Buying new equipment for your business is exciting. What’s less exciting is figuring out the tax implications afterwards. Can you claim an instant asset write off? Do you have to spread it over several years? And does the $20,000 threshold everyone’s talking about actually apply to you?

These are exactly the questions this guide answers. Whether you’re a tradie buying tools, a small business owner upgrading assets, or a sole trader replacing a work computer, understanding how the asset write-off rules work can make a real difference to your cash flow and purchasing decisions.

Not sure how equipment purchases affect your tax position? Speak with a Rhythm Financial adviser to model the numbers before you commit.

What is an asset write-off?

An asset write-off allows eligible businesses to claim a tax deduction for the cost of a business asset. Rather than waiting years to recover the cost through gradual depreciation, a write-off lets you bring some or all of that deduction forward, reducing your taxable income sooner.

There are two main approaches available to most small businesses: the instant asset write-off and the small business depreciation pool. Understanding which applies to your purchase is the key to maximising your tax position.

The instant asset write-off

Small businesses with an annual turnover under $10 million can immediately deduct the full cost of eligible assets costing less than $20,000. This is the instant asset write-off.

“Immediately” means you claim the full deduction in the same financial year the asset is first used or installed ready for use. There is no spreading the cost across multiple years.

Example: Lena runs a landscaping business. She purchases a ride-on mower for $14,500 (GST- exclusive). Because the mower costs less than $20,000 and she uses it in her business before 30 June 2025, she can claim the full $14,500 as a deduction in her tax return.

Why the rules are tighter than you may remember

If you’ve heard other business owners talk about writing off an $80,000 ute or a $150,000 piece of equipment, they’re likely referring to Temporary Full Expensing, which applied from 2020 to 30 June 2023. During that period, there was no dollar threshold for many businesses. Assets of any value could be immediately deducted.

The return to a $20,000 cap represents a significant tightening of the rules. Assets that would have been fully deductible two or three years ago may now need to be pooled and depreciated over time. If you’re planning a purchase based on what you’ve heard from others, make sure you’re working with the current rules.

Important caveat on the threshold

The $20,000 instant asset write-off has been subject to delayed or conditional legislative passage in recent years. Confirm with your adviser that this threshold has been legislated before making purchasing decisions based on it. Your adviser can also clarify what applies in the current financial year.

The small business depreciation pool: when assets don’t qualify for immediate write-off

If your asset costs $20,000 or more, it cannot be claimed as an instant asset write-off. Instead, it goes into what the ATO calls a small business depreciation pool, where the cost is deducted over several years.

The pool uses two rates:

• 15% in the first year (regardless of when the asset was purchased during the year)
• 30% each year after that, using the declining balance method

Example: Marcus is a plumber. He buys a new work vehicle for $45,000. Because the vehicle exceeds the $20,000 instant asset write-off threshold, Marcus cannot claim it immediately. Instead, he adds it to his small business depreciation pool. In year one, he can claim 15% of $45,000 ($6,750). From year two onwards, he claims 30% of the remaining pool balance each year.

What equipment qualifies?

Most tangible business assets are eligible, provided they are used for business purposes.

Common examples include:

• Tools and equipment such as drills, saws, scaffolding, plumbing equipment
• Computers and technology such as laptops, tablets, phones, software with a physical component
• Office furniture and fit-out
• Machinery used in manufacturing, construction, or farming
• Vehicles used for business purposes (with important limitations, covered below)

Assets must be used in Australia and be depreciating assets under tax law. Intangible assets, land, and some other categories are excluded.

Vehicles: what you can and can’t claim

Vehicles are one of the most commonly misunderstood areas of equipment deductions, particularly for tradies.

Passenger vehicles and the cost limit

For passenger vehicles (cars, SUVs, and similar), the ATO applies a car cost limit of $69,674 for 2024-25. This cap applies regardless of the write-off method used.

Here is what this means in practice. If you purchase a $90,000 SUV for business use:

• Only $69,674 of the purchase price is treated as a depreciable base
• The remaining $20,326 cannot be claimed at all
• Because $69,674 exceeds the $20,000 instant write-off threshold, the vehicle goes into your depreciation pool (not immediately written off), with year one deductions calculated on $69,674

Even a $65,000 SUV, despite costing less than the $69,674 cap, still exceeds the $20,000 instant write-off threshold and must be pooled.

The dual-cab ute exception

Many tradies prefer dual-cab utes, and for good reason from a tax perspective. A dual-cab ute with a payload exceeding one tonne is classified as a commercial vehicle under ATO rules, not a “car.” This means:

• The $69,674 passenger vehicle cost limit does not apply
• The full purchase price is the depreciable base
• If the cost is under $20,000, it may qualify for the instant write-off

This is one of the most searched vehicle tax questions among tradies. If you’re tossing up between an SUV and a dual-cab ute, the tax treatment can differ significantly.

Partial business use

If a vehicle is used partly for personal purposes, you can only claim the business-use percentage of the deduction. For vehicles used partly for personal purposes, an ATO-compliant logbook covering a minimum 12-week period is required to establish your business-use percentage. Without a logbook, the ATO may disallow or reduce your claim.

Is the deduction always worth it? Running the numbers

A common misconception is that a tax deduction is a dollar-for-dollar saving. It is not. A deduction reduces your taxable income, and the tax saving depends on your marginal tax rate.

Here is a worked example to illustrate:

A few important points here to note. If you are GST-registered, you can claim back the GST on your business purchase separately, so the cost you’re deducting is the GST- exclusive amount. If you are not GST- registered, your deductible cost includes the GST.

For sole traders, the tax saving reflects your personal marginal tax rate, which varies with your total income. A sole trader earning $120,000 faces a 30% marginal rate, making the deduction worth considerably more than it would be for someone on a lower income or for a small company taxed at 25%.

An immediate write-off is also worth more in net present value terms than the same total deduction spread over five years, because you receive the tax benefit now rather than in future years. Understanding these dynamics is part of building smart small business tax habits that compound over time.

This is especially relevant for trades and service businesses, where equipment purchases often coincide with seasonal demand peaks and the timing of a deduction can have a real impact on cash flow and how comfortably the business runs through quieter months.

Want to model the after-tax cost of a specific purchase? Book a conversation with Rhythm Financial before you sign on the dotted line.

Timing matters: when the deduction falls

The timing of your deduction is determined by when an asset is first used or installed ready for use in your business. Not when you placed the order or when you paid the deposit.

This distinction matters enormously as 30 June approaches. If you order equipment in May but it isn’t delivered and operational until July, the deduction falls in the next financial year, not the current one.

Practical tips for end-of-year timing:

• Confirm delivery and installation dates before assuming a purchase falls in the current year
• “Installed ready for use” means the asset is available to use, even if you haven’t actually started using it yet
• Keep documentation showing the date the asset was available for use in your business

If you’re approaching 30 June and want a broader checklist of what to have sorted before the year turns over, our guide to new financial year planning for Brisbane small businesses covers the full picture.

Finance and asset write-offs: chattel mortgage vs operating lease

If you’re financing your equipment rather than purchasing outright, the finance structure affects your ability to claim a write-off.

Under a chattel mortgage, the business is treated as the owner of the asset from day one. This means the write-off or depreciation deduction can still be claimed even when the asset is financed. The full cost of the asset (up to applicable limits) is available as your depreciable base.

Under an operating lease, you are generally not treated as the owner of the asset. As a result, you typically cannot claim depreciation on the asset itself. Instead, your lease payments may be deductible as a business expense.

This distinction is a common source of confusion. If you’re comparing finance options for a significant equipment purchase, discuss the tax treatment with your adviser before signing any agreements.

Record-keeping requirements

Good records are not optional. The ATO requires you to keep documentation that substantiates any deduction you claim.

For asset write-offs and depreciation, this typically includes:

• Purchase invoices or receipts showing the date, cost, and description of the asset
• Evidence of business use (particularly important for assets used partly for personal purposes)
• For vehicles used partly for personal purposes: an ATO-compliant logbook covering a minimum 12-week period
• Bank or finance statements showing payment
• Installation records where relevant to establishing the “first used or installed ready for use” date

The ATO can request these records in an audit. Keeping them organised from the start saves significant time and stress later.

FAQs about asset write-offs

Can I claim a write-off on second-hand equipment?

Yes. Both new and second-hand assets can qualify for the instant asset write-off or the small business depreciation pool, provided they meet the other eligibility criteria (cost threshold, business use, and asset type).

What if I use the asset for both business and personal purposes?

You can only claim the business-use percentage of the cost. For example, if a laptop is used 70% for business, you can claim 70% of the cost as a deduction. A logbook or usage record helps substantiate the split.

Do I need to be GST-registered to claim the instant asset write-off?

No. GST registration is not a requirement for claiming the instant asset write-off. However, if you are GST-registered, the cost you claim is the GST-exclusive amount, as you recover the GST separately through your BAS.

What happens if the $20,000 threshold changes after I make my purchase?

The threshold that applies is the one in force for the financial year in which your asset is first used or installed ready for use. Changes announced in a budget do not take effect until legislated. Always confirm the current rules with your adviser.

Can I claim the instant asset write-off on assets purchased through a company or trust?

The instant asset write-off is available to businesses operating through a company, trust, partnership, or as a sole trader, provided the business turnover is under $10 million and other eligibility criteria are met. The tax saving will reflect the applicable tax rate for that entity.

Make your next equipment purchase count

Understanding how asset write-offs work puts you in a stronger position to make purchasing decisions that actually make financial sense once tax is factored in. The difference between an immediate write-off and a depreciated asset, the right timing, the correct finance structure, and your entity’s tax rate all affect the real cost of any equipment you buy.

Tax rules around instant asset write-offs change frequently, and the rules described in this guide apply to 2025-26. Before making a significant purchase, it’s worth a conversation with your adviser to confirm what applies in the current year and how the deduction works for your specific situation.

Ready to run the numbers on your next equipment purchase? Talk to the team at Rhythm Financial and make sure you’re making the most of every dollar.

 Disclaimer: This article provides general information only and does not constitute tax advice. Tax rules change frequently. Please consult a qualified tax adviser to confirm current thresholds and rules that apply to your specific circumstances.