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.

Treasurer Jim Chalmers announced in his budget speech for 2024/25 that the IAWO will continue unchanged, which means it will remain capped at $20,000, and will be available to businesses earning up to $10 million during the financial year.

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.

The ATO (Australian Taxation Office) has clarified eligibility and applicability for the IAWO, which offers businesses an immediate deduction in full for an asset, rather than incremental deductions for depreciation over a period of consecutive years.

According to the ATO, a ‘second element’ can be claimed for an upgrade to an asset for which you claimed the IAWO in a previous year.

If you order an upgrade for your vehicle – a lockable tonneau for your ute, for example – the upgrade is the ‘second element’ for which you can claim the IAWO. But you can’t claim the second element in the same financial year as the original vehicle purchase. You have to wait for the new financial year to commence.

The ‘first element’ is the price of the vehicle, which is defined as any vehicle that carries up to one tonne and fewer than nine passengers. For conventional depreciation, the price is limited in 2024-25 to $69,674. Naturally, this is irrelevant in claiming the IAWO.

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 2024/25 financial year and immediately claim the deduction in full for the whole fleet.

Tax time for asset purchases

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.