The Instant Asset Write Off—11 Things You Need To Know

How Do You Claim The “Instant Asset Write Off”?

Lower your tax and improve your cash flow with: The Instant Asset Write Off.

It allows you to immediately claim a deduction for the cost of eligible business assets, saving you money and taxes (while helping your business run more efficiently 💪).

The government has announced it plans to extend the instant asset write off into 2025 (as they’ve done in previous years) but it’s currently only legislated for 2024.

Whether you’re thinking about new machinery, office upgrades, or even a shiny new vehicle for your business, the instant asset write off can make a massive difference to your cash flow and tax bill.

Note: Temporary full expensing is no longer in place from 1 July 2023 onwards.

What Is the Instant Asset Write Off?

The Instant Asset Write Off allows eligible businesses to claim an immediate deduction for the business portion of the cost of an asset in the year it is first used or installed ready for use.

It applies to:

• Multiple assets (as long as each asset is under the threshold)
• New and second-hand assets.
• Assets purchased via financing (conditions apply)

This provision accelerates depreciation deductions (you claim the full cost in the first year), improving cash flow by reducing taxable income in the year of purchase.

Eligibility Criteria

To qualify for the IAWO, your business must meet specific criteria:

• Aggregated Turnover: For the 2023–24 income year, your business must have an aggregated turnover of less than $10 million.
• Asset Usage: The asset must be first used or installed ready for use between 1 July 2023 and 30 June 2024.
• Asset Cost: The cost of the asset must be less than $20,000 (excluding GST if you’re registered for GST; including GST if you’re not).

Thresholds Over Time

The instant asset write off threshold has varied in recent years. Be sure to apply the correct threshold based on when the asset was first used or installed ready for use:

• 1 July 2023 to 30 June 2024: $20,000 threshold for businesses with an aggregated turnover of less than $10 million.
• 6 October 2020- 30 June 2023: Temporary full expensing measures apply.

These thresholds apply on a per-asset basis, allowing you to write off multiple assets if each asset meets the relevant criteria.

Exclusions and Limits

While the instant asset write off is beneficial, there are certain exclusions and limits:

• Car Limit: For passenger vehicles designed to carry a load less than one tonne and fewer than nine passengers, a car limit applies. For the 2023–24 income year, the car limit is $68,108. This means if you purchase a car costing more than this amount, your deduction is limited to the business portion of $68,108 (incl. GST). Also, the car won’t qualify for the write-off if it’s over $20k ex GST. However, you can use the simplified depreciation rules and pool the vehicle, accessing higher depreciation rates.
• Excluded Assets: Some assets are excluded from the simplified depreciation rules, such as horticultural plants, R&D assets, and capital works deductions (e.g. buildings and renovations). Ensure the asset you’re purchasing qualifies under the ATO provisions.

How to Claim the Instant Asset Write-Off

Claiming the IAWO involves several steps:

1. Check Your Eligibility: Confirm your business meets the aggregated turnover criteria and that the asset qualifies (see criteria above).
2. Determine the Asset’s Cost: Ensure the asset’s cost is below the relevant threshold, considering GST implications based on your registration status.
3. Assess Business Use: Calculate the percentage of the asset’s use dedicated to business purposes, as only this portion is deductible (it’s usually 100%).
4. Record-Keeping: Maintain detailed records, including invoices and proof of when the asset was first used or installed ready for use.
5. Lodge Your Claim: Include the deduction in your business tax return for the income year the asset was first used. If you’re using the simplified depreciation rules, report this in the “Depreciation expenses” section.

Strategic Tips to Maximise Benefits

To fully leverage the instant asset write-off:

• Timing of Purchases: Plan asset acquisitions towards the end of the financial year to accelerate deductions, improving immediate cash flow (unless you need it asap).
• Multiple Assets: Since the threshold applies per asset, purchasing multiple eligible assets can maximise deductions within a single year (but don’t just buy something unless you actually need it for your business).
• GST Considerations: Understand how GST registration affects the asset’s cost calculation to ensure compliance and optimise deductions.

Other Depreciation Provisions

The write-off interacts with other depreciation provisions, such as the small business depreciation pool:

• Assets Costing Above the Threshold: Assets that exceed the instant asset write off threshold are added to the small business pool and depreciated at 15% in the first year and 30% in subsequent years.
• Low Pool Value: If the balance of the small business pool is less than the write-off threshold at the end of the income year, you can write off the entire pool balance (e.g. for 2024, if the pool balance is < $20k, you can write off the entire pool).
• Simplified Depreciation Rules: If you use the instant asset write off, you must use the simplified depreciation rules in your tax return (small business pooling).

Case Study: Applying the Instant Asset Write-Off

Scenario: Sarah owns a café with an aggregated turnover of $3 million. On 1 August 2023, she purchases a new coffee machine for $14,000 (excluding GST). The machine is installed and ready for use on 5 August 2023.

Application:

• Eligibility: Sarah’s business qualifies for the IAWO as it has a turnover of less than $10 million.
• Asset Cost: The coffee machine’s cost is below the $20,000 threshold (ex GST).
• Business Use: The machine is used 100% for business purposes.

Outcome: Sarah can claim an immediate deduction of $14,000 in her 2023–24 tax return, reducing her taxable business income for that year.

Recent Developments

As of 14 May 2024, the Australian Government announced they plan to extend the $20,000 instant asset write off threshold until 30 June 2025. However, it’s not yet law, so keep an eye on legislative updates.

Financing Assets

What if you don’t have the cash flow to buy the asset outright? The Instant Asset Write Off still applies to assets purchased with financing, as long as the business owns the asset.

• YES – Chattel Mortgages and Loans: These qualify for the write off, as ownership transfers to the business at the time of purchase.
• NO – Leases: Assets leased under a typical operating lease don’t qualify for the write-off, as ownership remains with the lessor.

Key Dates

• July 1, 2023: Start of the current financial year.
• June 30, 2024: Deadline for assets to be installed and ready for use to qualify under the $20,000 threshold.
• BAS and Tax Lodgement Deadlines: Ensure claims are included in the correct reporting period.

Want To Know More?

Need help applying the instant asset write off? Looking for a new business tax accountant? Adventure Tax can help. To find out more, book a free call with me here.

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