Written byThe instant asset write-off is a tax concession that lets eligible businesses deduct the full cost of a depreciating asset in the year of first use, up to a threshold.
Also known as: IAWO, instant write-off, small business instant asset write-off
Key points
- It applies to depreciating assets used in carrying on a business; capital works, certain intangibles and mainly private assets are excluded or apportioned.
- Eligibility turns on aggregated turnover, which includes connected and affiliated entities; the turnover and cost thresholds have changed over time.
- The deduction is claimed in the income year the asset is first used or installed ready for use, not when it is paid for.
- If you are registered for GST, the threshold is tested on the GST-exclusive price and the GST credit is claimed in your BAS.
- Assets over the threshold are depreciated normally or, for eligible small businesses, allocated to the small business pool.
How the instant asset write-off works
Normally the cost of a ute, laptop or fridge bought for the business is deducted gradually under the capital allowance rules. The instant asset write-off lets an eligible business claim the whole cost in one hit instead, provided the asset costs less than the threshold that applied when it became ready for use. Each asset is tested individually, so several smaller items can each qualify.
Timing is everything. The asset must be first used, or installed ready for use for a taxable purpose, within the income year you claim it in. "Installed ready for use" means it is physically ready to do its job, so keep installation, commissioning or training records that prove the date. If the asset is partly private, apportion the deduction and keep a logbook or usage records. Second-hand assets can qualify if they meet the timing, cost and business-use tests.
Financed assets, leases and GST
You do not have to pay cash to claim. If the asset is bought on finance such as a chattel mortgage or hire purchase, the deduction follows the ready-for-use date rather than the repayment schedule, and the finance liability is recorded separately in your books. Under a genuine finance lease or operating lease the financier owns the asset for tax and claims the decline in value, while you claim the rentals. Only structures where you acquire the asset, such as a chattel mortgage or hire purchase, put the write-off in your hands.
For GST-registered businesses the threshold is compared with the GST-exclusive cost, and the input tax credit is claimed in the BAS for the period you are entitled to it. Vehicles follow the same threshold rules, but luxury car limits, depreciation caps and fringe benefits tax can also apply, so keep accurate private-use records.
Other concessions and record keeping
If an asset costs more than the threshold, it cannot be written off instantly. Eligible small businesses can allocate it to the small business pool and claim a pool deduction each year; otherwise it is depreciated over its effective life. Temporary full expensing, while it applied, allowed many businesses to deduct most depreciating assets immediately and often superseded the write-off. Low-value pooling and R&D rules can also change the outcome, so compare the concessions before choosing.
Keep tax invoices showing GST-inclusive and GST-exclusive prices, bank statements or finance agreements, installation or commissioning evidence, logbooks for private-use apportionment and pool allocation records for at least five years. Common errors include claiming on the invoice date instead of the ready-for-use date, testing the threshold on the GST-inclusive price and skipping the private-use apportionment.
Example
A wedding photographer trading as a sole trader buys a $10,000 camera kit in March and starts using it that week. The business passes the aggregated turnover test and the kit's GST-exclusive cost sits under the threshold for that income year. Because the kit is used 70% for business, the photographer claims $7,000 as an instant asset write-off in that year's return instead of depreciating it over several years, and keeps the invoice, usage records and a dated photo of the kit in use. A $40,000 commercial fridge bought the same year, above the threshold, would instead go into the small business pool.
Not to be confused with
- Temporary full expensing
- temporary full expensing was a time-limited measure that let many businesses immediately deduct most depreciating assets, and often superseded the write-off while it ran
- Depreciation
- depreciation spreads the deduction over the asset's effective life; the instant asset write-off claims the whole cost in the first year
- Write-off
- an accounting write-off reduces an asset's book value; the instant asset write-off is a tax deduction for the asset's full cost
Frequently asked questions
Do I test the threshold on the GST-inclusive or GST-exclusive price?
If you are registered for GST, test the threshold on the GST-exclusive price and claim the GST as an input tax credit in your BAS. Testing on the GST-inclusive figure is one of the most common mistakes, because it can wrongly push an asset over the threshold.
Can I claim the instant asset write-off on a financed asset?
Yes, if you meet the other tests. For an asset bought on finance or hire purchase the deduction follows the date the asset is first used or installed ready for use, not the repayment dates. Record the finance liability separately in your books and keep the finance agreement with your records.
Is there an instant asset write-off for vehicles?
Vehicles follow the same threshold and timing rules as other depreciating assets, but luxury car limits, depreciation caps and fringe benefits tax can also apply, and private use must be apportioned. Keep accurate logbooks or usage records to support the business-use percentage you claim.
What if I buy several items that are each under the threshold?
Each asset is tested individually against the threshold, so several separate items can each qualify for an immediate deduction in the same year. Low-value pooling rules may also apply. Record the ready-for-use date for each item and keep the invoices, because clusters of write-offs near year end draw attention.
Can I claim it if my turnover changes during the year?
Eligibility is assessed under the aggregated turnover rules that applied for the relevant period, and aggregated turnover includes connected and affiliated entities. A change in turnover or business structure can affect whether you qualify, so check the rules for the specific year and seek advice if you are near the line.
Related terms
Broader term: Capital allowances
Capital allowances
Capital allowances are the tax deductions you can claim for the decline in value of depreciating assets, such as plant and equipment, that you hold to produce assessable income.
Read definitionTemporary full expensing
Temporary full expensing is a time-limited tax concession that let eligible businesses deduct a qualifying asset's full cost in its first year of use instead of over its effective life.
Read definitionDepreciation
Depreciation is the fall in an asset's value over time, spread across the years the asset is used so the cost can be claimed as a tax deduction.
Read definitionPlant and machinery
Plant and machinery means the tangible assets a business uses to make, move, process or service things, such as excavators, forklifts and CNC machines.
Read definitionChattel mortgage
A chattel mortgage is a business loan for a vehicle or equipment: you own the asset from settlement and the lender holds a security interest until it is repaid.
Read definitionHire purchase
Hire purchase is a finance agreement where a financier buys an asset and hires it to you for fixed instalments, with ownership passing to you at the final payment.
Read definitionGo deeper
Sources
This article is general information only and is not financial advice.