The Instant Asset Write-Off brought in 2023-24 has been extended until June 30 2025. This write-off threshold was increased from $1000 to $20,000 back in 2023-24. What does that mean for you?
The increase in the instant asset write-off threshold offers a significant cash flow benefit to small businesses. This allows them to claim an immediate tax deduction for certain assets in the year they are purchased, rather than spreading the cost over several years.
However, it’s important to understand that this deduction isn’t a refund; it merely reduces the taxable income of the business entity. In some cases, it may generate or increase a tax loss, which would then need to be carried forward to future years. For example, if your business operates as a company, the financial benefit of the write-off is limited to the company tax rate—25% for base rate entities and 30% for other companies. If your business is likely to report a tax loss for the year, then a larger deduction might not provide any short-term financial benefit.
Eligibility
Eligibility to access the instant asset write-off looks at both your business entity and the asset.
To be eligible for the instant asset write-off in the 2024 income year, a business must:
- Be actively conducting business under general principles during the 2024 income year;
- Have an aggregated annual turnover of less than $10 million. This includes the business’s annual turnover as well as the turnover of any connected business entities or affiliates, either in the 2024 income year or the 2023 income year;
- Opt to use the simplified depreciation rules for the 2024 income year. If your business does not elect to use these rules in 2024, it will not be eligible for the instant asset write-off, even if it meets the other basic conditions.
And, for an asset to be eligible, it must:
- Fall within the scope of the depreciation provisions. However, certain assets do not qualify, such as horticultural plants, capital works (e.g., building construction costs), and assets leased to another party on a depreciating asset lease.
- Have a cost less than $20,000. If the business is registered for GST, the cost of the asset must be under $20,000 after subtracting GST credits. If the business is not registered for GST, the limit is $20,000 including GST.
- Be first used, or installed ready for use, for a taxable purpose between 1 July 2023 and 30 June 2024. This requirement is intended to prevent businesses from stockpiling purchases without the intention of using them in the near future. For instance, if an asset was purchased on 20 May 2024, it must be used or installed and ready for use by 30 June 2024 to qualify for the immediate deduction in the 2023-24 income year.
- Be used for business purposes. It is essential that there is a direct relationship between the asset purchased and how the business generates income. For example, a business cannot claim deductions for multiple television sets if they are irrelevant to the business’s operations.
The provisions that prevent small business entities from re-entering the simplified depreciation regime for five years if they opt-out will continue to be suspended until 30 June 2024 (the lock-out rules).
What Happens when assets cost more than $20,000?
If your business qualifies as a small business entity and opts to use the simplified depreciation rules, then assets costing $20,000 or more—which are not eligible for immediate deduction—can be added to the small business general pool. In the pool, they can be depreciated at 15% in the first income year and 30% in each subsequent income year.
Additionally, the raised instant asset write-off threshold sets a $20,000 limit for determining whether the full pool balance can be written off in the 2024 income year. It’s important to note that when applying these rules, the focus should not be on the closing pool balance. Instead, you should consider what the pool balance would have been if you had disregarded the current year’s depreciation deductions for the pool for 2024.
How many assets can be purchased?
The write-off threshold applies per asset, so a small business entity can potentially deduct the full cost of multiple assets. Assuming all the other conditions are met, an immediate deduction should be available for each individual item costing less than $20,000 – just be careful of cash flow.
How does that affect second-hand goods?
The instant asset write-off does not distinguish between new or second-hand goods. For example, second-hand machinery may qualify if it meets the other requirements.
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Wondering how you can best utilise the instant asset write-off? Speak to our accounting team today!
