The ATO has updated guidance following the permanent extension of the AUD 20,000 instant asset write-off for eligible small businesses, alongside changes to simplified depreciation rules and deductions for depreciating assets and capital expenses.
The Australian Taxation Office (ATO) has updated its guidance on the permanent AUD 20,000 instant asset write-off for small businesses with annual turnover below AUD 10 million. The measure, previously due to end in June 2026, has been permanently extended under the Treasury Laws Amendment (Tax Reform No. 2) Act 2026.
The Treasury Laws Amendment (Tax Reform No. 2) Act 2026 is a legislative document from the Parliament of Australia designed to modify existing taxation frameworks. It introduces key changes to the simplified depreciation rules for small business entities, specifically focusing on the instant asset write-off threshold and the lockout rule.
A primary focus of this legislation is the introduction of a loss carry-back tax offset, which allows eligible corporate entities to apply current losses against prior tax liabilities to receive a refundable tax credit. Beyond this offset, the Act outlines specific financial provisions such as an instant asset write-off for small businesses and amendments regarding negative gearing and certain income tax exemptions.
The updated guidance includes:
Instant asset write-off for eligible businesses
The instant asset write-off threshold is AUD 20,000 per asset from 1 July 2023. It applies to new and second-hand assets under the simplified depreciation rules. Businesses may also claim later additions costing less than the threshold to assets that were previously written off.
The threshold has changed several times, including AUD 20,000 (2016–January 2019), AUD 25,000 (January–April 2019), AUD 30,000 (April 2019–March 2020), AUD 150,000 (March 2020–June 2021), before returning to AUD 20,000 from July 2023.
For 2025–26, the car depreciation limit is AUD 69,674, meaning depreciation cannot be claimed on the portion of a passenger vehicle exceeding this amount. GST-registered businesses must exclude the GST credit when determining whether an asset falls below the threshold. Assets costing at or above the threshold are generally allocated to the small business pool.
Simpler depreciation rules for small businesses
Businesses with aggregated annual turnover below AUD 10 million can generally use the simplified depreciation rules. These combine the instant asset write-off with a small business pool, which is depreciated at 15% in the first year and 30% in subsequent years. The pool can be fully deducted once its balance falls below the current write-off threshold.
The instant asset write-off was unavailable from 6 October 2020 to 30 June 2023, when temporary full expensing applied instead. Businesses opting into simplified depreciation must generally apply the rules to all eligible assets, while opting out prevents new assets from being added to the pool or immediately written off. Existing pool balances continue to depreciate at 30%.
The usual five-year re-entry restriction following an opt-out is suspended until 30 June 2027. Businesses must retain relevant depreciation records for five years, including pool balances, changes in business use and asset disposals.
Deductions for depreciating assets and capital expenses
Depreciating assets are items with a limited effective life that decline in value over time, such as machinery, vehicles, computers and phones. Land, trading stock and most intangible assets generally do not qualify, although certain land improvements may be depreciable.
Outside the simplified rules, businesses can calculate depreciation using the Commissioner’s effective-life determinations or their own reasonable estimate. Only the business-use portion of an asset is deductible.
Certain capital expenses may also qualify for specific deductions. Eligible website development costs may be immediately deductible or depreciated over five years, while hosting and domain costs are generally deductible as incurred. Off-the-shelf software with an effective life of one year or less may qualify for an immediate deduction; otherwise, the cost is spread over its effective life.
Eligible business establishment and wind-down costs may generally be deducted over five years, although professional advice and certain government fees may qualify for immediate deductions for businesses with turnover below AUD 50 million.
Earlier, the Australian Senate approved the Treasury Laws Amendment (Tax Reform No. 2) Bill 2026 on 19 August 2026, following its passage by the House of Representatives on 18 August 2026.
