On 14 May 2024, the Australian government announced in the federal budget that the $20,000 instant asset write-off will be extended for another 12 months, now available until 30 June 2025. This initiative aims to enhance cash flow and reduce compliance costs for small businesses by allowing them to immediately deduct the full cost of eligible assets costing up to $20,000 through an immediate deduction.

Please note that this measure is not yet law.

To understand how this change may benefit your business and to get personalised tax advice, schedule a complimentary consultation with Caubrooks. Use this link to book your session today.

What is the instant asset write-off threshold?

Businesses that meet certain eligibility criteria can benefit from the instant asset write-off scheme by claiming a tax deduction for assets used for business purposes. This allows your business to immediately deduct the full cost of an eligible asset in your next tax return, providing faster access to cash.

You can use the instant asset write-off for multiple assets, as long as the cost of each asset is below the specified threshold. This applies to both new and second-hand assets. To qualify for the write-off, assets must be purchased and installed ready for use within the same income year the write-off is claimed.

Note: From 12 March 2020 to 30 June 2021, the instant asset write-off was suspended. Temporary full expensing was available from 1 July 2021 to 30 June 2023.

How do you qualify for the instant asset write off?

Eligible businesses that qualify for the instant asset write off must meet specific criteria, including:

• The total income of your business and any associated businesses (aggregated turnover) must be below $10 million.

• The asset must have been purchased, used, or installed between 1 July 2023 and 30 June 2024.

• The cost of the asset must be less than $20,000.

• The threshold applies on a per-asset basis.

• Assets valued at $20,000 or more can still be placed in a small business simplified depreciation pool.

Example of an instant asset write off

Sarah, a sole trader, bought a new laptop and a desk on 12 March 2019. The laptop cost $7,500, and she used it 75% of the time for business purposes. The desk, purchased for $1,000, was used exclusively for her business.

Sarah calculated the business use portion of the laptop, amounting to $5,625 (75% of $7,500). For the desk, she claimed the full cost of $1,000.

In her tax return, Sarah included the combined total deduction of $6,625.

Note: From 12 March 2020 to 30 June 2021, the instant asset write off was suspended. During this period, temporary full expensing was available from 1 July 2021 to 30 June 2023.

What happens if the cost exceeds the threshold?

As a small business, you need to follow simplified depreciation rules to claim the instant asset write-off. If an asset's cost meets or exceeds the instant asset write-off threshold, you must add the asset to the small business depreciation pool.

Simplified depreciation rules

If you have a small business, you can opt to use simplified depreciation rules to claim the instant asset write-off. Here’s how you qualify:

• For income years starting from 1 July 2016, your business must have an aggregated turnover of less than $10 million.

• For previous income years, your business must have an aggregated turnover of less than $2 million.

If the cost of an asset meets or exceeds the instant asset write-off threshold, you need to include the asset in the small business depreciation pool.

Aggregated turnover is based on the annual turnover of your business and that of any business entities that are your affiliates or connected with you.

Simplified depreciation rules for small business include:

• an instant asset write off for assets that cost less than the relevant threshold (which is supplemented with the temporary full expensing from 7.30pm AEDT on 6 October 2020 to 30 June 2023)

• a general small business pool, which has simplified calculations to work out the depreciation deduction.

Temporary tax depreciation incentives

Between the 2019–20 and 2022–23 income years, three temporary tax depreciation incentives were available to eligible small businesses using the simplified depreciation rules:

• temporary full expensing

• increased instant asset write off

• backing business investment

Read our article "Significant changes to temporary full expensing and instant asset write offs for the FY 2024" to learn more.

What are the exclusions and limits of the modified instant asset write off rules?

Certain asset categories are either not eligible or have modified rules for the instant asset write off and temporary full expensing schemes.

These include:

• cars that exceed the car limit

• buildings and other assets eligible for capital works deductions

• assets located outside Australia

• specific primary production assets, like fencing and water facilities, which have their own instant write off schemes

• assets not used for business purposes

Specific case: expensive cars

Vehicles that exceed the car limit, known as "expensive" cars, cannot be fully depreciated. The car limit is set at $64,741 for the 2023 financial year and $68,108 for the 2024 financial year. This rule aims to prevent businesses from using taxpayer funds to purchase luxury vehicles. It is also included in the Temporary Full Expensing (TFE) scheme.

Commercial vehicles, such as vans, buses, and trucks used for business purposes, are not subject to the expensive car limit. Their full cost can be depreciated regardless of the total amount. Some larger utes with a carrying capacity of more than one ton are classified as commercial vehicles rather than cars. If a business purchases such a ute, even if it costs more than the car limit, they may be able to immediately deduct the full cost of the vehicle using TFE.

Assets not used in a business

The Temporary Full Expensing (TFE) scheme does not apply to capital assets used in a non-business capacity, such as those purchased by investment property owners or assets used in employment. For example, office furniture is eligible for TFE when bought by a business, but not when acquired by an individual for employment purposes.

If you use an asset for both business and personal purposes, any deduction claimed under TFE must be proportionate to its business use. For instance, if you purchase a new computer for $2,500 and use it 50% for business and 50% for personal purposes, you can only claim a deduction for $1,250.