Instant Asset Write-Off Explained: The $20,000 Rule

The instant asset write-off lets a business with turnover under $10 million deduct the full cost of any asset costing less than $20,000 in the year it's first used, instead of depreciating it over several years, and from 1 July 2026 that $20,000 threshold is permanent. The enabling legislation (Treasury Laws Amendment (Tax Reform No. 2) Act 2026) has passed Parliament and the ATO now lists the measure as law, so the annual "will it be extended?" guessing game is over. Here's who qualifies, what counts, where the traps are, and what it saves you in real dollars.

What the $20,000 rule does

Normally, when you buy something that lasts more than a year (a ute, a laptop, a commercial oven), you can't deduct the whole cost at once. You depreciate it: a slice each year over its effective life, which might be three years for a laptop or eight for a vehicle.

The instant asset write-off skips that. If the asset cost less than $20,000, you deduct the business-use portion of the whole cost in the income year you first use it or have it installed ready for use.

It's a timing benefit, not a gift. You still spend the money, and the deduction only reduces your taxable income; the cash you get back is the deduction multiplied by your tax rate. A $10,000 asset saves a sole trader in the 30% bracket about $3,200 once the 2% Medicare levy is included, and saves a company on the 25% base rate $2,500. You'd have claimed the same total through depreciation eventually; the write-off just gets you the money years earlier.

Who can use it

You need to be a small business entity: aggregated annual turnover under $10 million. "Aggregated" means the ATO adds in the turnover of businesses connected with or affiliated with you, so splitting one operation into several entities won't keep you under the line.

Your structure doesn't matter; sole traders, partnerships, companies and trusts all qualify. What does matter is that you use the ATO's simplified depreciation rules, a choice you make in your tax return. The write-off and the small business pool are both part of that system, so it's an all-or-nothing package.

If you opted out of simplified depreciation in the past, there's normally a five-year lock-out before you can return. That rule is suspended until 30 June 2027 (as at September 2026), so you can re-enter now. If your turnover is $10 million or more, none of this applies and you depreciate every asset over its effective life.

The rules at a glance

Rule	What it means in practice
Threshold	Each asset must cost less than $20,000. $19,999 qualifies; $20,000 exactly doesn't.
Cost basis	GST-exclusive price if you're registered for GST; GST-inclusive if you're not.
Per asset	Five items at $15,000 each are five full write-offs in one year.
Timing	Deduct in the year the asset is first used or installed ready for use, not the year you order or pay.
New or second-hand	Both qualify.
Business use	Only the business-use percentage is deductible.
Improvements	An addition to an asset you've already written off (a new tray on the ute) is deductible immediately if the addition is under the threshold.
$20,000 or more	The asset goes into the small business pool: 15% in year one, 30% of the balance each year after.

What qualifies and what doesn't

The write-off covers depreciating assets: things with a limited effective life that lose value as you use them. For most small businesses that's tools and machinery; computers, phones and tablets; office and shop furniture; commercial kitchen equipment; vehicles (subject to the car rules below); signage, security cameras and EFTPOS terminals; and off-the-shelf software bought outright.

Excluded from the simplified depreciation rules:

Buildings and structural improvements. A fit-out that's built into the premises (walls, plumbing, hardwired electrical) is usually a capital works deduction at 2.5% a year.
Trading stock. Things you buy to sell are claimed as cost of sales.
Horticultural plants and some primary production assets, which have their own rules.
Assets you lease out to others for more than half the time.
Anything used 100% privately.

Two things people try to claim that aren't assets at all: software subscriptions and repairs. A monthly Xero or Adobe plan is an ordinary running expense, deductible in full anyway, and so is fixing an existing asset. They belong on the full deductions list with everything else.

Ownership matters too. Buy on a chattel mortgage or business loan and you own the asset, so you can write it off (the interest is deductible separately). Take it on an operating lease or rent it and you don't own it, so you claim the lease payments instead.

Timing: "installed ready for use" is the test

The deduction lands in the income year the asset is first used or installed ready for use. Ordering it doesn't count. Paying for it doesn't count. Having it sit in its crate on the loading dock on 30 June doesn't count either.

This bites hardest in June. An espresso machine delivered on 29 June but not plumbed in until 6 July is a 2027-28 deduction, not 2026-27. If a year-end purchase is part of your tax planning, it needs to be set up and capable of doing its job by 30 June.

GST: how the threshold is measured

Registered for GST: the threshold applies to the GST-exclusive price, and you claim the GST back as a credit on your BAS. A $21,450 asset (including GST) has a GST-exclusive cost of $19,500, so it qualifies.
Not registered: you can't claim credits, so the GST is part of your cost and the full $21,450 counts. The same asset is over the threshold and goes into the pool.

For registered businesses with mixed-use assets, the GST credit is also limited to the business-use share. Our GST and BAS guide explains how credits flow through your activity statement.

Cars and the car limit

Vehicles cause the most confusion because two separate rules stack.

First, the $20,000 threshold. A vehicle costing less than $20,000 is written off like any other asset, apportioned for business use. Most new passenger cars cost far more, so they go into the small business pool instead.

Second, the car limit. For a "car" (a passenger vehicle designed to carry fewer than nine passengers and a load under one tonne), the cost you can depreciate is capped at $69,883 for 2026-27 (as at September 2026), up from $69,674 in 2025-26. Pay $90,000 for an SUV and you depreciate $69,883 of it. The GST credit is capped to match, at one-eleventh of the limit, or $6,353.

The car limit doesn't apply to vehicles that aren't "cars": utes and vans with a payload of one tonne or more, trucks, and vehicles carrying nine or more passengers. That's why a tradie's dual-cab is usually simpler than a consultant's sedan. Check the payload on the compliance plate, though, because plenty of popular dual-cabs sit just under one tonne.

Whatever the vehicle, you need a logbook or another reasonable basis for your business-use percentage. Our sole trader deductions guide covers the vehicle methods.

Assets of $20,000 or more: the small business pool

Anything that misses the threshold goes into your small business pool, a single running balance depreciated as a group:

15% of the business-use cost in the year you add the asset, regardless of when in the year you bought it
30% of the pool's opening balance in every year after

If the pool balance is less than $20,000 before you work out the year's deduction, you deduct the whole balance and the pool goes to zero.

Say your pool opens 2026-27 at $30,000 and you add a $22,000 machine (100% business use). The year's deduction is 15% of $22,000 ($3,300) plus 30% of $30,000 ($9,000), a total of $12,300, leaving a closing balance of $39,700. If instead the pool had opened at $18,500 with nothing added, you'd deduct the full $18,500 and close it out.

Selling changes things. The business-use share of a pooled asset's sale price comes off the pool balance, and the business-use share of the proceeds from an instantly written-off asset is counted as income in the year of sale. Trade-ins count as sales.

Worked examples

A second-hand ute for a sole trader tradie

Jess is an electrician, GST-registered, with a logbook showing 90% business use. In October 2026 she buys a second-hand dual-cab ute with a 1,050 kg payload for $21,450 including GST and has it on the road that week.

GST-exclusive cost: $19,500, under the threshold
Car limit: irrelevant, because a one-tonne-plus ute isn't a "car"
Deduction: $19,500 × 90% = $17,550 in 2026-27
GST credit on her BAS: $1,950 × 90% = $1,755
Tax saving at the 30% bracket plus 2% Medicare levy: roughly $5,616

Had she paid $24,200 including GST, the $22,000 GST-exclusive cost would have gone into her pool: $22,000 × 90% × 15% = $2,970 in year one, then 30% of the remaining $16,830 (about $5,049) in year two. An extra $2,750 on the price pushes more than $14,000 of deduction into later years.

A laptop for an unregistered freelancer

Sam is a freelance designer, a sole trader under the $75,000 GST turnover threshold and not registered. He buys a $2,750 laptop and, based on a four-week diary, uses it 70% for work.

Cost for the threshold: the full $2,750, GST included, because he can't claim credits
Deduction: $2,750 × 70% = $1,925
Tax saving in the 30% bracket plus Medicare levy: about $616

A $450 monitor bought the same day is a separate asset, separately written off at 70%.

A coffee machine for a cafe company

A cafe trading as a Pty Ltd (25% tax rate, GST-registered) orders a commercial espresso machine for $19,800 excluding GST on 20 June 2027. It's delivered on 29 June but the plumber doesn't connect it until 6 July.

Threshold: $19,800 qualifies
Timing: not installed ready for use by 30 June, so the $19,800 deduction falls in 2027-28, not 2026-27
Tax saving when it lands: $19,800 × 25% = $4,950

Had the machine been quoted at $20,000 excluding GST, it would miss the threshold by a dollar and go into the pool: $3,000 in year one instead of $19,800.

Traps to avoid

Treating it as free money. The write-off returns your tax rate on the cost, not the cost. Buying a $19,000 asset you don't need to "save tax" leaves you around $13,000 worse off in cash. Buy what the business needs, then use the write-off to bring the deduction forward. Our cash flow guide covers how a big June purchase ripples through the next quarter.

Ignoring private use. A phone, laptop or ute you also use personally must be apportioned, and the ATO expects a reasonable basis: a logbook for vehicles, a representative four-week record for devices. A 100% claim on an asset that goes home with you every night is easy for the ATO to challenge.

Splitting an invoice. Having a supplier bill a $28,000 machine as two $14,000 "components" doesn't create two assets. Genuinely separate items that work independently (a laptop and a monitor) are separate assets; one thing that only functions as a whole is one asset.

Thin records. Keep the tax invoice, proof of payment, the date the asset was first used or ready to use, and your business-use working for five years. Your accounting software's fixed asset register can hold all of it.

Key takeaways

Businesses with aggregated turnover under $10 million can deduct the full business-use cost of any asset costing less than $20,000 in the year it's first used or installed ready for use; the threshold is permanent from 1 July 2026.
The limit is tested per asset, on the GST-exclusive price if you're registered for GST and the GST-inclusive price if you're not; $20,000 exactly doesn't qualify.
It's a deduction, not a refund: a $10,000 asset is worth about $3,200 to a sole trader in the 30% bracket or $2,500 to a company.
Assets of $20,000 or more go into the small business pool at 15% in year one and 30% of the balance after that, and the whole pool is written off once it drops below $20,000.
Passenger cars are capped at the $69,883 car limit for 2026-27; utes and vans with a payload of one tonne or more aren't caught by it.
Apportion private use, record the date the asset was ready to use, and remember the business share of any later sale is income.

Where to get help

ATO: Simpler depreciation for small business (ato.gov.au, under Income, deductions and concessions), the primary source for the write-off, the small business pool, the lock-out rule and current thresholds.
ATO: Car thresholds in the small business newsroom, updated each July with the car limit, GST credit cap and luxury car tax thresholds.
ATO: New legislation pages, which track the Treasury Laws Amendment (Tax Reform No. 2) Act 2026 and any future changes.
business.gov.au for plain-English summaries of depreciation and other small business tax concessions.
Your accountant or registered tax agent for anything with real money attached: whether a vehicle is a "car", whether to opt into simplified depreciation, and what a big June purchase does to your cash and PAYG instalments. If you don't have one, our guide to choosing between a bookkeeper, BAS agent and accountant explains who does what.