A prepaid expense is a cost you incur for something to be done (e.g. goods or services) in a later income year – for example, lease payments.

Generally, a prepaid expense can be claimed as a deduction over the ‘eligible service period’. The eligible service period is the period where the goods or services are provided under the agreement. This period can’t exceed 10 years.

However, you may be able to claim a prepaid expense in the year you pay it, if the ‘12-month rule’ applies or if it’s considered ‘excluded expenditure’.