Instant asset write off – is your business eligible?

What is the instant asset write off (IAWO)?

Eligible businesses can claim an immediate deduction for the business portion of the cost of a depreciating asset in the year the asset is first used or installed ready for use.

The instant asset write off can be used for:

• multiple assets if the cost of each individual asset is less than the relevant threshold; and
• new and second-hand assets.

Who qualifies for the instant asset write off?

Any small business that uses the simplified depreciation rules can claim the instant asset write-off. A small business is a business with an aggregated annual turnover of less than $10 million. Aggregated annual turnover is calculated by adding up the annual turnovers of your business, connected entities and affiliates.

The tests for whether an entity is a connected entity or an affiliate are somewhat complicated, but in very general terms:

• a connected entity is an entity which is controlled by your business or controls your business, or an entity that controls both your business and another business; and
• an affiliate is an individual or company that acts in accordance with your business’s directions or in concert with your business.

What assets are eligible?

The instant asset write-off applies to eligible depreciating assets costing less than the specified threshold (these are called low-cost assets). The threshold amount was originally $1,000, but since May 2015 it has been at least $20,000 and as high as $150,000 (until superseded by temporary full expensing which ended on 30 June this year).

For the 2023-34 tax year, the low-cost asset threshold will be $20,000 (this was announced in the May Federal Budget, although it has not been legislated as yet). The $20,000 threshold will apply for 12 months. So to take advantage of the $20,000 threshold, you will need to acquire the asset and first use it, or install it ready for use, between 1 July 2023 and 30 June 2024.

The $20,000 threshold applies on a per-asset basis, so small businesses can instantly write off multiple assets.

NOTE –  the $20,000 threshold does not include any GST on the price of the asset. So an asset with a GST inclusive cost of $22,000 ($20,000 + $2,000) would still be eligible for the IAWO.

In certain circumstances, the instant asset write-off also applies to additional expenditure incurred on a low-cost asset.

The instant asset write-off doesn’t apply to certain depreciating assets, including: assets leased out for more than 50% of the time on a depreciating asset lease; horticultural plants, including grapevines; software allocated to a software development pool; assets used in your research and development (R&D) activities; and capital works, including buildings and structural improvements.