Extension Announced for Popular Small Business Tax Incentive

Australian small business owners have received welcome news regarding capital equipment purchases. The federal government has proposed extending the instant asset write-off threshold of $20,000 for an additional twelve months through June 30, 2026.

This extension was announced in early April 2025 and forms part of the Treasury Laws Amendment (Strengthening Financial Systems and Other Measures) Bill 2025. While the measure awaits parliamentary approval, it represents continued support for businesses investing in growth and modernization.

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Understanding the Current Threshold Change

Without this proposed extension, the instant deduction threshold would revert to just $1,000 from July 1, 2025. The extension maintains the significantly higher $20,000 limit, providing businesses with greater flexibility to claim immediate tax deductions on eligible purchases.

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Eligibility Requirements for Small Businesses

To take advantage of this tax incentive, your business must meet specific criteria:

Turnover RequirementsYour business needs an aggregated annual turnover below $10 million to qualify. This calculation includes connected entities and affiliates under tax law definitions.

Simplified Depreciation RulesYou must opt into and utilize the simplified depreciation framework. This choice affects how you treat all depreciating assets in your business, so professional advice is recommended before making this election.

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What Assets Qualify for Immediate Deduction?

The instant write-off applies to a broad range of business equipment and assets, including:

Technology and Office EquipmentComputers, laptops, servers, printers, software, telecommunication systems, and office furniture all qualify when purchased for business operations.

Tools and MachineryTrade tools, manufacturing equipment, workshop machinery, and specialized industry equipment can be claimed immediately if they meet the cost threshold.

Vehicles for Business UseCommercial vehicles used for business purposes qualify, though passenger vehicles face additional limitations through the car cost limit provisions.

Fit-outs and FixturesRetail fit-outs, restaurant equipment, medical practice equipment, and similar fixed installations may qualify depending on how they're classified.

Both New and Used AssetsUnlike some previous schemes, this concession applies equally to brand new items and second-hand purchases, giving businesses flexibility in their procurement decisions.

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Cost Calculation Rules

Determining whether an asset falls under the $20,000 threshold requires careful calculation:

GST TreatmentBusinesses registered for GST and eligible for full input tax credits calculate the threshold using the GST-exclusive amount. Non-registered businesses must use the GST-inclusive cost.

Individual Asset BasisThe threshold applies to each separate asset. You can claim multiple assets in a single year provided each individual item costs less than $20,000.

Business Use ProportionIf an asset has both business and private use, you must reduce your deduction proportionally. Importantly, the entire asset cost must still be below $20,000 before applying the business-use percentage.

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How the Small Business Pool Works

When assets exceed the instant write-off threshold, they enter the small business depreciation pool:

Pool AllocationAssets costing $20,000 or more have their business-use portion allocated to this general pool rather than being immediately deducted.

Depreciation RatesPooled assets depreciate at 15% in the first income year and 30% in subsequent years, using a diminishing value method.

Pool Write-Off OpportunityIf your pool balance falls below $20,000 at year-end (after applying annual depreciation), you can write off the entire remaining balance immediately.

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Second Element Costs and Improvements

The rules also cover subsequent expenditure on previously written-off assets:

Cost AdditionsIf you immediately deducted an asset in a prior year and later incur improvement costs, the first addition under $20,000 can also be immediately deducted.

Timing ConsiderationsThe deduction applies in the income year when you first use the improved asset or when it's installed ready for use.

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Important Limitations and Exclusions

Several restrictions apply to this concession:

Passenger Vehicle CapsWhile business vehicles qualify, passenger cars face the luxury car tax depreciation limit, which may reduce the claimable amount below the actual purchase price.

Research and Development AssetsAssets primarily used for R&D activities may need to be claimed under separate R&D tax incentive provisions rather than instant asset write-off rules.

Leased AssetsCertain leased assets and assets already allocated to other depreciation pools may be excluded from simplified depreciation eligibility.

Private Use AdjustmentsAny personal or private use of business assets must be excluded when calculating your deduction amount.

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Claiming Your Deduction: Practical Steps

Timing Your PurchaseAssets must be first used or installed ready for use before June 30, 2026 to qualify under the extended threshold. Simply purchasing before this date isn't sufficient—the asset must actually be in service.

Documentation RequirementsMaintain comprehensive records including invoices, delivery dates, installation dates, and evidence of first use in your business operations.

Business Use LogsFor assets with mixed business and private use, such as vehicles, keep detailed logbooks to substantiate your business-use percentage.

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Strategic Tax Planning Opportunities

This extension creates several planning opportunities for eligible businesses:

Bringing Forward PurchasesConsider accelerating planned equipment upgrades to take advantage of the immediate deduction while the higher threshold remains available.

Technology UpgradesModernizing computer systems, software, and digital infrastructure becomes more attractive with full first-year deductibility.

Fleet RenewalBusinesses operating vehicle fleets can strategically time replacements to maximize tax benefits within the threshold limits.

Cash Flow BenefitsImmediate deductions reduce your current year tax liability, improving short-term cash flow compared to spreading deductions over multiple years.

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Comparison with Alternative Depreciation Methods

Understanding your options helps ensure you're making the most beneficial choice:

Standard DepreciationWithout simplified depreciation, assets depreciate based on their effective life, often over many years with smaller annual deductions.

Instant Write-Off AdvantageReceiving the full deduction immediately provides a larger upfront tax benefit, particularly valuable for profitable businesses.

Long-Term ConsiderationsOnce you choose simplified depreciation, specific rules govern when and how you can opt out, so consider your business's longer-term asset acquisition plans.

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Common Questions About the Instant Asset Write-Off

Can I claim multiple assets in one year?Yes, there's no limit on the number of assets you can claim, provided each individual asset costs less than $20,000.

What happens if my asset costs exactly $20,000?The threshold is "less than $20,000," so an asset costing exactly $20,000 must go into the small business pool rather than being immediately deducted.

Can I still claim if I'm not registered for GST?Yes, but you must calculate the threshold using the GST-inclusive purchase price, which may limit what you can immediately deduct.

What if I sell an asset I previously wrote off?Proceeds from selling simplified depreciation assets are included in your assessable income and may trigger balancing adjustments.

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Next Steps for Your Business

With this proposed extension awaiting final approval, now is an ideal time to:

Review Equipment NeedsAssess your business operations and identify equipment, technology, or vehicles that could benefit from replacement or upgrade.

Develop a Purchase TimelinePlan acquisition timing to ensure assets are in use before the June 30, 2026 deadline while the enhanced threshold remains available.

Consult Tax ProfessionalsEngage with qualified tax advisers or accountants to ensure you structure purchases correctly and maximize available deductions within the rules.

Monitor Legislative ProgressKeep informed about the Bill's passage through parliament, as the measure requires final approval before becoming law.

Prepare Documentation SystemsEstablish record-keeping processes now to ensure you can substantiate all claims when preparing your tax return.

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Making Informed Investment Decisions

While tax deductions provide valuable benefits, they shouldn't be the sole driver of business investment decisions. Consider:

Business NecessityEnsure purchases genuinely support your operational needs and growth strategy rather than being made purely for tax purposes.

Cash Flow ImpactEven with tax deductions, you still need to fund the initial purchase, so ensure your cash position can support the investment.

Asset SelectionChoose quality equipment that will serve your business well over time, not just items that qualify for the write-off.

Alternative FinancingCompare outright purchase against leasing or hire purchase arrangements, considering both tax treatment and overall cost.

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Staying Compliant with Tax Obligations

To successfully claim instant asset write-offs:

Maintain Detailed RecordsKeep all purchase documentation, including itemized invoices showing GST separately where applicable.

Track First Use DatesDocument when assets are first used or installed, as this determines the income year for claiming your deduction.

Separate Business and Private UseFor mixed-use assets, maintain contemporaneous records demonstrating business usage percentages.

Professional Advice is EssentialTax laws contain numerous technical requirements and exceptions, making professional guidance valuable for optimizing outcomes.

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The Broader Economic Context

This extension reflects government recognition of the challenges facing small businesses and the importance of supporting investment in productivity-enhancing equipment. By encouraging capital expenditure, the measure aims to support business growth, innovation, and economic activity across various sectors.

Small businesses form the backbone of the Australian economy, and targeted tax incentives like the instant asset write-off help level the playing field, allowing smaller operators to invest in modernization and compete more effectively.

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Conclusion

The proposed extension of the $20,000 instant asset write-off to June 30, 2026 provides Australian small businesses with continued opportunity to claim immediate tax deductions on eligible equipment and asset purchases. Understanding the eligibility criteria, calculation rules, and strategic planning opportunities allows business owners to make informed decisions that support both operational needs and tax optimization.

While awaiting final legislative approval, eligible businesses should begin identifying potential asset acquisitions and consulting with tax professionals to ensure they can maximize this valuable concession once it becomes law.

Disclaimer: This article provides general information only and should not be relied upon as professional tax advice. Tax laws are complex and subject to change. Always consult with qualified tax professionals or registered tax agents regarding your specific business circumstances before making financial decisions based on tax considerations.

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