Under instant asset write-off eligible businesses can:
- immediately write off the cost of each asset that cost less than the threshold
- claim a tax deduction for the business portion of the purchase cost in the year the asset is first used or installed ready for use.
Instant asset write-off can be used for both new and second-hand assets. Some exclusions and limits apply.
The instant asset write-off eligibility criteria and threshold have changed over time. You need to check your business’s eligibility and apply the correct threshold amount.
Changes from 12 March 2020
From 12 March 2020 until 30 June 2020 the instant asset write-off:
- threshold amount for each asset is $150,000 (up from $30,000)
- eligibility has been expanded to cover businesses with an aggregated turnover of less than $500 million (up from $50 million).
Eligibility
Eligibility to use instant asset write-off depends on:
- your aggregated turnover (the total ordinary income of your business and that of any associated businesses)
- the date you purchased the asset and it was first used or installed ready for use
- the cost of each asset being less than the threshold.
The criteria have changed over time so make sure you check whether your business is eligible.
From 1 July 2020 the instant asset write-off will only be available for small businesses with a turnover of less than $10 million and the threshold will be $1,000.
Businesses with a turnover of $500 million or more are not eligible to use instant asset write-off.
Exclusions and limits
There are a small number of assets that are excluded.
In addition, if you purchase a car for your business, the instant asset write-off is limited to the business portion of the car limit of $57,581 for the 2019–20 income tax year. You cannot claim the excess cost of the car under any other depreciation rules. For a worked example, refer to example 1 below.
Cost of asset exceeds threshold
If you are a small business using the simplified depreciation rules, and the cost of the asset is the same as or more than the relevant instant asset write-off threshold, the asset must be placed into the small business pool.
Certain new assets that cost more than the instant asset write-off threshold may be able to use the Backing business investment – accelerated depreciation.
If you are not using the simplified depreciation rules, and the cost of the asset is the same as or more than the relevant instant asset write-off threshold, you must use the general depreciation rules.
Work out your deduction
You can claim a deduction for multiple assets as long as the cost of each individual asset is less than the relevant threshold.
The entire cost of the asset must be less than the relevant threshold, not including any trade-in amount. Whether the threshold is GST exclusive or inclusive depends on if you’re registered for GST.
To work out the amount you can claim, you must subtract any private use portion. The balance (that is the portion you use to earn assessable income) is generally the taxable purpose portion (business purpose portion). While you can only claim the taxable purpose portion as a deduction, the entire cost of the asset must be less than the relevant threshold.
Later sale or disposal of asset
If you use the instant asset write-off for an asset and then sell or dispose of that asset, you need to include the taxable purpose portion of the amount you received for the asset in your assessable income for that year.
If you use the instant asset write-off for an asset that is later destroyed (for example, in a bushfire or flood) then the amount you receive (such as from an insurance payout) for the destruction of the asset is included in your assessable income.
Example 1: Purchase of a motor vehicle for business purposes – the effect of the car limit for depreciation
Edward and Edna own and run a small irrigation supplies business. On 27 March 2020 the business purchases a luxury car that is designed to carry passengers, for $80,000. The instant asset write-off threshold at the time they first use the car in the business is $150,000.
The cost of the car for depreciation is limited to the car limit at that time. As the cost of the car is above the $57,581 car cost limit for depreciation, the business can only claim an instant asset write-off of $57,581 for the year ending 30 June 2020. The business can’t claim the excess cost of the car under any other depreciation rules.
They also decide to update their work ute and the business purchases a ute for $65,000 on 27 April 2020. The ute isn’t designed to carry passengers (and has been set up with all the trade tools in the tray) so the car cost limit for depreciation doesn’t apply. The business can claim a full deduction of $65,000 as an instant asset write-off.
Example 2: Exceeding the threshold
Daryl owns a small electrical business, Daryl’s Electrical that has a turnover less than $10 million. On 28 July 2017 Daryl purchases a ute for $40,000. He estimates he will use the ute 40% of the time for his business.
Even though the cost of the ute to the business is $16,000 ($40,000 × 40%), Daryl can’t use the instant asset write-off as the total cost of the ute of $40,000 exceeded the relevant threshold of $20,000.
Instead he adds the $16,000 business portion of the ute’s cost to Daryl’s Electrical small business pool.
Example 3: Asset purchased but not ready for use
Leslie is a florist and her business required a new van to help expand her deliveries.
Leslie purchased a van for $22,500, which was paid for on 23 January 2019. Under the terms of the contract, delivery of the van was made on 30 January 2019. The van was not ready for use until after the 29 January 2019. At that time, the instant asset write-off threshold was $25,000. Leslie is able to claim the entire cost of the van in her 2019 tax return.
If the van had been delivered before 29 January 2019 and Leslie started to use it at the time of delivery, Leslie would not have been able to write-off the entire cost of the van. This is because the cost of the van cost exceeded the threshold applicable at that time of $20,000.