Warning:
This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.
End of attentionThe transitional rules provide a concession by isolating that part of the payment that relates to a later year and allows a specified percentage to be immediately deductible instead of being apportioned over the eligible service period. There is an upper limit (cap) on the amount that is subject to this concessional treatment under the transitional rules.
The concession provided for under the transitional rules will not apply if:
- the eligible service period for the prepaid expenditure you have incurred ends more than 13 months later, or
- your limit on the amount subject to transitional treatment is nil because you did not incur any prepaid expenditure between 11.45am (by legal time in the ACT) on 21 September 1999 and the end of the income year that included that date (30 June 2000 for most taxpayers).
Under the transitional rules your prepaid business expenditure is divided into 2 parts:
- the current year amount
- the later year amount.
Current year amount
The current year amount is that part of your prepayment that relates to the thing to be done within the income year in which the prepayment was incurred (the expenditure year). This amount is calculated as follows:
Expenditure
|
X
|
number of days of eligible service period in the expenditure year
total number of days of eligible service period
|
The current year amount is immediately deductible in the income year in which the prepayment is incurred.
Later year amount
The later year amount is that part of your prepayment that relates to the thing(s) to be done in future income years. It is the difference between the total prepaid expenditure incurred and the current year amount.
The later year amount may be eligible for concessional treatment under the transitional rules. The treatment is determined by reference to the table below.
Note
There is a limit or cap on the amount subject to the transitional rules. See explanation of the cap in later paragraphs.
Proportion of your later year amount you are able to deduct
Transitional
year
|
Expenditure
year
|
Amount included in deduction for the expenditure year
|
Amount of deduction for the year of income straight after the expenditure year
|
1st
|
Year of income including 21.9.99
|
80% of the later year amount
|
20% of the later year amount
|
2nd
|
Year of income following the 1st year
|
60% of the later year amount
|
40% of the later year amount
|
3rd
|
Year of income following the 2nd year
|
40% of the later year amount
|
60% of the later year amount
|
4th
|
Year of income following the 3rd year
|
20% of the later year amount
|
80% of the later year amount
|
Last modified: 18 Jun 2002QC 27429