Owing to some last minute machinations in the Senate, the $20,000 Instant Asset Write-off (IAWO) for the 2023-24 financial year was only passed into law two days before it expired. The uncertainty around this concession may have compromised its incentive effect somewhat, although our experience is that businesses don’t generally invest in depreciating assets for the sake of the tax deductions.

Ahead of the conclusion of the COVID era Temporary Full Expensing (TFE) regime on 30 June 2023, the government announced in its May 2023 Budget that for the 2023-24 financial year small businesses (annual turnover of less than $10 million) choosing to use the simplified depreciation rules would be able claim an immediate deduction for depreciating assets costing less than $20,000. To qualify for the IAWO the depreciating assets had to be used or installed ready for use for a taxable purpose by 30 June 2024.

Without the 2023-24 Budget announcement, the IAWO threshold would have reverted to the standard $1,000 from 1 July 2023.

A Bill to give effect to the announcement was introduced into Parliament in September 2023. Six months later the non-government Senators voted to amend the Bill to make it more generous, raising the asset threshold to $30,000 and the turnover threshold to $50 million. Unfortunately, this amendment was not supported by the government in the House and after a stand-off lasting several weeks the Bill was finally passed in its original form on 28 June 2024.

In the meantime, the government has announced in the 2024-25 Budget that the $20,000/$10 million IAWO regime will be extended for another 12 months to 30 June 2025. Enabling legislation has already been introduced, which will hopefully pass into law well before June 2025.

The first use date (or installed ready for use date) is an important element of the IAWO (and, indeed, the ordinary depreciation rules). It is not enough to order the depreciating asset or even to pay for it by 30 June – it has to be used for a taxable purpose or installed ready for such use. Orders or invoices will not usually provide this information, and you should consider keeping photographic evidence of first use for depreciating assets acquired close to 30 June.

The IAWO is compulsory for small businesses using the simplified depreciation rules, so all depreciating assets falling under the $20,000 threshold have to be deducted outright, while assets costing $20,000 or more have their cost added to the general small business pool.

Where an asset that was previously claimed outright under the IAWO rules is later sold, the GST-exclusive proceeds are included as assessable income. Trade-ins are split for tax purposes, meaning a car traded in for a newer vehicle is treated as having been sold for its trade-in value (and subject to GST), while the newer vehicle is treated as having been acquired for its GST-exclusive value before the trade-in amount is deducted from the price.

The small business tax rules around depreciating assets may turn into a minor point of difference in the upcoming federal election, with the Coalition committing to a permanent IAWO threshold of $30,000.