Find out what's non-business expenditure, summary of the rules including the 12–month rule and calculating a deduction.
What is non-business expenditure?
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 for 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. Ian may prepay expenses for the rental property or for work-related expenses. This will be subject to the prepayment rules that apply to deductible non-business expenditure incurred by an individual.
End of exampleSummary 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.
- If you are an individual, your prepaid non-business expenditure is immediately deductible under the 12–month rule if
- the eligible service period for the expenditure is 12 months or less
- the period ends no later than the last day of the income year following the year in which the expenditure was incurred.
- When the eligible service period is more than 12 months or it ends after the last day of the next income year, you apportion your deduction for prepaid non-business expenditure over
- the eligible service period, or
- 10 years, whichever is less.
Calculating your deduction if the 12–month rule is satisfied
You are entitled to deduct that expenditure in the income year it was incurred if all of the following apply:
- you incur prepaid non-business expenditure
- its eligible service period is 12 months or less
- the eligible service period ends on or before the last day of the next income year.
Example: Deduction for non-business expenditure with an eligible service period of 12 months or less
On 1 June 2023 Jasmin, an employed solicitor, paid $1,750 for a subscription for a monthly professional journal for 1 June 2023 to 31 May 2024. The provision of the journal is the 'thing to be done under the agreement'. The period of subscription is wholly within a 12–month period ending before the last day of the next income year. So, Jasmin is entitled to a deduction for the expenditure in 2022–23.
End of exampleCalculating your deduction if the 12–month rule is not satisfied
If you incur prepaid 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:
A × (B ÷ C)
Where:
- A is expenditure
- B is the number of days of the eligible service period in the income year
- C is the total number of days of the eligible service period
Example: Deduction for non-business expenditure with an eligible service period of more than 12 months
On 1 January 2023, Martin, a senior clerk employed by a legal firm, paid $1,250 for a subscription for a monthly professional journal. The subscription is for 1 January 2023 to 31 January 2024 (396 days). As the eligible service period is more than 12 months, Martin must apportion his deduction over the income years 2022–23 and 2023–24. Martin’s deductions are:
2022–23 (1 January 2023 to 30 June 2023)
$1,250 × (181 ÷ 396) = $571
2023–24 (1 July 2023 to 31 January 2024)
$1,250 × (215 ÷ 396) = $679
The total deduction allowed proportionately over the income years 2022–23 and 2023–24 is $1,250.
End of exampleContinue to: Small business entities