The instant asset write-off is the most talked about and most misunderstood deduction in Australian small business. Every June a wave of "buy a ute and write it off" advice goes around, and a lot of it is wrong in ways that cost real money at tax time.
Here is what the rule actually does, what it does not do, and where it stands right now.
This is general information, not tax advice. Your accountant is the one who signs off on your position.
What the instant asset write-off is
Small businesses using the simplified depreciation rules can immediately deduct the cost of an eligible depreciating asset in the year it is first used or installed ready for use, instead of claiming it gradually over years.
The current settings are:
- Threshold: the asset must cost less than $20,000
- Turnover test: aggregated annual turnover under $10 million
- Applied per asset, so multiple qualifying assets can each be written off
- The asset must be first used or installed ready for use for a taxable purpose in the income year
That last point catches people out. Ordering and paying for a machine in June does not create the deduction. It has to be in your hands and ready to work.
Where the 2026-27 rules stand right now
The $20,000 threshold as published by the ATO applies to assets first used or installed ready for use from 1 July 2023 to 30 June 2026.
The 2026-27 Budget announced that the $20,000 write-off would be made permanent from 1 July 2026. The legislation carrying that change, Treasury Laws Amendment (Tax Reform No. 2) Bill 2026, passed both Houses of Parliament on 19 August 2026.
It had not received Royal Assent at the time of writing, and the ATO's own instant asset write-off page still shows the concession ending 30 June 2026 with no 2026-27 row. The Parliamentary Library's Bills Digest notes that without the amendment, the threshold reverts to $1,000 from 1 July 2026.
So the honest position for anyone planning a purchase right now: the permanent $20,000 threshold is legislated and expected, but not yet assented. Confirm the status with your accountant before you commit to a purchase on the strength of it.
The $20,000 test looks at the full cost, not your share
This is the single biggest mistake we see, and it is worth being blunt about.
The threshold applies to the entire cost of the asset, not the business-use portion you can actually claim.
The ATO's own example: a business owner buys a ute for $40,000 and uses it 40% for business. The cost to the business is $16,000. He still cannot use the instant asset write-off, because the total cost of the ute is $40,000 and that exceeds the $20,000 limit. The $16,000 business portion goes into the small business pool instead.
If you take one thing from this article, take that. A $35,000 vehicle is not written off instantly no matter how the business use splits.
What happens to assets over the threshold
They are not lost, they are just slower. Assets costing $20,000 or more go into the small business pool and depreciate at 15% in the first year and 30% each year after that.
The pool is also where most vehicle purchases actually land, because very few work-ready vehicles come in under $20,000.
The car limit, and why utes are different
Separately from the write-off, there is a cap on how much of a car's cost you can depreciate at all. For 2026-27 the car cost limit is $69,883 (it was $69,674 in 2025-26). Spend more than that on a car and the extra simply is not depreciable.
The same limit caps your GST credit. The maximum GST credit on a car is one eleventh of the car limit, which is $6,353 for 2026-27.
Here is where utes come in. Tax law defines a "car" as a motor vehicle designed to carry a load of less than one tonne and fewer than nine passengers. A vehicle with a payload of one tonne or more is not a car for these purposes, and neither is a nine-plus seater.
Payload is calculated as gross vehicle mass minus basic kerb weight, both from the manufacturer's compliance plate. It is not the towing capacity and it is not a marketing number, so check the plate.
What a one-tonne-plus ute actually gets you:
- Its full cost is depreciable, with no $69,883 ceiling
- Your GST credit is not capped at $6,353
- It still goes into the small business pool unless it costs under $20,000
What it does not get you is an instant write-off. The $20,000 test applies to every asset type equally. A $60,000 one-tonne ute is not instantly deductible. It is uncapped in the pool, which is a genuine advantage, just not the one people think they are getting.
Luxury car tax is a separate hit again
Luxury car tax applies at 33% to the value above the threshold. For 2026-27 the thresholds are $91,661 for fuel-efficient vehicles and $80,809 for all other vehicles. LCT is only charged on the amount over the threshold, not the whole price.
Note that the definition of a fuel-efficient vehicle changed from 1 July 2025, and the indexation applying to both thresholds was aligned at the same time. If you are working from older guidance, the numbers and the definition may both be stale.
A few details that change the maths
- If you are registered for GST and can claim a full GST credit on the purchase, you exclude the GST when working out the asset's cost for depreciation. That can pull an asset under the $20,000 line that looked like it was over.
- Deductions are still reduced by private use. The write-off is not a licence to buy a personal car through the business.
- You have to be using the simplified depreciation rules for the write-off to be available at all.
How the finance interacts with it
Buying the asset outright and financing it are treated the same way for the write-off. What matters is that you hold the asset, not how you paid for it. Under a chattel mortgage you take ownership from day one, so you claim the depreciation (or the write-off) plus the interest on the loan. Under a genuine lease you do not own the asset, so you claim the lease payments instead and the write-off is not in play.
That distinction matters more than most people realise when they are choosing a finance structure. It is worth reading how the three structures compare before you sign anything.
If you are working out what the repayments look like across different structures, our repayment calculator is a quick sanity check, and Loanseekers can compare business equipment finance and machinery finance across more than 70 lenders without touching your credit score.
