Are you a small business owner in Australia? Then, the instant asset write off can help represent a significant tax break.
This tax incentive allows eligible businesses to immediately deduct the total cost of qualifying assets without spreading the cost over several years. This can reduce your tax burden and help offset the costs of investing in new equipment or upfront business set-up.
But how exactly does this scheme work? And how can small Australian businesses take advantage of this type of write-off?
This guide will walk you through everything you need to know about the instant asset write-off. We will touch on who is eligible, the types of assets you can write off, and how to apply for a write-off.
What is an instant asset write-off, and how does it work?
The instant asset write-off is an Australian tax deduction scheme that allows eligible businesses to claim an immediate deduction for the total cost of qualifying assets. Typically, companies will get tax breaks for an asset over time as it depreciates.
In contrast, this scheme allows you to declare the entire amount either when you first use the new asset or when it is installed and ready for use.
Here’s how it works in practice:
- Let’s say your business purchases an eligible asset for $15,000.
- Instead of depreciating the asset over several years, you can deduct the full $15,000 from your taxable income in the current financial year.
- This reduces your overall tax liability, potentially saving thousands of dollars.
In addition to following the simple steps above, you should keep the following in mind:
- The asset must be used for business purposes.
- There are thresholds and eligibility criteria to meet.
- Both new and second-hand assets may qualify.
- Multiple assets can be claimed as long as each is below the threshold.
Plus, remember that you can instead decide to get tax breaks over time if that’s what makes sense for your business.
Who is eligible to receive the instant asset write-off?
Various business structures under Australian law are eligible to get the instant asset write-off. These include:
- Sole traders: A sole trader is an individual who runs a business on their own. If you are a sole trader, you can take advantage of instant asset tax write-offs by immediately deducting the cost of eligible business assets to reduce your taxable income for the year.
- Partnerships: A partnership is a business structure where two or more individuals share ownership and profits. Partners can jointly invest in business assets and receive immediate tax benefits, each reducing their tax burdens for the year.
- Companies: A company is a separate legal entity owned by shareholders and managed by directors. Unlike in other cases, these business structures reduce the corporate tax burden rather than saving on individual income taxes.
- Trusts: A trust is a fiduciary arrangement where a trustee holds assets on behalf of beneficiaries. Trusts can invest in essential business assets and claim immediate tax deductions, which are then distributed to beneficiaries to optimize their tax liabilities.
The business must:
- Have an aggregated turnover of less than $10 million.
- Purchase eligible assets below the current threshold (more on this later).
- Use or install the asset within the given tax year it claims the write-off.
Remember that these criteria might change over time. Before purchasing an asset you plan to write off, make sure to review the latest policies and ATO guidelines.
What assets can your business claim under the instant asset write-off?
The great thing about this scheme is that most business assets under the cost threshold are eligible for the instant write-off. Both new and second-hand assets can qualify. They may include:
- Vehicles (limited)
- Office furniture and equipment
- Tools and machinery
- Computer hardware
- Point of sale systems
- Solar panels
There are also some exclusions:
- Assets that are leased out
- Software allocated to a development pool
- Capital works and building improvements
- Assets used primarily for research and development
Once again, it’s best to confirm the latest inclusions on the ATO page before you make a purchase.
What is the instant write-off threshold for small businesses?
Significant changes have been made to the instant write-off thresholds over the past few years. If you purchased the asset between July 1, 2023, and June 30, 2024, then the maximum cost per asset should not exceed $20,000. Meanwhile, your business should not have an aggregated turnover above $10 million for the same date range.
Here’s a breakdown of the threshold changes and eligibility criteria over the last 5 years:
| Financial Year | Threshold | Eligibility Criteria |
| 2020-2021 | Uncapped | Aggregated turnover < $500 million |
| 2021-2022 | Uncapped | Aggregated turnover < $5 billion |
| 2022-2023 | Uncapped | Aggregated turnover < $5 billion |
| 2023-2024 | $20,000 | Aggregated turnover < $10 million |
| 2024-2025 | $20,000 | Aggregated turnover < $10 million |
Is the temporary full expensing incentive the same as an instant asset write-off?
Temporary full expensing is an enhanced version of the instant asset write-off that was introduced in response to the economic impacts of COVID-19. This measure allowed eligible businesses to deduct the total cost of eligible depreciating assets with no upper limit on the asset value.
Temporary full expensing ended on June 30, 2023. If you are claiming for this period retroactively, you may refer to the rules that applied to this scheme for the 2020-21, 2021-22, and 2022-23 income years.
Alternatively, you may use the general depreciation rules for asset tax write-offs or the simpler depreciation rules designed for small businesses.
How can you apply for an instant asset write-off in 2024?
The instant asset write-off is a straightforward scheme that is easy to apply for, even for small businesses. Follow these steps:
- Purchase an eligible asset before June 30, 2024.
- Ensure the asset is installed and ready for use by the end of the financial year.
- Claim the deduction on your tax return for the 2023-2024 financial year.
For the 2023-2024 financial year, small businesses can claim instant asset write-offs costing less than $20,000 each. To claim, make sure to include the information in the Business and Professional Items Schedule, which is a supplementary section of the tax return.
If you want to maximise your claims, make sure to keep detailed records of all asset purchases. This way, you’ll be prepared for an audit.
You should also time asset purchases to align with your cash flow and keep them under the annual threshold. For example, you may want to wait to purchase a more significant asset until the next fiscal year if you expect to have a higher income.
It’s always a good idea to consult a tax specialist to ensure compliance and get the most out of the various tax incentives offered by the ATO.
FAQ
Can individuals claim instant asset write-offs?
No, individuals cannot claim the instant asset write-off. This tax incentive is specifically designed for businesses. Sole traders, however, can claim this tax benefit; keep in mind that the asset should strictly be used for business purposes in order to be eligible.
Can sole traders claim instant asset write-offs?
Yes, sole traders can claim the instant asset write-off, provided they meet the eligibility criteria. As a sole trader, you must have an active ABN, have an active business, and meet the turnover threshold requirements.
What happens if I make a purchase that exceeds the instant asset write-off threshold?
If you purchase an asset that exceeds the current threshold ($20,000 in 2024), you can’t get an instant asset write-off for that item. Instead, you’ll need to use the general depreciation rules to claim deductions over time.
Final thoughts
The instant asset write-off was designed to help small businesses grow while managing their tax burdens. Having a clear idea of what assets and businesses are eligible for and how to claim this deduction on your tax return can help you better manage your company’s financial health.
Make sure that you are making the most of this and other tax incentives! Talk to our tax experts today. Lawpath helps your business ensure tax compliance and maximise your tax benefits at every step of the way.
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