Instant Asset Write-Off in Australia: The $20,000 Rules

June is when small businesses buy the laptop, the trailer or the ute, on the understanding that it comes off this year’s tax. The instant asset write-off in Australia does let a small business deduct an asset in one year, but two rules decide whether a purchase qualifies, and both are tested at 30 June. The $20,000 limit is measured against the asset’s full price, before any trade-in. The ATO’s own example is a $25,000 car bought with an $11,000 trade-in: only $14,000 left the bank, but the car goes into the small business pool, so the first-year deduction is $3,750, not $25,000. And the asset has to be in use or installed ready for use by 30 June to count in that year at all.

The write-off is the asset side of small business tax deductions, and the $20,000 limit is now permanent law. Below is how it works, the full-cost test, the timing, the pool, cars, and what happens when you sell.

How the instant asset write-off works

A small business can deduct the business share of an asset’s cost in the year the asset is first used or installed ready for use, provided it costs less than $20,000. The limit applies per asset, so several assets can each be written off in one year, and second-hand assets qualify as well as new ones.

Three things settle who can use it:

• aggregated turnover under $10 million, which counts the turnover of any affiliated or connected business, not just your own
• choosing the simplified depreciation rules, which needs no form: you claim under them in your return and keep the records
• any structure, whether sole trader, partnership, company or trust

A sole trader can also use the rules for assets used to earn salary, wages or investment income, not only for the business.

The limit has been $20,000 since 1 July 2023. The government extended it to 30 June 2026 and then made it permanent from 1 July 2026, and the ATO’s page on the change says it plainly: “This measure is now law.” Pages saying it’s still waiting on Parliament, or that it falls back to $1,000, are out of date.

Simplified depreciation is a package, not a menu. Choose it and, under the ATO’s simplified depreciation rules, you use it for all your depreciating assets except the excluded ones, and you “apply the entire set of rules, not just individual elements (such as the instant asset write-off)”. That brings in the pool for anything over the limit. Tradie tax deductions applies the same limit to tools, gear and the ute.

The full-cost test

The $20,000 is measured against the asset’s full cost, and the deduction is only the business share. In the ATO’s guidance on assets under simplified depreciation, you “must consider whether the full cost of the asset or cost addition is less than the relevant limit. However, your depreciation deduction is limited to the percentage your asset is used for business purposes.”

That cuts both ways. A $40,000 ute used 40% for business has a $16,000 business share, under $20,000, but the ute costs $40,000, so it can’t be written off. That’s the example on the ATO’s instant asset write-off page. The other way round, a $12,000 piece of equipment used half for business is written off in the year, and $6,000 of it is deductible.

The cost is more than the sticker price:

• what you paid for the asset
• delivery and installation to get it ready for use
• for a business that isn’t registered for GST, the GST in the price

A GST-registered business claiming the full credit leaves the GST out. An asset priced at $20,900 including GST is $19,000 plus $1,900 GST: registered, its cost is $19,000 and it can be written off. Not registered, its cost is $20,900 and it goes into the pool.

Timing: in use by 30 June

The deduction falls in the income year the asset is first used or installed ready for use, not the year you pay for it. A machine ordered and paid for in June but installed in July is a deduction for the following year. Equipment delivered and set up ready to use by 30 June counts in the year that ends that day.

Assets that cost $20,000 or more: the small business pool

Anything at or over the limit goes into the small business pool, at its business share. The pool deducts 15% in the year the asset is first used or installed and 30% of the balance each year after. If the pool’s balance at the end of a year, before that year’s deduction, is under $20,000, the whole balance is written off.

A $30,000 asset used wholly for business, alone in the pool, deducts $4,500 in its first year (15%) and $7,650 in its second (30% of $25,500). The $17,850 left is under $20,000, so it’s written off at the end of the third year, and the full $30,000 is deducted in three years.

Business use gets checked for three years. In each of the first three years after an asset goes into the pool, you review how much it’s used for business, and a change of more than 10% means adjusting the opening pool balance using the ATO’s formula.

Keep the pool’s records for five years: how you worked out the opening balance, changes in business use, and anything you sell or dispose of. How long to keep tax records varies by record type, and pool records are kept on that five-year cycle.

Cars and utes

A car costing less than $20,000 can be written off like any other asset. Above that, the car limit caps the cost any car can be depreciated from: $69,883 for cars first used in 2026-27 and $69,674 for 2025-26, according to the ATO’s 2026-27 car thresholds. For tax, a car carries a load under one tonne and fewer than 9 passengers. A one-tonne ute or van isn’t a car, so the car limit doesn’t apply to it.

Two more rules follow from how the vehicle is claimed:

• on cents per kilometre the rate already includes depreciation, so the car sits in the pool at 0% business use and earns no separate deduction
• a car owned by a company or trust is depreciated at its full cost, and private use by a director or employee becomes a fringe benefits tax question

Which of those applies turns on the structure that owns the vehicle and its payload, the two questions behind business vehicle tax deductions.

What the write-off doesn’t cover

A short list of assets is excluded from simplified depreciation altogether and goes through the general depreciation rules instead:

• assets leased out more than 50% of the time on a depreciating asset lease
• assets used in research and development
• assets already in a low-value pool from before you used the simplified rules
• capital works, including buildings and structural improvements
• horticultural plants, including grapevines
• software allocated to a software development pool

Leaving simplified depreciation used to lock a business out for five years before it could come back. That lock-out is suspended until 30 June 2027.

Selling or improving an asset you wrote off

Selling a written-off asset brings part of the deduction back as income. The business share of what you receive is assessable in the year you sell it, and an insurance payout for a written-off asset that’s destroyed is income in the same way.

Improvements get one more write-off. The first improvement cost after the year you wrote the asset off is immediately deductible if it’s under $20,000. Later improvements go into the pool.

What the write-off is worth

The write-off is a deduction, so it saves tax at your rate, not the price of the asset. A sole trader in the 30% band saves 32 cents in the dollar with the 2% Medicare levy, and a company on the 25% base rate entity rate saves 25 cents.

The same asset saves a base rate entity company $2,500. The other $6,800 or $7,500 is still spent: the write-off brings the deduction forward on something the business needs, it doesn’t make the purchase free.

Getting the write-off right on your return

The claim is decided by what’s on paper at 30 June: the invoice, the date the asset was installed or first used, the business-use share and any trade-in. A company tax return is $440, or $660 if the company is registered for GST or has staff, and a sole trader return is $330 with the personal return included. Fixed fees assume tax-ready records, and a spreadsheet, or your bank transactions plus a list of expenses, is a fine place to start.