$20,000 Instant Asset Write-Off: What Small Businesses Need to Know

How Does the Current $20,000 Threshold Work?

For the 2025–26 income year, a small business may be eligible to immediately deduct the business-use portion of an asset where:

• the business has an aggregated turnover of less than $10 million
• the business uses the simplified depreciation rules
• the asset costs less than $20,000
• the asset is first used, or installed ready for use, for a taxable purpose between 1 July 2025 and 30 June 2026
• the asset is used for a business or taxable purpose

It is important to note that the threshold is less than $20,000. An asset costing exactly $20,000 does not fall below the threshold.

The threshold also applies on a per-asset basis, rather than to the business’s total annual equipment expenditure.

For example, a GST-registered business purchases the following separately identifiable assets:

• Treadmill — $12,000 + GST
• Computer — $3,000 + GST
• Exercise bike — $5,000 + GST

Although the combined cost is $20,000 + GST, each asset is considered separately. Subject to the other eligibility requirements, each asset may qualify for an immediate deduction because the individual cost of each asset is less than $20,000.

Is the $20,000 Threshold GST-Inclusive or GST-Exclusive?

The GST treatment depends on whether the business is registered for GST and entitled to claim a GST credit.

Business registered for GST

If the business is registered for GST and entitled to claim the full GST credit, the asset cost is generally calculated excluding GST.

For example:

• Asset price — $12,000 + $1,200 GST
• Total invoice — $13,200
• Cost used for the threshold — $12,000

Because the relevant asset cost is $12,000, the asset may qualify for the instant asset write-off.

Another example:

• Asset price — $19,000 + $1,900 GST
• Total invoice — $20,900
• Cost used for the threshold — $19,000

Although the total invoice exceeds $20,000, a GST-registered business entitled to the full GST credit would generally use the $19,000 GST-exclusive cost when applying the threshold.

Business not registered for GST

If the business is not registered for GST, or is not entitled to claim a GST credit, the asset cost generally includes GST.

Using the same example:

• Asset price — $19,000 + $1,900 GST
• GST-inclusive cost — $20,900

Because the relevant cost is $20,900, the asset would not fall below the $20,000 threshold.

Businesses with only a partial entitlement to GST credits may need to calculate the asset cost differently.

What Is Proposed to Change from 1 July 2026?

The Government has proposed making the $20,000 instant asset write-off permanent from 1 July 2026.

The main benefit for small businesses would be greater certainty. Business owners would no longer need to wait each year to find out whether the higher threshold will be extended before committing to future asset purchases.

However, until the legislation is passed, businesses should not assume that the permanent extension is guaranteed.

What If an Asset Costs $20,000 or More?

An asset costing $20,000 or more does not necessarily lose its tax deduction.

Eligible businesses using the simplified depreciation rules may generally place higher-cost assets into the small business depreciation pool and claim deductions over time.

In simple terms:

• Less than $20,000 — may qualify for an immediate deduction
• $20,000 or more — may still be deductible, but generally over time

The applicable treatment will depend on the legislation and depreciation rules applying for the relevant income year.

Can an Asset Qualify If It Is Paid by Instalments?

Paying for an asset through instalments does not divide it into several lower-cost assets.

The threshold is generally based on the total cost of the asset, not the amount of each instalment.

For example, assuming the figures are GST-exclusive for a business entitled to full GST credits:

• An asset costs $25,000
• The business pays five monthly instalments of $5,000

The asset cost is still $25,000. It does not qualify merely because each payment is less than $20,000.

Similarly:

• An asset costs $30,000
• The business pays three instalments of $10,000

The relevant cost remains $30,000, rather than $10,000 per instalment.

Financing an asset or using a payment plan generally changes when the business pays, but it does not change the asset’s total cost for the purpose of the threshold.

Do You Need a Separate Invoice for Every Asset?

Not necessarily. However, businesses should keep clear, itemised records showing:

• what was purchased
• the individual cost of each asset
• the GST charged
• the purchase date
• when each asset was first used or installed ready for use
• the extent to which each asset is used for business purposes

For example, an itemised invoice showing:

• Treadmill — $12,000 + GST
• Exercise bike — $5,000 + GST
• Rowing machine — $4,000 + GST

is more useful than an invoice that only says:

• Equipment package — $21,000 + GST

However, the wording of an invoice does not by itself determine whether items are separate assets. Equipment designed to operate together may need to be considered as a combined asset, depending on the circumstances.

A Write-Off Does Not Mean You Get the Purchase Price Back

A tax deduction is not a reimbursement of the asset’s purchase price.

If a business spends $10,000 on an eligible asset and claims a $10,000 deduction, the ATO does not simply refund the $10,000.

Instead, the deduction generally reduces the business’s taxable income. The actual tax benefit depends on matters such as:

• the business structure
• the applicable tax rate
• whether the business has taxable income
• the percentage of business use
• the business’s overall tax position

The business must still have sufficient cash or finance to fund the purchase.

Assets should therefore be purchased because they are commercially useful to the business—not simply because they may be tax deductible.

What Should Small Businesses Consider Before Purchasing an Asset?

Before committing to a significant purchase, consider:

• whether the business is eligible for the simplified depreciation rules
• whether the asset is an eligible depreciating asset
• whether the individual asset cost is less than $20,000
• whether the quoted price is GST-inclusive or GST-exclusive
• whether the business can claim a full or partial GST credit
• when the asset will be first used or installed ready for use
• the percentage of business versus private use
• whether multiple items are separate assets or form part of a combined asset
• whether the expenditure relates to equipment, software, a motor vehicle or structural fit-out
• the impact of the purchase on the business’s cash flow