Good News for Small Businesses
If you run a small business in Australia, there is some welcome news heading into the 2025-26 financial year. The Federal Government has passed legislation extending the $20,000 Instant Asset Write-Off (IAWO) by a further 12 months, with the scheme now running until 30 June 2026.
This is a significant opportunity for eligible businesses to reduce their taxable income, free up cash flow, and reinvest in the tools and equipment that keep their operations moving.
In this blog, we break down exactly what the IAWO means, who qualifies, what assets are covered, and what you need to do before the deadline.
What Is the Instant Asset Write-Off?
The Instant Asset Write-Off is a tax concession that allows eligible small businesses to immediately deduct the full business portion of the cost of an asset in the same year it is purchased, rather than depreciating it gradually over many years.
In simple terms: instead of claiming a small deduction each year over the life of an asset, you claim the entire deduction at once. This reduces your taxable income in the current year, which means a lower tax bill and better cash flow for your business.
According to the Australian Taxation Office (ATO), the IAWO is a component of the simplified depreciation rules available to small business entities. If your business chooses to apply these rules, you must apply them to all depreciating assets (with some exceptions).
Who Is Eligible?
To access the $20,000 IAWO in the 2025-26 income year, your business must meet the following conditions:
- Aggregated Annual Turnover Under $10 Million Your business (including the turnover of any connected entities or affiliates) must have an aggregated annual turnover of less than $10 million in either the 2024-25 or 2025-26 income year.
- You Must Be Carrying On a Business. Your business must be actively carrying on operations during the 2025-26 income year.
- You Must Choose the Simplified Depreciation Rules. This is a common point of confusion. If your business does not opt into the simplified depreciation rules for 2025-26, you will not have access to the IAWO, even if you meet all other conditions. Make sure this is discussed with your tax adviser when preparing your return.
What Assets Are Covered?
To qualify for the write-off, each asset must:
- Costs less than $20,000 (excluding GST if you are registered for GST, or including GST if you are not)
- Be first used or installed ready for use between 1 July 2025 and 30 June 2026
- Be used for a taxable (business) purpose
The good news is that both new and second-hand assets are eligible, giving businesses flexibility when sourcing equipment.
The $20,000 Limit Applies Per Asset
This is an important detail: the $20,000 threshold applies on a per-asset basis. This means you can write off multiple assets in the same year, as long as each asset costs less than $20,000. For example, if you purchase three pieces of equipment at $15,000, $12,000, and $18,000, respectively, all three may be eligible for an immediate deduction, provided they meet all other criteria.
What About Assets That Cost $20,000 or More?
If an asset costs $20,000 or more (at or over the threshold), it cannot be immediately deducted under the IAWO. Instead, it must be added to the small business depreciation pool, where it is depreciated at 15% in the first income year and 30% each income year after that. The ATO’s simpler depreciation rules page has more detail on how pooling works.
Part Business, Part Private? Apportionment Applies
If an asset is used for both business and private purposes, you can only claim the business-use portion of the cost. For example, if you purchase a laptop for $3,000 and use it 70% for business and 30% for personal use, your deductible amount is $2,100 (70% of $3,000).
Always keep records that clearly support the business-use percentage you claim. The ATO pays close attention to mixed-use asset claims, particularly for vehicles and home office equipment.
Can You Claim Improvement Costs Too?
Yes, in certain circumstances. If you have already written off an asset under the simplified depreciation rules in a prior income year, you may also be able to immediately deduct the first improvement cost incurred between 1 July 2025 and 30 June 2026, provided that the improvement cost is less than $20,000.
This is a nuance that is easy to overlook, so if you have upgraded or improved existing assets, speak to our office about whether those costs can also be claimed immediately.
Key Dates and Deadlines
| Requirement | Detail |
| Asset cost | Less than $20,000 (per asset) |
| First used or installed, ready for use | Between 1 July 2025 and 30 June 2026 |
| Eligible turnover | Under $10 million (aggregated) |
| Claim in | 2025-26 income year tax return |
Important: The asset must actually be in use or installed and ready for use by 30 June 2026. Simply ordering or purchasing an asset before that date is not enough if it has not yet been delivered and is not ready to operate.
What Happens After 30 June 2026?
Without further government action, the IAWO threshold is legislated to return to just $1,000 from 1 July 2026. This makes the current window a genuine opportunity for small businesses to invest in assets before the more generous threshold disappears.
What Assets Are Excluded?
Not every asset qualifies under the simplified depreciation rules. Common exclusions include:
- Horticultural plants
- Capital works, such as building construction costs
- Assets that are leased to another party under a depreciating asset lease
- Assets that are not used for a taxable purpose
For a full list of excluded assets, refer to the ATO’s assets and exclusions page.
A Note on Cars
Vehicles can be written off under the IAWO, but there are specific rules that apply. The car cost limit (also known as the luxury car limit) caps the cost of a car that can be used for depreciation purposes, regardless of what you actually paid. For the 2025-26 income year, this limit is relevant if your vehicle purchase price is high. It is also important to maintain a logbook to substantiate the business-use percentage of any vehicle.
Why This Matters for Your Tax Planning
The extension of the IAWO is not just about claiming a deduction. It is an opportunity to think strategically about:
- Equipment upgrades you have been putting off
- Tools or technology that could improve productivity
- Second-hand assets that might be available at a lower cost
Purchasing eligible assets before 30 June 2026 and having them in use by that date allows you to bring forward a tax deduction that would otherwise be spread over years.
Need Help Claiming the Write-Off?
The IAWO is a valuable concession, but it comes with conditions that are easy to get wrong, particularly around eligibility, business-use apportionment, and the simplified depreciation rules election.
At JMB Consultants, we can help you:
- Confirm whether your business is eligible
- Identify which assets qualify for an immediate deduction
- Handle improvement cost claims on previously written-off assets
- Ensure your depreciation elections are correctly reflected in your tax return
Contact us before 30 June 2026 to make the most of this extended opportunity.
The information in this blog is general in nature and does not constitute personal tax advice. Please seek professional advice to confirm how these rules apply to your specific circumstances.