Instant asset write-off for small business in 2026–27

Limit per asset

Cost less than $20,000 (2026–27 and later years)

Turnover test

Aggregated turnover less than $10 million

Status

Permanent from 1 July 2026; the ATO says it is now law

Assets of $20,000 or more

Small business pool: 15% in year one, 30% after that

What the instant asset write-off is

Normally a business claims the cost of equipment, vehicles and other depreciating assets gradually over the years the asset is used. The instant asset write-off is an exception for small businesses: instead of spreading the cost out, an eligible business claims the business portion of the cost as a deduction in a single year.

It is one part of the ATO's simplified depreciation rules. The other part is the small business pool, which handles assets that cost too much to write off straight away.

Before this, the $20,000 limit relied on temporary extensions. In the 2026–27 Budget on 12 May 2026, the Government announced it would keep the limit at $20,000 permanently from 1 July 2026. The ATO's new legislation page now records that this measure is now law and links to the Treasury Laws Amendment (Tax Reform No. 2) Act 2026. The earlier extension, covering 1 July 2025 to 30 June 2026, is also law.

From 1 July 2026 the $20,000 instant asset write-off is permanent law, so it no longer depends on a yearly extension.

Who can use it

Generally, the write-off is available to a business that meets both of these conditions:

• Aggregated turnover under $10 million. Aggregated turnover is the annual turnover of the business plus that of any business entities that are its affiliates or are connected with it, so related businesses are counted together for this test.
• It uses the simplified depreciation rules. The write-off is only available inside those rules, and choosing them is all or nothing: a business must apply them to all of its depreciating assets (other than excluded ones), including putting higher-cost assets into the small business pool. It cannot pick out the write-off on its own.

The test applies to the business, not to a particular structure, so a sole trader, partnership, company or trust can qualify if it meets the turnover test.

A business that previously opted out of simplified depreciation would normally be locked out for 5 years. That lock-out rule is suspended until 30 June 2027, so a business that left the rules can return to them in 2026–27 without waiting. On re-entry, the opening pool balance has to be adjusted to bring in assets acquired while outside the rules.

The ATO's published limits for businesses with aggregated turnover of $10 million or more only cover periods that ended on 30 June 2021. Businesses that cannot use the simplified rules generally work out their deductions under the general depreciation rules instead.

How the $20,000 limit works

The limit is applied per asset, so a business can write off several assets in the same year as long as each one costs less than $20,000. A few rules decide whether an asset is under the limit and how much is deductible:

• Less than, not equal to. The cost must be below $20,000. An asset costing exactly $20,000 goes into the small business pool.
• Full cost, not business portion. The test uses the whole cost of the asset. Only the business portion is deductible, but private use does not bring an expensive asset under the limit.
• What counts as cost. Cost includes the purchase price plus amounts spent getting the asset delivered and installed ready for use.
• GST. For a business registered for GST that can claim the full GST credit, the cost excludes GST. For a business that is not registered, the GST it paid is part of the cost. If only part of the credit can be claimed, the cost is reduced by that part.
• Trade-ins. The cost is the price before any trade-in credit. Trading in an old vehicle does not reduce the new vehicle's cost for this test, and the old vehicle is treated as a separate sale.
• New or second-hand. In most cases both qualify.
• Timing. The deduction belongs to the income year in which the asset is first used or installed ready for use, not the year it was ordered or paid for.

Improvements to an asset that has already been written off can also qualify. The first cost addition incurred after the year of the write-off can be deducted immediately if it is under $20,000. Later improvements to the same asset go into the small business pool.

Assets that cost $20,000 or more

Under the simplified depreciation rules, an asset that costs $20,000 or more is added to the small business pool. The pool is depreciated as a single balance:

• 15% of the business portion of an asset in the year it is added, whenever in the year it was bought
• 30% of the pool balance each year after that
• if the pool balance at the end of an income year (before that year's depreciation) is less than $20,000, the whole balance can be deducted

For example, a $35,000 vehicle used 50% for business cannot be written off, because its full cost is over the limit. Instead $17,500 is added to the pool, giving a deduction of $2,625 (15%) in the first year.

A car limit also applies to passenger vehicles designed to carry fewer than 9 passengers and a load of less than one tonne. Any cost above the car limit cannot be depreciated at all. The car limit is $69,674 for 2025–26. At the time of writing, the ATO's yearly car limit table had not yet listed a figure for 2026–27, so check the ATO assets and exclusions page for the current amount. Vehicles designed to carry a load of one tonne or more, or 9 or more passengers, are not subject to the car limit.

Assets that are excluded

A small number of assets cannot use the simplified depreciation rules, so the write-off is not available for them. They are depreciated under the general rules instead:

• assets leased out, or expected to be leased out, for more than 50% of the time on a depreciating asset lease
• assets used in research and development activities
• assets that were allocated to a low-value pool before the business started using the simplified rules
• capital works, such as buildings and structural improvements
• horticultural plants, including grapevines
• software allocated to a software development pool (other software is not excluded)

Some primary production assets can be depreciated under either the general or the simplified rules.

The low-value pool change

The low-value pool belongs to the general depreciation rules, not the simplified ones. Businesses that use simplified depreciation cannot use it for their assets, so it is mainly relevant to businesses that do not use, or cannot use, the instant asset write-off. Under the low-value pool, assets are depreciated at 18.75% in the year they are added and 37.5% a year after that.

The ATO's small business newsroom (published 4 September 2026) states that from 1 July 2026 the low-value pool threshold increased from $1,000 to $20,000. At the time of writing, the ATO's detailed low-value pool page was last updated in June 2025 and still describes the earlier $1,000 threshold. Until that guidance is updated, check the exact rules with the ATO or a registered tax agent before relying on the new threshold.

Claiming the write-off and keeping records

The deduction goes in the tax return for the income year in which the asset was first used or installed ready for use. There is no separate form to choose simplified depreciation: lodging the return on that basis is enough. The ATO's examples for sole traders and partnerships show the claim in the Business and professional items schedule.

Useful records generally include the invoice, proof of payment, the date the asset was first used or installed, and how the business-use percentage was estimated. For pooled assets, the ATO expects records of how the opening pool balance was worked out, changes in business use and any disposals, kept for 5 years. If business use of a pooled asset changes by more than 10% from the last estimate in any of the first 3 income years after the year it was added to the pool, the opening pool balance has to be adjusted.

When a pooled asset is later sold, the business portion of the proceeds reduces the pool balance, and the sale can also create assessable income. The write-off brings a deduction forward rather than increasing it, and an asset bought mainly for the deduction still costs the full purchase price in cash.

Our business record keeping guide covers what to keep more broadly. For help with timing purchases and structuring claims for a particular business, see our tax advice and planning service.

Frequently asked questions

General information only, not personal advice. Tax rules change and your circumstances matter, so talk to us before acting. See our disclaimer.