Question: I'm currently budgeting for the next financial year's expenses and would like to know what expenses can I prepay for my IP. If we move into this IP and make it into our PPOR, can we claim the prepaid expenses back? How does prepayment work?
Answer: Yes, you can claim the prepaid expenses for IP – some conditions do apply. Another expense you may prepay is buildings, contents or rental protection insurance premiums. You can't claim interest that you incur after you start using the rental property for private purposes. If you have already claimed the interest under ‘prepaid provisions’ then you need to go back and amend the income tax return claiming tax deduction for only the portion of the interest which relates to the period when the property was IP.
The prepaid PI expenditure is immediately deductible under the 12-month rule if the eligible service period for the expenditure is 12 months or less and the period ends no later than the last day of the income year following the year in which the expenditure was incurred. If the prepayment of interest is $1000 or less, it is fully deductible in the year it is paid.
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