TAX PLANNING 2020
TIP #9 – PREPAYMENTS
How can you best make use of expenditure items that are “prepaid” from a tax savings point of view?
Prepayments are spend in the current year that covers things that are done in a later year. These types of expenditure involve the money being outlaid up front, but the provision of goods / service stretches out across a period in following year(s).
Prepayments are generally tax deductible across what is referred to as the “eligible service period” or ESP. The ESP is the period during which the thing being paid for is to be done under agreement.
In some instances an immediate deduction may be made for a prepayment, for example:
🚩 where the prepayment is “excluded” expenditure, or
🚩 the prepayment satisfies the “12 month rule”
Specifically on the 12 month rule, if you are a small business entity or an individual incurring deductible non business expenditure you can claim an immediate deduction for a prepayment if:
1️⃣ the payment is incurred for an ESP not exceeding 12 months; and
2️⃣ the ESP ends in the next income year.
In other words, the thing paid for is done within a 12 month time frame
Examples of prepaid expenses that may be immediately deductible are:
*** IMPORTANT *** If you do not have a TAX PLAN 2020, get in touch and ensure you are well prepared in advance of financial year end. As a result of Covid-19, businesses are in line for material tax savings never experienced before, all designed to assist your business through the pandemic.
If you have any questions at all regarding financial and business matters, please d
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