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The instant asset write-off explained

Have you heard of the Federal Government’s instant asset write-off? 

If you haven’t, you're not alone. Research by American Express has revealed almost half of all small business owners are unaware of this initiative and that it could be of great help.

Here's a quick rundown on the instant asset write-off and whether it’s something you should take advantage of.

What is an instant asset write-off?

An instant asset write-off allows small businesses (with an annual turnover of less than $500 million) to claim immediate deductions up to an amount of $150,000 (this will reduce to $1,000 from 1 January 2021) for new or second-hand plant and equipment asset purchases such as vehicles, tools and office equipment. The assets must first be used, or installed for use, in the income year you’re claiming for.

The amount you can write-off will depend on when the asset was purchased and the associated threshold amount. Thresholds and eligible turnovers changed on 12 March 2020, check the ATO website for details.

Please note: changes to remove the spending cap on the instant asset write-off, announced in the 2020-21 Federal Budget, will need to receive royal assent before coming into affect. 

What type of purchases should I consider making?

Before making any large purchases, we suggest you speak to your accountant or tax professional and assess how the asset will benefit your business and how the purchase may impact on your cash flow or finances in the short term.

If you decide to take advantage of the instant asset write-off, you should make the decision based on the needs of your business. For example, if you need to purchase a vehicle for deliveries to expand your business operations to help you achieve your business goals, or because it is in line with your business plan.

What happens if I make a purchase that is greater than the write-off amount?

The instant asset write-off threshold applies to the total cost of the asset, not just its taxable portion. Any purchases equal to or more than the threshold can be put into your small business asset pool, where you will be able to claim gradual deductions (depreciation) each year.

How do I claim the instant asset write-off?

If you buy an asset that comes under the threshold, you can claim the business portion of the asset’s use in your tax return for that financial year.

You can claim a deduction for multiple assets as long as the cost of each individual asset is less than the relevant threshold.

The ATO website provides examples of how to work out your instant asset write-off.

TIP: If your business is structured as a partnership there’s no double-dipping allowed. Under the instant asset write-off, purchases are considered as being owned by the partnership and not by individual partners. If a partner buys an asset such as a motor vehicle in their own name, the asset won’t be eligible for the write-off as part of the partnership, and if the partner does not qualify as a small business taxpayer personally, they will not be eligible for the write-off.

More information

For more information on the instant asset write-off visit the Australian Taxation Office website or speak to your accountant or a qualified tax professional.

If you’d like to speak to a business adviser to discuss your business plan or how your business can expand, contact our free advisory service.

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