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threshold amount was originally $1,000, but since May 2015 it has been at least $20,000 and as high as $150,000 (until superseded by temporary full expensing which ended on 30 June this year).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.
This article is for general information only. It does not make recommendations nor does it provide advice to address your personal circumstances. To make an informed decision, always contact a registered tax professional.