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

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    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

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

    Expenditure

    X

    number of days of eligible service period in the income year
    total number of days of eligible service period

    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:

    2001-02

    $10,000

    X

     61
    365

    (1 May 2002 to 30 June 2002) =$1,671

    2002-03

    $10,000

    X

    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.

    Last modified: 18 Jun 2002QC 27429