Tax Tips    Prepayment Deductions

Prepayment Deductions

Prepayments are amounts paid for by a business in advance of the goods or services being received at the period or year end.

Small business entity taxpayers can claim an outright deduction for pre-paid business expenses if either of these two conditions is met:

  • The prepaid expenditure has an eligible service period (the period over which the benefit of the expenditure will be received by the business) of less than 12 months. So, for an expense prepaid in 2016, the eligible service period is the 30th of June 2017.
  • The expenditure is less than $1,000, or required to be incurred by law, or wages incurred under a contract.

Business expenses that could be pre-paid prior to June the 30th include:

  • Seminars and conferences,
  • Interest on business loans,
  • Accommodation and airfares for business trips,
  • Insurance,
  • Rent,
  • Equipment and motor vehicle leases,
  • Electricity,
  • Telephone, and
  • Computer software licencing fees.