Section EA 3 — Income Tax Act 2007: Prepayments

EA 3 Prepayments When this section applies (1) This section applies when— (a) a person has been allowed a deduction for expenditure under this Act or an earlier Act; and (b) the expenditure was not incurred on the items described in subsection (2); and (c) some or all of the expenditure is unexpired under subsections (4) to (7) at the end of the person’s income year. Exclusions (2) This section does not apply to expenditure incurred on— (a) revenue account property to which section EA 2 applies: (b) trading stock valued under subpart EB (Valuation of trading stock (including dealer’s livestock)): (c) livestock valued under subpart EC (Valuation of livestock): (d) an excepted financial arrangement valued under subpart ED (Valuation of excepted financial arrangements): (e) a film or a film right to which sections EJ 4 to EJ 8 (which relate to films) apply: (f) a specified lease or a lease to which section EJ 10 (Personal property lease payments) applies: (g) property that arises as a result of petroleum development expenditure or petroleum exploration expenditure to which sections EJ 12 to EJ 20 (which relate to petroleum mining) apply: (h) a financial arrangement valued under subpart EW (Financial arrangements rules). Unexpired portion (3) The unexpired portion of a person’s expenditure at the end of an income year— (a) is income of the person in the income year under section CH 2 (Adjustment for prepayments); and (b) is an amount for which the person is allowed a deduction in the following income year under section DB 50 (Adjustment for prepayments). Unexpired portion: expenditure on goods (4) An amount of expenditure on goods is unexpired at the end of an income year if, by the end of the income year,— (a) the person has not used up the goods in deriving income; and (b) the goods are not destroyed or rendered useless for the purpose of deriving income. Unexpired portion: expenditure on services (5) An amount of expenditure on services is unexpired at the end of an income year if the services have not been performed by the end of the income year. Unexpired portion: expenditure on choses in action (6) An amount of expenditure on a chose in action is unexpired at the end of an income year if the amount relates to a period of enforceability of the chose in action falling after the income year. Allowances reimbursing employees (7) In the case of expenditure subject to sections CW 17 , CW 17B , CW 17C , and CW 18 (which relate to expenditure, reimbursement, and allowances of employees), this section applies on the basis that the relevant services were performed in the income year in which the employee’s expenditure is expected to occur. Commissioner’s discretionary relief (8) The Commissioner may excuse a person from complying with this section under section 91AAC of the Tax Administration Act 1994. Defined in this Act: amount , Commissioner , deduction , employee , film , film right , goods , income , income year , pay , revenue account property , services , Compare: 2004 No 35 s EA 3 Section EA 3(7): amended (with effect on 1 April 2008), on 6 October 2009, by section 111 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).