Instant Asset Write Off Rules from 1 July 2023

The immediate write off for eligible businesses to claim the entire cost of an asset in the first year (known as the temporary full expensing provisions) ends 30 June 2023.

So what happens from 1 July 2023? In the recent Federal Budget, the Government announced that only Small Businesses - those with aggregated annual turnover of less than $10 million – will be able to immediately deduct the full cost of eligible assets costing less than $20,000 that are first used or installed ready for use between 1 July 2023 and 30 June 2024. 

This will provide an incentive for small businesses to continue to invest in equipment for their business.

The $20,000 threshold will apply on a per-asset basis which will allow small businesses to instantly write off multiple assets.

Assets valued at $20,000 or more (which cannot be immediately deducted) can be placed into the small business simplified depreciation pool and depreciated at 15% in the first income year and 30% each income year thereafter.

Businesses with turnover of $10 million or above will need to default back to the Uniform Capital Allowance (UCA) provisions from 1 July 2023. Under these provisions, businesses decide whether to calculate the decline in value of a depreciating asset using either the prime cost method or diminishing value method (in some cases, you must use the same method used by the former holder of the asset) and the rate of depreciation will depend on the asset type and its effective life.

As we approach 30 June 2023, consideration should be given to any assets businesses may be looking to purchase.

Businesses considering investing in assets $20,000 or more should consider acquiring and installing the asset before 30 June 2023 to take advantage of the unlimited cap on deductions for asset purchases under the temporary expensing provisions. The depreciation deduction will otherwise be spread over multiple years depending on your turnover size if acquired after 1 July 2023.

Illustrative example:

A business is considering an investment of $100,000 into an asset for their factory which has an effective life of 20 years.

The table below illustrates the timing differences of deductions based on when the asset is installed ready for use and turnover threshold.