What happened to the instant asset write-off?

For three full years between 2020 and 2023, Australia saw some of the most generous tax concessions ever introduced, but those days are well and truly over.

Since July 1, 2023, the temporary full expensing (TFE) has been canned, and the instant asset write-off (IAWO) has been reintroduced in its place, but capped at just $20,000. This applies to all asset purchases, including motor vehicles.

Which meant between October 2020 and July 2023, business owners were able to write off assets up to any amount immediately in the first year to reduce their tax bill significantly, however the asset limit has since been reduced to $20,000.

Any assets over $20,000 can still be written off, but it needs to be done over several years and depreciated at 15 per cent in the first year and 30 per cent each income year after that.

That’s a return to pre-pandemic times – and a far cry from those heady days of 2020 and 2021.

Up to 2019, the IAWO was capped at $20,000, but the government lifted that to $25,000 during 2019 and again to $30,000 in the early months of 2020, just as the COVID-19 pandemic hit. After that, and anxious to keep business spending money, the government raised the cap to $150,000 in 2020 and 2021, and the cap for passenger cars was indexed around $60,000.

The government also opened up IAWO to businesses earning revenue of up to $500 million. Previously, the IAWO was only offered to businesses earning up to $50 million.

The Morrison government subsequently introduced TFE, which was essentially the same as IAWO, but available to businesses earning up to $5 billion and without a cap on the purchase price of a new asset. The Albanese government cancelled TFE with effect from the end of the last financial year (June 30, 2023), and IAWO is now offered to businesses earning no more than $10 million, on assets worth $20,000 or less.

In the latest Federal budget announced in May 2024, the government is extending the $20,000 IAWO by another 12 months to June 30, 2025. The extension was yet to be passed as law.

The good news is that IAWO is not limited to just one asset. If your business chooses to buy multiple assets, the business can benefit from IAWO for each asset costing under $20,000. In other words, a business could buy a fleet of compact machines for the 2023/24 financial year and immediately claim the deduction in full for the whole fleet.

Tax time for asset purchases

Sure, the current tax concession is nowhere near as enticing as it was a couple of years ago but that doesn’t stop business owners from buying a used vehicle or small machine or attachment for under $20,000 and deduct it right away.  

For further information on the Instant Asset Write-Off – and how it will affect your business – read more at the Australian Taxation Office’s web page on the subject, and naturally check with your accountant as well.

This article contains general information only. Seek independent financial advice that considers your own circumstances.

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