Prepaid Deductions Calculator Australia 2025-26

Two groups: (1) Small Business Entities carrying on a business with aggregated turnover under $10 million, and (2) non-business individuals — a typical wage-earner with rental or investment expenses. If the service period is 12 months or less AND ends by 30 June of the following year, the whole amount is deductible in the year you pay it. Large and 'other' businesses don't get this concession — they apportion over the service period under ITAA 1936 s 82KZMD.

No. Prepaying only delivers a PERMANENT tax saving if your marginal rate will be lower next year. If your marginal rate is the same both years, the benefit is just the time value of the deferred tax (typically 4–6% of the prepayment, not 30%+). If your marginal rate will be higher next year — e.g., promotion, return from maternity leave, selling a property — you're better off deferring the deduction. This calculator shows both scenarios side by side.

Common prepayable items: investment loan interest (lender approval required — most need you to fix the rate), rental property insurance and body corporate/strata fees, income protection insurance, professional subscriptions and memberships, self-education course fees, and journal subscriptions. Council rates and land tax are statutory obligations, not services, so the prepayment rules don't apply (they're deductible when incurred). Salary/wages under a contract of service are excluded. DGR donations are deductible when you make them under s 30-15 — no service period needed.

Prepayments under $1,000 are 'excluded expenditure' under ITAA 1936 s 82KZL(1) — they fall outside the prepayment regime entirely and are deductible when paid under ordinary s 8-1 rules, regardless of service period. Useful for smaller subscriptions and memberships.

From 1 July 2024 the marginal rates are 16% (to $45k), 30% (to $135k), 37% (to $190k), and 45%. Because the 30% bracket now runs all the way to $135k, a lot more people are stuck at 30% + 2% Medicare = 32% in both this year and next — meaning prepaying is often pure timing, not a real saving. Before the cuts, people moving from the 32.5% to 37% bracket had natural year-on-year rate differences that made prepaying worthwhile.

Prepayments don't trigger wash-sale concerns (that's a CGT issue). The main guardrail is ITAA 1997 Part IVA (general anti-avoidance) — the ATO can deny a prepayment deduction if the dominant purpose was a tax benefit without commercial substance. Genuine business/investment prepayments where you actually need the service are safe.

Don't forget you're writing a cheque for the full amount on 30 June, but you don't get the refund until after you lodge (could be October+). Prepaying $10k to save $3,700 means $6,300 is out of your account for several months. Compare that to earning interest on the $10k in a high-yield savings account — sometimes the NPV of timing-only prepayments is negative once you factor in the opportunity cost of cash.