A Win for Small Business and Commercial Investors
September delivered a welcome boost for small businesses and commercial property investors, with the Australian Taxation Office (ATO) confirming an extension of the $20,000 instant asset write-off until 30 June 2026. Businesses with turnover under $10 million can now immediately deduct the full cost of eligible assets, streamlining tax depreciation schedules and improving cash flow.
This extension applies to assets first used or installed ready for use between 1 July 2024 and 30 June 2025 and includes both new and second-hand items. The $20,000 threshold applies per asset, allowing multiple claims across different purchases.
ATO: Small Business Support – $20,000 instant asset write-off
Case Study: Small Manufacturing Business
A small manufacturing business recently completed a $2 million fit out and refurbishment. The breakdown of assets reveals the power of the instant asset write-off based on the accumulation of multiple line items below the threshold:
- Total Fit out / Refurbishment Cost: $2,000,000
- Line-Item Assets under $20,000: $1,600,000 (Eligible for Instant Asset Write-Off)
- Buildings (Assets above $20,000): $400,000 (Depreciated at 4% p.a. under Division 43)
First-Year Deductions:
- Instant Asset Write-Off: $1,600,000
- Capital Works Depreciation (4%): $16,000
- Total Deduction: $1,616,000
Note: This example does not factor in original building depreciation allowances under Division 43.
This case highlights the immediate impact of the write-off extension and the long-term value of capital works deductions.
Built-to-Rent Accelerated Capital Works Deductions
For developers in the Build-to-Rent (BTR) sector, the ATO has introduced enhanced capital works deduction rates, allowing greater annual claims over the effective life of a property. This change significantly improves the tax efficiency of BTR projects, where structural elements like walls, roofing, flooring make up a large portion of build costs.
These changes are part of a broader government initiative to stimulate construction and increase the supply of social and affordable housing. By improving the tax treatment of BTR developments, the policy aims to attract long-term investment and accelerate housing delivery.
However, eligibility criteria must be met for accelerated depreciation to apply. Professional guidance is essential to ensure compliance and maximise claims.
ATO Compliance
With these benefits comes increased scrutiny. The ATO is ramping up compliance efforts, particularly around:
- Accelerated depreciation schedules
- Depreciation recapture on sale
Now more than ever, professionally prepared tax depreciation schedules from qualified quantity surveyors are essential to ensure accuracy and avoid costly audits.
Why Tax Depreciation Is Often Missed
Despite its value, tax depreciation is frequently underclaimed due to:
- Lack of awareness
- Confusion over qualifying assets
- Absence of professional schedules
- DIY tax lodgers missing claims
- Changing ATO rules
- Conservative accounting approaches without physical inspections to document deductable items by a licensed quantity surveyor
A licensed professional can identify and document deductible items that may otherwise be overlooked.
Whether you're investing, developing, or advising clients, now is the time to review your tax depreciation strategy. The extended write-off and enhanced capital allowance rates are pivotal for current tax planning.