What is an instant asset write-off?
Eligible businesses are allowed to claim an instant deduction for the cost incurred for business purposes of an asset in the same financial year they first use it or install it ready for use. The instant asset write-off enables eligible businesses to:
- Claim a tax deduction for more than one asset, as long as each asset costs less than the applicable limit.
- Claim deductions for both new and second-hand assets.
For small businesses:
- You need to use the simplified depreciation rules in order to claim the instant asset write-off.
- You won’t be able to claim it for assets that are not included under these rules.
Additional costs for previously written-off assets:
If a small business has claimed an instant deduction for an asset in an earlier financial year, it may also claim an immediate deduction for specific additional expenses added to that asset later. To be eligible:
- The additional cost needs to be the first new cost added to the asset after the end of the financial year in which the asset was written off originally.
- The additional cost needs to be less than the applicable instant asset write-off limit for the financial year in which the business claims it.
When can you claim?
The eligibility requirements and limit have changed for claiming the instant asset write-off. You are required to:
- Check whether your business is eligible for this.
- Apply the relevant limit amount.
The income year in which you may claim an immediate deduction depends on when the asset was bought and first used or installed and ready for use. You can rely on Melbourne accounting services to seek help from accountants to know when you need to claim an instant asset write-off.
Eligibility conditions
You might be eligible for claiming an immediate tax deduction for an asset under the instant asset write-off based on:
- Your business turnover, including the turnover of any related or connected businesses.
- Purchase date: When you bought the asset.
- Date of use: When you first started using the asset or when it was ready to be used.
- Asset cost: The asset cost must be below the allowed limit.
If the cost of the asset exceeds the limit
If the cost of the asset is the same as or more than the write-off limit, you need to include it in your small business pool instead of claiming the full cost immediately. If you are unfamiliar with this process, reaching out to accounting firm Port Melbourne will be a worthwhile investment.
Exclusions and limits
- Small businesses are required to use simplified depreciation rules to claim the instant asset write-off.
- A limit applies to the cost of certain cars.
- Some assets don’t qualify for the instant asset write-off.
Car limit
- The car limit won’t apply to vehicles that are not passenger vehicles or vehicles altered for people with disabilities.
- The car limit applies to passenger vehicles used to carry fewer than 9 people and less than 1 tonne of goods.
- Payload capacity means the maximum weight a vehicle can carry.
- Payload capacity is calculated by subtracting the basic kerb weight of the vehicle from its Gross Vehicle Mass (GVM).
- Basic kerb weight indicates the vehicle’s weight with a full tank of fuel, coolant, oil, spare wheel, tools, and factory-installed options. It doesn’t include goods, passengers, or extra accessories.
- If the car limit applies, you are allowed to use only the car limit amount to calculate depreciation. You won’t be able to claim the extra cost under any other depreciation rules.
Work out your deduction
To be eligible to claim the instant asset write-off, the asset’s full cost needs to be below the relevant limit. For trade-ins, you need to use the original purchase price before deducting the trade-in value. If you use the asset for both business and personal purposes, subtract the personal-use portion. You can only claim the business-use part as a tax deduction. However, the asset’s full cost must still be below the write-off limit, even if you only claim part of it.
Research and development
You need to subtract any use that is not related to R&D activities, including business and personal use, when calculating the asset’s depreciation deduction under the R&D tax rules. If you are a small business and use an asset for R&D activities, you won’t be allowed to use simplified depreciation rules or instant asset write-off for that asset. Instead, you need to use the general depreciation rules.