Assets and depreciation
Instant asset write-off
The instant asset write-off lets eligible small businesses deduct the full cost of a qualifying asset in the year it is first used, if the cost is below a threshold set by the government.
The instant asset write-off is a concession that lets eligible businesses claim an immediate deduction for the business portion of the cost of a depreciating asset, instead of spreading the deduction over its effective life. It is aimed at small businesses and is designed to improve cash flow and encourage investment in equipment such as tools, computers, machinery and vehicles used in the business.
The key feature to understand is that the cost threshold is not fixed. The government has changed the limit and the eligibility rules several times, sometimes temporarily, and sometimes through legislation that is passed late in the income year. For this reason this entry does not quote a dollar limit. Always check ato.gov.au for the threshold that applies to the date you first used the asset or installed it ready for use.
Eligibility generally depends on being a small business entity using the simplified depreciation rules, and on the asset being first used or installed ready for use within the relevant period. The asset must be used for a taxable purpose, and if it is partly private, the deduction is limited to the business portion. The threshold is usually applied to each asset separately and, in the relevant rules, to the cost excluding GST for businesses that can claim a GST credit.
This is where GST enters. A business registered for GST usually claims the GST credit on the purchase in the BAS for the period of the tax invoice, so the cost to which the threshold is compared is typically the GST-exclusive amount. A business not registered for GST includes the GST in the cost, because it cannot claim a credit. Check which approach applies to you, since it can change whether an asset fits under the limit.
Assets that exceed the threshold, or that are not eligible, are depreciated in the usual way or may go to the small business pool. Some assets are excluded from the write-off, such as certain assets leased out, and assets that are not depreciating assets. Cars are still subject to the car limit for depreciation and GST credits.
A common mistake is assuming the write-off applies to every purchase regardless of date or size, or forgetting that the asset must actually be used or ready for use by 30 June. Keep invoices and evidence of the date of first use. This is general information only, so confirm your situation with the ATO or a registered tax professional.
Worked example
A registered carpenter buys a power saw for $3,300 including GST on 10 June and starts using it immediately. Assume the write-off threshold that year is higher than the GST-exclusive cost, for illustration. The GST credit is $3,300 / 11 = $300, and the GST-exclusive cost is $3,000. If the carpenter is eligible, the business can deduct the $3,000 in that income year instead of depreciating it.
Practical tips
- Check the current threshold and eligibility dates on ato.gov.au before buying, because they change and are not the same every year.
- The asset must be first used or installed ready for use by the end of the income year to claim it that year.
- Registered businesses usually compare the GST-exclusive cost with the threshold, since they claim the credit separately.