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Prepaying Expenses Before 30 June 2027: The 12-Month Rule

Updated 17 October 2026 · General information · 3 min read

General information only, not tax, legal or financial advice. We are not the ATO. Check ato.gov.au or ask a registered tax agent. Last checked: 17 October 2026. Dates for 2027 marked expected. Examples use made-up numbers. This page contains no affiliate links.

Short answer: The ATO's prepaid-expenses guidance says a small business entity (or one that would be small if the turnover threshold were $50 million) can claim an immediate deduction for prepaid expenditure under the 12-month rule if the eligible service period is 12 months or less and ends no later than the last day of the next income year. Otherwise the deduction is apportioned over the service period or 10 years, whichever is less.

What the ATO excerpts say

• The rule applies to business and non-business expenditure of an eligible entity that chooses the concession.
• If a prepayment doesn't meet the 12-month rule, you can't claim an immediate deduction; you apportion.
• Prepaid expenditure under certain managed investment (tax shelter) arrangements is not eligible and is apportioned.
• The ATO business-deductions page says that where the expense is $1,000 or more you will usually need to apportion across the supply period if you won't receive the goods or services within 12 months and aren't eligible for an immediate deduction.
• The government small-business learning page (search excerpt, last modified 15 July 2026) gives the same test.

Illustration (made-up)

You pay on 15 June 2027 for 12 months of insurance running to 14 June 2028. The period is 12 months and ends in the next income year (2027-28), which finishes 30 June 2028, so it appears to meet the test. If the period were 18 months, you would apportion.

Before 30 June 2027

• Confirm you qualify as a small business entity and that you account for deductions in the way the rule requires.
• Keep the invoice and proof of payment dated before year-end.
• Don't confuse this with the instant asset write-off (guide) or the simplified depreciation pool (comparison), which apply to depreciating assets.

Checklists: EOFY · sole trader.

FAQ

Does it apply to wages?

Not covered by the excerpts; ask a registered tax agent.

Is the PAYG/GST side covered?

No.

What we could not verify