Some prepaid expenses are excluded from the prepayment rules.

This means that you can deduct them immediately, even if the expense does not meet the 12-month rule or you’re not a small business.

The most common are for amounts of less than $1,000 and amounts required to be incurred by a court order or law of the Commonwealth, state or territory (for example car registration).

Example: excluded prepayment

Other prepaid expenses that are excluded from the prepayment rules include:

• salary or wage payments made under a contract of service
• amounts that are capital (these are covered by depreciation rules)
• amounts that are private or domestic in nature (these are not deductible)
• amounts payable to an insurance company for policies or the payment of reinsurance premiums
• amounts under $1,000 (GST exclusive) incurred by an entity registered for goods and services tax (GST).