• Later year amount

    Attention

    Warning:

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

    End of attention

    The later year amount is that part of your prepayment that relates to the thing to be done in future income years. This amount is the difference between the total amount of prepaid expenditure incurred and the current year amount.

    If you are a small business taxpayer and do not enter the STS, the transitional rules provide a concession by enabling you to deduct, in the year in which you incur the prepaid business expenditure, the sum of the current year amount plus part of the later year amount. The balance of the later year amount is deductible in the income year after the expenditure year.

    The concessional treatment applies to the later year amount for prepaid expenditure incurred in the 2002 and 2003 income years. These rules allow:

    • 40 per cent of the later year amount for prepaid business expenditure incurred in the 2002 income year to be deducted in the 2002 income year, the balance (60 per cent) will be deductible in the 2003 income year
    • 20 per cent of the later year amount for prepaid business expenditure incurred in the 2003 income year can to be deducted in the 2003 income year, the balance (80 per cent) will be deductible in the 2004 income year.

    The transitional rules will cease to apply to prepaid business expenditure incurred after the 2003 income year.

    Deductions for prepaid business expenditure, where the eligible service period ends more than 13 months after you incur the expenditure, continue to be apportioned over the eligible service period or 10 years, whichever is less. Transitional treatment does not apply to prepaid expenditure of this nature.

    Example

    Transitional rules for a prepayment made in the 2002 income year

    Bill is a small business taxpayer who does not enter the STS. On 31 December 2001, Bill prepaid rent of $5,000 for the use of his business premises for the 12-month period covering 1 January 2002 to 31 December 2002. As Bill incurred prepaid business expenditure in an income year which commenced after 30 June 2001 he is not entitled to an immediate deduction for the expenditure incurred.

    Bill's current year amount and the later year amount are calculated as follows:

    Current year amount

    $5,000

    X

    181 
    365

    (1 January 2002 to 30 June 2002) = $2,479

    This amount is immediately deductible in the 2002 income year.

    Later year amount

    $5,000-$2,479 = $2,521

    Applying the transitional rules, Bill is entitled to deduct 40 per cent of this later year amount in the 2002 income year. The balance (60 per cent) will be deductible in the 2003 income year. Bill is entitled to the following deductions:

    2001-02

    Current year amount

    $2,479

    40% of later year amount ($2,521 X 0.40)

    $1,008

    Total deduction

    $3,487

    2002-03

    60% of later year amount ($2,521 X 0.60)

    $1,513

    The total deduction allowed proportionately over the 2002 and 2003 income years will be $5,000.

    Last modified: 18 Jun 2002QC 27429