Instant Asset Write‑Off: the current rules (2025–26)
- Threshold: $20,000 per asset.
- Eligibility: Small businesses with aggregated annual turnover under $10 million.
- Period: Asset must be first used or installed ready for use between 1 July 2025 and 30 June 2026.
- Per‑asset, not per‑business: A business can claim the write‑off on multiple assets, each under $20,000.
- GST treatment: The $20,000 threshold is GST‑exclusive for GST‑registered businesses, GST‑inclusive for unregistered.
- New and second‑hand assets qualify, subject to standard exclusions.
What's announced for 2026–27
The Federal Budget delivered in May 2026 announced that the $20,000 instant asset write‑off will be made permanent from 1 July 2026. As of mid‑2026 the announcement is policy intent, with enabling legislation still to pass Parliament. Until that legislation is enacted, treat 2026–27 settings as not yet finalised.
Action: if you're planning a 2026–27 purchase that depends on IAWO eligibility, monitor the ATO's small business newsroom for the legislation status, or speak with your accountant before committing.
How IAWO actually works
- Acquire the asset for business use. New or second‑hand both qualify.
- Install or use it ready for a taxable purpose by 30 June. Invoice date is not enough — the asset must be operational.
- The cost must be under $20,000 (GST‑exclusive if GST‑registered). The threshold is strict: $19,999 qualifies; $20,001 doesn't.
- Claim the full cost as a deduction in that financial year's tax return, instead of depreciating it over multiple years.
- Apportion for business use. If the asset has private use (e.g. a ute used 80% for business), only the business‑use portion is deductible.
The $20,000 cliff: why $19,999 beats $20,001
This is the single most expensive line in Australian small‑business tax. An asset at $19,999 (GST‑exclusive) gives you the full deduction in year one. At $20,001, the asset goes into the small business simplified depreciation pool, deducting at 15% in year one and 30% in following years.
| Asset cost (GST‑ex) | Year 1 deduction | Year 1 tax saving (27.5%) | Difference |
|---|---|---|---|
| $19,999 | $19,999 (full) | ~$5,500 | — |
| $20,001 | $3,000 (15% of $20,001) | ~$825 | ~$4,675 less in year 1 |
Total deductions catch up over the asset's life, but the timing difference is significant for cash flow. When you have flexibility — for example, negotiating accessories separately — staying under the threshold is worth real money.
IAWO and asset finance
The instant asset write‑off works equally for assets purchased outright and assets purchased under a finance structure that gives ownership (chattel mortgage, hire purchase). It does not apply to leased assets where the lessor remains the owner (finance lease, operating lease):
- Chattel mortgage: Eligible. You own the asset from day one and can claim the IAWO deduction even though you're financing the purchase price.
- Hire purchase (post 1 July 2012): Eligible. Treated as ownership for tax purposes from inception.
- Finance lease: Not eligible. The lessor owns the asset; the lessee deducts lease payments instead.
- Operating lease: Not eligible. Same reason.
This is one of the biggest reasons businesses prefer chattel mortgage over a lease for IAWO‑eligible assets — the structure unlocks the up‑front deduction.
Common assets that fit under $20,000
- Trade tools, power tools, workshop equipment
- Computer hardware, monitors, servers, POS systems
- Office furniture, office fit‑out items (under threshold each)
- Small machinery: pressure cleaners, generators, compressors
- Hospitality equipment: ovens, fridges, espresso machines, dishwashers (each)
- Trailers, small attachments
Most new vehicles cost well above $20,000 and don't qualify on their own — though IAWO for vehicles has historically applied at higher thresholds under earlier measures.
Common assets that don't fit under $20,000 but still get treatment
- Most new vehicles. Depreciated under standard rules; passenger vehicles subject to the depreciation car cost limit ($69,674 for 2025–26).
- Most production machinery. Depreciated under standard rules or via the small business pool.
- Buildings and structural improvements. Capital works (Division 43) at 2.5% or 4% per year, not depreciation.
- Land and intangibles. Generally outside the simplified depreciation regime.
Common mistakes that cost the deduction
- Ordered but not installed. If the asset arrives on 25 June but isn't installed or operational until 5 July, the deduction belongs to the next financial year. Invoice date is not the test.
- Splitting one asset to fit under the threshold. The ATO assesses the total cost of an asset. Splitting an integrated piece of equipment across separate invoices doesn't work.
- Forgetting GST treatment. Under $20,000 means under $20,000 ex‑GST if you're registered, ex‑GST if you're not. A $21,500 inc‑GST item is $19,545 ex‑GST — eligible for GST‑registered businesses, not for unregistered.
- Claiming 100% on a part‑business asset. Apportion for business use. A ute used 70% for business gets a 70% deduction.
- Buying for the deduction, not the need. A deduction is not a refund — you save your marginal tax rate on the spend, but you still spend the cash.
End‑of‑financial‑year (EOFY) timing
The most‑asked question every June. The rule from section 40‑25 of the Income Tax Assessment Act 1997: an asset must be "first used, or installed ready for use, for a taxable purpose" by the end of the income year. Practical checklist:
- Order with delivery lead time built in. Don't order a complex piece of equipment on 20 June expecting a 30 June deduction.
- Get the asset installed and operational. Photograph it in place, with date metadata.
- Keep contemporaneous records. Installation invoice, delivery note, photo log, first‑use evidence (a print job, a service call, a job‑site delivery).
- If installation slips: the asset goes into the next year's pool. Not the end of the world — you still get the deduction, just timing‑shifted.
Frequently asked questions
Is the instant asset write-off a refund?
No. It's a deduction. The deduction reduces your taxable income, which reduces your tax payable by your marginal tax rate × the deduction. A $20,000 IAWO claim saves a company on the 25% tax rate $5,000 in tax. You've still spent $20,000 net of tax savings.
Can I use the instant asset write-off on a financed asset?
Yes, if the finance structure gives you ownership for tax purposes — chattel mortgage and hire purchase do. Finance leases and operating leases don't, because the lessor owns the asset. This is why chattel mortgage is the preferred structure when IAWO is in play.
Does my business turnover have to be under $10 million right now, or for the whole year?
Eligibility uses the "aggregated turnover" test for the income year. If your aggregated turnover for 2025–26 is under $10 million, the business qualifies for IAWO in that year. Connected and affiliate entities are included in the aggregated figure.
What if I bought multiple assets that together exceed $20,000?
The threshold applies per asset, not in total. Five $4,000 items each qualify individually; one $20,001 item doesn't qualify at all. The exception is where multiple items genuinely constitute one asset (e.g. integrated machinery installed as a single unit) — the ATO can challenge artificial splitting.
What happens if my asset costs more than $20,000?
It goes into the small business simplified depreciation pool, deducting at 15% in the first year and 30% each subsequent year. Pool balances under $20,000 at the end of the year can be written off entirely.
Related
Authoritative sources
- ATO — $20,000 instant asset write‑off for 2025–26
- ATO — Small business pool calculations
- ATO — Simpler depreciation for small business
- Federal Register of Legislation — Income Tax Assessment Act 1997, Division 40
Move quickly before 30 June
If you're planning a purchase that depends on IAWO eligibility this financial year, time matters — the asset has to be installed and ready for use, not just ordered. We can introduce you to an accredited broker who'll move on EOFY timing.