• Chapter 4 - Individual taxpayers incurring deductible non-business expenditure

    What is non-business expenditure?

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    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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    Non-business expenditure is any expenditure you incur in gaining assessable income from activities that do not 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 in respect of 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 do not constitute the carrying on of a business. Prepaid expenditure incurred by Ian in respect of the rental property or for work-related expenses will be subject to the prepayment rules that apply to deductible non-business expenditure incurred by an individual.

    Summary of rules including the 12-month rule

    • Prepaid expenditure that is subject to the tax shelter rules is apportioned over the eligible service period or 10 years, whichever is less. For more information, see chapter 2.
    • If you are an individual, your prepaid non-business expenditure is immediately deductible under the 12-month rule where
      • the eligible service period for the expenditure is 12 months or less, and
      • the period ends no later than the last day of the income year following the year in which the expenditure was incurred.
       
    • If you are an individual, your deduction for prepaid non-business expenditure is apportioned over the eligible service period or 10 years, whichever is less, where the eligible service period is more than 12 months or it ends after the last day of the next income year.

    Calculating your deduction where the 12-month rule is satisfied

    If you incur prepaid non-business expenditure and its eligible service period is 12 months or less, and it ends on or before the last day of the next income year, you are entitled to deduct that expenditure in the income year it was incurred.

    Example
    Deduction for non-business expenditure with an eligible service period of 12 months or less

    On 1 June 2004, Jasmin, an employed solicitor, paid $1,500 subscription for the provision of a monthly professional journal for the period 1 June 2004 to 31 May 2005. Because the thing to be done under the agreement is wholly provided within a 12-month period ending before the last day of the next income year, Jasmin is entitled to a deduction for the expenditure in 2003-04.

    Calculating your deduction where the 12-month rule is not satisfied

    Where you incur 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:

    Expenditure

    x

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

    Example
    Deduction for non-business expenditure with an eligible service period of more than 12 months

    On 1 January 2004, Martin, a senior clerk employed by a legal firm, paid $1,250 subscription for the monthly provision of a professional journal to cover the period 1 January 2004 to 31 January 2005. As the eligible service period is more than 12 months, Martin must apportion his deduction over the 2004 and 2005 income years. Martin's deductions are:

    2003-04

    $1,250

    x

    182
    397

    (1 January 2004 to 30 June 2004)

    =

    $573

    2004-05

    $1,250

    x

    215
    397

    (1 July 2004 to 31 January 2005)

    =

    $677

    Over the 2004 and 2005 income years, Martin will get a total deduction of $1,250.

    Last modified: 17 Jun 2005QC 27546