The increase to the instant asset write-off threshold to $20,000 from $1,000 for 2023-24 has passed Parliament just days prior to the end of the financial year. This increase offers cash flow benefits by allowing small businesses to claim an immediate tax deduction for certain assets in the year of purchase, instead of spreading the deduction over several years.

Keep in mind that the deduction is not a refund, it will only minimise the taxable income of the business entity, or in some scenarios, it will increase or create a tax loss that must be carried forward to future years. For instance, if a business is structured as a company, the financial advantage of the write-off is restricted to the applicable company tax rate (25% for base rate entities and 30% for other companies). If the business is expected to incur a tax loss for the year, then a larger deduction may not yield any immediate benefit.

Eligibility

To access the instant asset write-off, consider both the business entity and the asset. To use the instant asset write-off, the business entity needs to:

  • be carrying on a business under general principles in the 2024 income year
  • have a total annual turnover of under $10m (the business annual turnover, plus the annual turnover of any connected business entities) in the 2024 income year or 2023 income year
  • choose to apply depreciation rules for the 2024 income year. If the business entity doesn’t apply the simplified depreciation rules for the 2024 income year, then it won’t be able to access the instant write-off rules, irrespective of whether the other basic requirements can be satisfied.

To use the instant asset write-off, the asset needs to:

  • Lie within the scope of the depreciation provisions. There are some assets, such as capital works, horticultural plants, assets leased to another party on a depreciating asset lease, etc., that are not eligible
  • cost less than $20,000. If the business is GST registered, the expense of the asset must be less than $20,000 after GST credits have been subtracted. If the business is not GST registered, it is $20,000 including GST, and
  • be first utilised, or installed ready for use, for a taxable purpose between 1 July 2023 and 30 June 2024. To prevent business operators from stockpiling purchases and claiming tax deductions for goods they have no intention of using, if a business purchases an asset on 20 May 2024, it must be used or installed and ready to use to qualify for the immediate deduction in 2023-24 by 30 June 2024.
  • be for business use. Make sure that there is a connection between the asset bought by the business and how the business produces income.

The rules that prevent small business entities from re-entering the simplified depreciation regime for five years if they opt out will remain suspended until 30 June 2024. These rules are also known as the lock-out rules.

What Happens When Assets Cost Above $20,000?

If a taxpayer is a small business entity and chooses to use the simplified depreciation rules, then assets that cost $20,000 or more (and cannot be immediately deducted) can be put into the small business general pool. These assets will be depreciated at a rate of 15% in the first income year and 30% in each income year thereafter.

The increased instant asset write-off threshold means that a $20,000 threshold applies to determine if the full pool balance is written off in the 2024 income year. Please keep in mind that when applying these rules, you should not consider the closing pool balance. Instead, focus on the pool balance without taking into account the current year’s depreciation deductions for the 2024 year.

How Many Assets Can Be Purchased?

The write-off threshold applies per asset, so a small business entity can possibly deduct the full cost of several assets. If all other requirements are satisfied, an immediate deduction must be available for each individual item costing less than $20,000 – just be mindful of cash flow.

What About Second-Hand Goods?

The instant asset write-off doesn’t differentiate between new or second-hand goods. For instance, second-hand machinery may be eligible if it meets the other requirements.

Extension Until 30 June 2025

There has been an extension of the increased instant asset write-off threshold to 30 June 2025, announced by the Government in 2024-25.

The History of Deductions

Special provisions are legislated for the tax treatment of deductions for depreciating assets to encourage business investment, specifically to boost the confidence of small businesses to invest in the assets they need to grow.

Aggregated turnover threshold Initiative Date range for when asset first used or installed ready for use Cost threshold
Less than $10 million* Instant asset write-off 1 July 2024 to 30 June 2025 $20,000
Less than $10 million Instant asset write-off 1 July 2023 to 30 June 2024 $20,000
Less than $5 billion Temporary full expensing 6 October 2020 to 30 June 2023 n/a
Less than $500 million Instant asset write-off 12 March 2020 to 30 June 2021 $150,000
Less than $50 million Instant asset write-off 7.30pm (AEDT) on 2 April 2019 to 11 March 2020 30,000
Less than $10 million Instant asset write-off 29 January 2019 to 7.30pm (AEDT) on 2 April 2019 $25,000
Less than $10 million Instant asset write-off 1 July 2016 to 28 January 2019 20,000
Less than $2 million Instant asset write-off 7.30pm (AEST) on 12 May 2015 to 30 June 2016 $20,000
Less than $2 million Instant asset write-off 1 January 2014 to prior to 7.30pm (AEST) 12 May 2015 1,000
Less than $2 million Instant asset write-off 1 July 2012 to 31 December 2013 $6,500
Less than $2 million Instant asset write-off 1 July 2011 to 30 June 2012 1,000