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Hello, my name is Tim. I will ask you a set of questions to help you decide whether or not you can deduct your prepaid expenses for tax purposes.
A prepaid expense is a payment made early (in advance) before the goods are received or services are rendered. For accounting purposes, the payment would be reflected as an asset on the Balance Sheet and would only be expensed when the goods or services are actually received.
Can you deduct prepaid expenditure? Answer the questions above to find out.
Yes, I can deduct prepaid expenses
This means that you can deduct prepaid expenses in the current year, before the goods are received or services have been rendered. In this instance, the tax treatment differs from the accounting one.
If you are a micro business (turnover less than R1m): you would include the relevant deduction under the "Adjustments: Allowable" section in your ITR14 in the block for "Other Adjustments: Allowable".
If you are a small or medium business (turnover greater than R1m): you would include the relevant deduction under the "Special Allowances not claimed in the Income Statement" section and tick the block "Prepaid Expenditure not limited by s23H".
No, I cannot deduct prepaid expenses
This means you do not include a deduction in your ITR14. In this instance, the tax treatment is the same as the accounting one, which means you can only claim the expense when the goods are received or services are rendered (and not before).
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