For the 2025–26 income year, eligible Australian small businesses with aggregated turnover under $10 million can immediately deduct the business-use portion of eligible assets costing less than $20,000, provided the asset is first used or installed ready for use between 1 July 2025 and 30 June 2026. The limit applies per asset, so you can write off more than one. You must use the ATO’s simplified depreciation rules. Assets at or above $20,000 generally go into the small business pool (15% in the first year, then 30% each year after). Instant asset write-off is claimed on your income tax return — your books need clean purchase records so your tax agent (or you) can lodge it correctly.
That is the short answer. The rest of this guide is for sole traders, tradies, and small companies who have bought (or are about to buy) tools, kit, vehicles, or office gear — and want their Xero file to support the claim without drama at tax time.
This article explains how the ATO rules work and how bookkeeping should support a claim. It is not personal income-tax strategy advice. Speak to your registered tax agent or accountant before you decide what to buy, how to structure a claim, or whether simplified depreciation is right for your entity.
What is the instant asset write-off in 2026?
The instant asset write-off (IAWO) lets eligible small businesses deduct the cost of a depreciating asset in the year it is first used (or installed ready for use) for a taxable purpose — instead of spreading that cost over several years.
According to the ATO’s $20,000 instant asset write-off for 2025–26 newsroom page (published 3 February 2026) and the main instant asset write-off guidance (last updated 28 August 2026):
- Who: small business entities with aggregated annual turnover less than $10 million that use the simplified depreciation rules
- Threshold: assets costing less than $20,000 (full cost of the asset, not just the business-use slice)
- When: first used or installed ready for use for a taxable purpose between 1 July 2025 and 30 June 2026
- How many: the $20,000 limit is per asset — multiple assets under the limit can each be written off
- New or second-hand: both can qualify (exclusions apply)
- Improvements: if you previously wrote off an asset under simplified depreciation, the first improvement cost under $20,000 incurred in 2025–26 can often be written off immediately too
Temporary full expensing (the “no limit” COVID-era measure) ended for assets first used after 30 June 2023. For most small businesses in 2025–26, the live rule is the $20,000 IAWO under simplified depreciation — not unlimited full expensing.
Who qualifies (and who does not)
You are generally in scope if
- Your business’s aggregated turnover is under $10 million (your turnover plus affiliates and connected entities — check with your tax agent if you have related companies or trusts)
- You choose (or already use) the ATO’s simplified depreciation rules for the income year
- The asset is a depreciating asset (tools, computers, freestanding furniture, most vehicles, plant and equipment — see the ATO’s assets and exclusions page)
- The full cost of the asset is under $20,000 (including delivery and installation where they form part of cost)
Watch these exclusions and traps
The ATO excludes some assets from simplified depreciation altogether. Examples include:
- Assets leased out (or expected to be leased out) for more than 50% of the time on a depreciating asset lease
- Assets used in R&D activities (general depreciation rules apply instead)
- Capital works (buildings and structural improvements)
- Software already allocated to a software development pool
- Assets already in a low-value pool from before you used simplified depreciation
Cars and passenger vehicles have extra rules. The car limit for 2025–26 is $69,674 for eligible passenger vehicles — that caps the cost you can depreciate. A ute or car that costs $20,000 or more still cannot use IAWO; the business portion goes to the small business pool. The ATO’s ute example is clear: if the vehicle’s full cost is $40,000 and you only use it 40% for business, you still cannot IAWO — because the full cost exceeds $20,000. You pool the business portion instead.
Trade-ins: the ATO counts the purchase price before trade-in credit. If you trade in for $11,000 and buy a $25,000 vehicle, the cost for the write-off test is $25,000, not your $14,000 cash outlay.
GST: if you are GST-registered and can claim the full GST credit, you generally exclude recoverable GST from the asset’s cost for depreciation. If you are not registered, GST usually stays in the cost. Wrong GST coding on the purchase can mess up both your BAS and your depreciation base — which is why clean bookkeeping matters before tax return time.
If any of this feels ambiguous for your situation, speak to your tax agent. Thresholds, connected entities, and vehicle classification are income-tax territory.
What your books need to show
Instant asset write-off is claimed on the income tax return (for many sole traders, via the Business and professional items schedule). Your bookkeeper or BAS agent does not “lodge the write-off” on the BAS. What we do is make sure the purchase is recorded so your tax agent can see:
- What you bought — invoice or tax invoice with supplier, description, date, and amount
- When it was ready for use — delivery / install date, not just the order date
- Cost components — purchase price, delivery, installation (and trade-in details if any)
- GST treatment — correct GST code so BAS and cost base stay aligned
- Business vs private use — a sensible estimate (and a logbook for cars where you use that method)
- Asset register / fixed asset notes — so the item is not buried forever in “Office expenses” or “Tools”
If you sell or dispose of an asset you previously wrote off instantly, the ATO generally requires the taxable-purpose portion of the proceeds to be included in assessable income. Your books need a disposal entry and notes your tax agent can follow.
Girl Friday’s role as a registered BAS agent and bookkeeping ally is the records, the coding, the reconciliations, and the accountant-ready pack at EOFY — not designing your depreciation strategy. That handoff is deliberate and protective.
Xero coding tips that make tax time easier
You do not need a fancy setup. You need consistency.
1. Do not dump capital buys into everyday expenses
Coding a $4,500 welder to “Materials” or “Repairs” because it “feels like a job cost” is a classic mess. At tax time someone has to dig it back out. Prefer:
- A clear Fixed assets / Plant & equipment (or similar) balance-sheet account for assets you will capitalise or write off as depreciating assets
- Or a dedicated Asset purchases (to review) clearing account that you and your bookkeeper clear monthly
2. Attach the invoice in Xero
Bank feed line + PDF invoice + date ready for use in the description or a note. Your future self (and your tax agent) will thank you.
3. Get GST right on the day
GST-registered businesses: code purchases so the GST claim sits on the correct BAS period. The cost used for depreciation usually excludes the GST you reclaim. Mixed-up codes create BAS corrections and wrong cost bases.
4. Flag business-use percentage
For mixed-use assets (laptop, phone, vehicle), put the estimated business % in the Xero description or a tracking note. Do not invent 100% business use if that is not true. The ATO’s own examples use partial business use, and your deduction is limited to the taxable-purpose portion — while the full cost still has to sit under $20,000 for IAWO.
5. Keep a simple asset list
Even a spreadsheet tab named “Assets 2025–26” with columns for description, cost (ex GST), ready-for-use date, business %, and “IAWO / pool / other” is enough for many sole traders. We can maintain that as part of ongoing bookkeeping or EOFY prep.
6. Vehicles: logbook vs cents per km
If you claim car expenses using cents per kilometre, you generally cannot also claim depreciation for that car under simplified depreciation for the same period. Method choice affects how the car sits in the small business pool. Confirm the approach with your tax agent before EOFY — then we will mirror whatever method you settle on in the books.
Mid-year cleanup is normal. If last quarter’s purchases are sitting in the wrong accounts, that is fixable. No judgment — we see it every week.
Common mistakes we see (and how to avoid them)
- Testing the wrong number. People check “business portion under $20k” instead of full cost under $20k. The ATO is explicit: full cost must be under the limit; you only claim the business portion.
- Using order date instead of ready-for-use date. The income year is driven by when the asset is first used or installed ready for use.
- Ignoring trade-in maths. Cash outlay ≠ cost for the IAWO test.
- Writing off excluded assets. Capital works, certain leased assets, and R&D assets follow different rules.
- Messy GST on capital purchases. Wrong code → wrong BAS → wrong cost base.
- No disposal trail. Sold the old laptop you wrote off last year? The proceeds side still needs recording for tax.
- Treating IAWO as a BAS line. It is not. BAS handles GST (and other activity-statement labels). Depreciation lives on the tax return.
- Assuming temporary full expensing still applies. For assets first used after 30 June 2023, that unlimited measure does not apply; the $20,000 IAWO (for eligible small businesses on simplified depreciation) is the current headline rule for 2025–26.
BAS vs tax return: who owns which bit?
- Record purchase, GST, bank reconciliation — usually bookkeeper / registered BAS agent (day-to-day Xero hygiene)
- Lodge BAS / IAS (GST on the buy) — registered BAS agent (GST timing ≠ depreciation claim)
- Decide simplified depreciation vs other methods — tax agent / accountant (income-tax choice)
- Calculate IAWO / pool amounts — tax agent / accountant (claimed on income tax return)
- EOFY reports + asset list handover — bookkeeper / BAS agent (accountant-ready pack)
- Lodge income tax return — registered tax agent or you if self-lodging (where the write-off appears)
If you only engage Girl Friday for books and BAS, we still prepare a clean file and asset notes so your tax agent is not reconstructing the year from a shoebox. If you also use our published tax return services, we scope that work clearly so you know what is being lodged and by whom.
Soft checklist before you hit “buy”
- Confirm aggregated turnover is under $10 million (or get advice if you are near the line).
- Confirm the asset is not on the ATO exclusion list.
- Check full cost (ex recoverable GST if registered) will be under $20,000.
- Diary the ready-for-use date — especially for orders straddling 30 June.
- Save the tax invoice and proof of payment in Xero the same week.
- Note business-use % honestly.
- Ask your tax agent whether simplified depreciation and IAWO are the right path for your return — not just whether the ATO page says “$20,000”.
Rules can be extended, paused, or tweaked by legislation. Always re-check the ATO pages linked above close to lodgement if you are reading this later in the year.
How Girl Friday Australia helps
We are a registered BAS agent, Xero Certified Advisor and Xero Gold Partner. We help Australian small businesses keep purchases coded cleanly, BAS lodged on time, and EOFY packs ready for whoever lodges your return.
- Ongoing bookkeeping from $250/month
- BAS & IAS lodgement from $180/quarter
- EOFY preparation from $350 one-off
- Tax-ready bookkeeping from $250/month (see /tax)
- Most clients sit around $200–$600/month depending on needs
No lock-in. Australia-wide remote. Plain English. If your asset coding is a mess from last year, we will tidy it without the lecture.
Ready for cleaner books before tax time? Get a free quote or book a discovery call. Phone 0404 877 436 · info@girlfridayaustralia.com.
Frequently asked questions
What is the instant asset write-off limit for Australian small businesses in 2025–26?
$20,000 per eligible asset, for small businesses with aggregated turnover under $10 million that use the simplified depreciation rules, where the asset is first used or installed ready for use between 1 July 2025 and 30 June 2026. Source: ATO — $20,000 instant asset write-off for 2025–26.
Can I write off more than one asset?
Yes. The limit is per asset. Multiple assets each costing less than $20,000 can each qualify if the other eligibility rules are met.
Does the $20,000 include GST?
It depends on GST registration and credits. If you are registered and can claim the full GST credit, you generally work from the cost excluding recoverable GST. If you are not registered, GST usually forms part of cost. See the ATO’s GST notes on the instant asset write-off page.
What if my asset costs $20,000 or more?
Under simplified depreciation it generally goes into the small business pool: 15% deduction in the first income year you use it (or install it ready for use), then 30% each following year (ATO guidance). Confirm the calculation with your tax agent.
Is instant asset write-off claimed on my BAS?
No. GST on the purchase may appear on your BAS. The depreciation / instant write-off deduction is claimed on your income tax return. Keep the records in your books; your tax agent applies the claim.
Do I need a tax agent or is a BAS agent enough?
A registered BAS agent keeps activity statements, GST coding, and bookkeeping clean. Choosing depreciation methods and lodging the income tax claim is tax agent / accountant work. Many businesses use both. See our guide on BAS agent vs tax agent.
What records does the ATO expect?
Enough to prove the claim: invoices, payment evidence, ready-for-use timing, cost (including delivery/install), business-use basis, and how you treated GST. The ATO’s 2025–26 newsroom article stresses keeping good records so you or your tax professional can substantiate the claim.
Sources: ATO $20,000 instant asset write-off for 2025–26 (3 Feb 2026); ATO Instant asset write-off for eligible businesses (updated 28 Aug 2026); ATO Assets and exclusions (updated 27 May 2026); ATO Simpler depreciation for small business. Always verify against ato.gov.au before lodging.