of days of the eligible service period.
Example: deduction for non-business expenditure with an eligible service period of more than 12 months
On 1 January 2025, Martin, a senior clerk employed by a legal firm, paid $1,250 for a subscription for a monthly professional journal. The subscription is for 1 January 2025 to 31 January 2026 (395 days). As the eligible service period is more than 12 months, Martin must apportion his deduction over the income years 2024–25 and 2025–26. Martin’s deductions are:
2024–25 (1 January 2025 to 30 June 2025)
$1,250 × (182 ÷ 397) = $573
2025–26 (1 July 2025 to 31 January 2026)
$1,250 × (215 ÷ 397) = $677
The total deduction allowed proportionately over the income years 2024–25 and 2025–26 is $1,250.
End of exampleContinue to: Small business entities
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