Depreciation and Asset Write-Off Basics

Most business owners know they can claim something for equipment, vehicles and tools — but the rules for how much, and in which year, trip up even experienced operators. Whether an asset is written off immediately or deducted over its life depends on its cost, when it was first used, and which depreciation rules your business applies.

How depreciation works

A depreciating asset — a ute, an oven, a computer — is normally deducted over its effective life rather than in the year you pay for it. There are two standard methods: prime cost, which spreads the deduction evenly, and diminishing value, which front-loads it. Eligible small businesses can instead use the simplified depreciation rules, which pool most assets together and deduct the pool balance at set rates.

How the instant asset write-off works

Under the instant asset write-off, an eligible small business can deduct the full cost of an asset in the year it is first used or installed ready for use, provided the cost is under the threshold. The threshold has changed many times and is regularly adjusted in the Federal Budget, so check the current ATO figure before relying on it. Three details matter more than most people realise:

• The test is when the asset is first used or installed ready for use — not when it is ordered or paid for.
• If you are registered for GST, the threshold is generally tested against the GST-exclusive cost.
• Only the business-use percentage is deductible; private use must be carved out.

What we commonly see go wrong

• Buying equipment just before 30th June that is not delivered or installed until July — the deduction lands in the next year.
• Claiming the full cost of a passenger vehicle above the car limit, which caps depreciation on most cars; check the current ATO figure for the limit.
• Ignoring private use on vehicles and phones, with no logbook or usage records to support the split.
• Forgetting the balancing adjustment when a written-off asset is later sold — the proceeds are generally assessable.

The records that support each claim

For every asset claim, keep the tax invoice, proof of payment, the date the asset was first used or installed ready for use, and evidence of business use — such as a logbook for vehicles. If you use pooling, keep the pool calculations from year to year, because each year builds on the last. These are the first documents requested in an ATO review, and claims without them are difficult to defend.

When to get advice

Timing a large purchase around year end, buying a vehicle near the car limit, or moving in or out of simplified depreciation are all decisions worth checking before you commit. Remember that a big immediate write-off is a timing benefit, not free money — the deduction you take now is one you will not have in later years, so the purchase still has to make commercial sense on its own.

Can I claim an asset bought on finance or under a chattel mortgage?

Generally yes — under a chattel mortgage or loan you are usually treated as the owner for depreciation purposes, even though you pay the asset off over time. Leases work differently, so check how the finance is structured before assuming.

What happens if the asset costs more than the instant asset write-off threshold?

The deduction is not lost — under the simplified depreciation rules the asset goes into the small business pool and is deducted at set rates over time instead of immediately.

Do second-hand assets qualify for the instant asset write-off?

In most cases the rules for small businesses cover both new and second-hand assets, but eligibility details change with the threshold rules, so confirm your situation against current ATO guidance.