Every June, business owners across Perth ask the same question: should I buy that piece of equipment before 30 June? The answer depends on how the instant asset write-off and ordinary depreciation rules interact with your actual profit position — and, more often than people expect, the answer is no.
What is depreciation?
When your business buys something that will be used over several years — a vehicle, a laptop, a coffee machine, a piece of plant — you generally cannot deduct the whole cost immediately. Instead you claim depreciation, spreading the deduction across the asset's effective life. The logic is that the asset helps earn income over several years, so the deduction should follow the same pattern. You can use the prime cost method, which claims an even amount each year, or the diminishing value method, which front-loads the deduction.
What is the instant asset write-off?
The instant asset write-off is the exception to that pattern. It allows an eligible small business to deduct the full business-use portion of a qualifying asset in the year it is first used or installed ready for use. The threshold and eligibility criteria have been changed by successive governments more times than almost any other small business measure, so the single most important step is confirming which threshold applies to the income year you are actually in before committing to a purchase.
Which assets qualify?
Broadly, tangible depreciating assets used in carrying on the business: tools, computers and monitors, office furniture, machinery, trailers, and work vehicles. The cost must sit under the threshold for that year, and the asset must be first used or installed ready for use — not merely ordered or paid for — within the eligible period. That last point matters enormously in June. An invoice dated 28 June for machinery that arrives in July does not get you the deduction that year.
How do cars work under these rules?
Cars are treated differently. Even where an asset otherwise qualifies, a separate car limit caps the amount you can depreciate or write off for a passenger vehicle, regardless of what you paid. You also only claim the business-use percentage, which means a vehicle used 60% for business gives you 60% of the capped amount. Utes and commercial vehicles designed to carry more than one tonne generally fall outside the car limit, which is a meaningful difference for trades businesses.
Does the threshold include GST?
If you are registered for GST, test the threshold against the GST-exclusive cost — the GST component comes back to you as a credit on your BAS instead. If you are not registered, the threshold applies to the full GST-inclusive price you paid. This distinction can be the difference between an asset sitting just under or just over the line.
Is claiming the deduction upfront always the better outcome?
No, and this is where the June rush goes wrong. A deduction only saves you tax at your marginal rate — spending $30,000 on equipment you do not need to save perhaps $7,500 in tax leaves you $22,500 worse off in cash. An immediate deduction is also worth nothing in a year where the business has no taxable income to offset; in that situation, depreciating the asset over its life often delivers more value by pushing deductions into profitable years. Buy assets your business genuinely needs, then optimise the timing.
What records do you need to keep?
Keep the purchase invoice, evidence of the date the asset was first used or installed ready for use, and records supporting your business-use percentage — a logbook for vehicles, or a reasonable basis for shared-use equipment. Your accounting software should maintain a fixed asset register so opening and closing values reconcile each year. These records need to be kept for the standard ATO retention period; our guide on how long to keep business records covers the specifics.
Getting asset purchases right is as much about timing and cash flow as it is about the tax rules. The Metier Group advises Perth business owners on capital purchases and depreciation planning as part of our business accounting services. Contact us before your next major purchase rather than after it.