The instant asset write-off has changed nine times in a decade. Thresholds, eligibility criteria, and rules for second-hand assets have all shifted. These questions cover how the write-off works, what it means for your accounts, and what to watch out for.
What is the instant asset write-off?
A tax concession allowing eligible businesses to deduct an asset’s full cost in the purchase year rather than gradually over its useful life, available when the asset costs less than the relevant threshold and is first used or installed ready for use within the eligibility period. The threshold is $20,000 per asset for businesses with aggregated turnover under $10 million. Both the threshold and the eligibility period are set by income year and have changed many times, so check the threshold for the income year the asset was first used or installed ready for use, rather than assuming an earlier year’s still applies.
What was temporary full expensing and does it still apply?
Temporary full expensing (TFE) was a pandemic-era tax concession that allowed eligible businesses to deduct the full cost of new and second-hand assets with no dollar cap. It applied from 6 October 2020 to 30 June 2023 and has now ended. If your business purchased assets during that period and claimed TFE, those assets will have a tax written-down value of zero, even if they are still in active use and worth significant money to replace.
If I use the instant asset write-off, does the asset disappear from my books?
It should not, but it often does, and that is one of the most common mistakes in small business accounting. The instant asset write-off reduces the asset’s value to zero for tax purposes. For accounting purposes, the asset should still appear on the balance sheet at its cost less accumulated accounting depreciation. The tax outcome and the accounting outcome are different and need to be maintained separately.
Can I claim the instant asset write-off on a second-hand asset?
For small businesses the instant asset write-off has applied to both new and second-hand assets, including under the $20,000 threshold. This was not always the case — under temporary full expensing, there were different rules for new versus second-hand assets for larger businesses. Always confirm eligibility with your tax advisor for the specific asset and income year.
What happens to the tax deduction if I only use an asset partly for business?
You can only claim depreciation, including the instant asset write-off, on the portion of the asset used for business purposes. If you use a vehicle 70% for business and 30% for personal use, you can only claim 70% of the depreciation as a tax deduction. This proportion is called the taxable purpose proportion and must be documented and applied consistently.
What is the difference between the instant asset write-off and Division 43 capital works?
The instant asset write-off applies to plant and equipment, moveable physical assets. Division 43 applies to capital works (buildings, structural improvements, and fit-out) that are permanently attached to a building. You cannot apply the instant asset write-off to the construction cost of a building or to improvements that are structural in nature. The two regimes cover different types of assets.