Instant Asset Write-Off 2025–26: What the $20,000 extension means for your business

Future Accounting
8 hours ago
4 min read

Introduction

The Instant Asset Write-Off 2025–26 has been extended, allowing eligible small businesses to immediately deduct assets costing up to $20,000. This continuation provides welcome tax relief and helps improve business cash flow. However, many businesses—particularly farmers and equipment-heavy industries—also need to understand the tax consequences when selling assets that were fully written off under earlier instant asset write-off rules.

While the Instant Asset Write-Off 2025–26 can be a valuable planning opportunity, the interaction with past deductions means the tax outcome when equipment is replaced may not always be what businesses expect. Understanding how the rules work can help you plan ahead and avoid surprises at tax time.

What the Instant Asset Write-Off 2025–26 extension means

Eligible small businesses with aggregated turnover under $10 million can immediately deduct the cost of assets costing less than $20,000 under the Instant Asset Write-Off 2025–26.

The key points include:

The $20,000 threshold applies per asset, meaning multiple assets can be claimed.
Assets must be installed and ready for use by 30 June 2026.
Assets costing $20,000 or more are allocated to the small business depreciation pool.
The small business pool depreciates at 15% in the first year and 30% each year after.

For many businesses, the Instant Asset Write-Off 2025–26 continues to provide a useful opportunity to invest in equipment while receiving an immediate tax deduction.

How the instant asset write-off works with the small business depreciation pool

When an asset costs more than the instant write-off threshold, it must be added to the small business depreciation pool. This means the full cost cannot be deducted immediately and instead is written off over time.

The depreciation rates are:

15% deduction in the first year
30% deduction each year after

This difference becomes particularly important when businesses sell equipment that was previously written off in full.

The tax impact of selling assets previously written off

In previous years—particularly during the stimulus period—many businesses were able to fully write off large assets under temporary instant asset rules that had no threshold cap. This meant equipment worth hundreds of thousands of dollars could be immediately deducted.

While those deductions created significant tax benefits at the time, they also resulted in the asset’s tax value being reduced to zero.

When that asset is later sold or traded in, the entire sale price becomes taxable income because there is no remaining cost base.

For businesses that regularly replace machinery, this can create a large taxable income event in the year the asset is sold.

Example: replacing a header under the Instant Asset Write-Off rules

Consider the following example common in the agricultural industry.

A farmer purchased a header several years ago during a period when there was no ceiling cap on instant asset write-offs.

Purchase price: $300,000
The full $300,000 was immediately deducted in that year.

Several years later, the farmer sells or trades in the header for $250,000.

Because the asset’s tax value is now zero, the full $250,000 becomes assessable income in the year of sale.

The farmer then purchases a new header for $400,000.

Because the asset exceeds the Instant Asset Write-Off 2025–26 threshold, it is placed into the small business depreciation pool.

First year depreciation:

15% of $400,000 = $60,000 deduction.

Tax outcome in the year of replacement:

Sale proceeds included as income: $250,000
Depreciation deduction on new header: $60,000

Net additional taxable income: $190,000

This example highlights how businesses can still generate significant taxable income even when reinvesting in new equipment.

Why tax planning matters more after the unlimited write-off years

Many equipment-heavy businesses accumulated substantial tax losses during the years when large assets could be immediately written off. Those losses helped reduce taxable income in later years.

However, many businesses are now finding those losses have been fully absorbed or are close to being used up.

As a result:

Asset sales can create significant taxable income.
New asset purchases may not generate the same level of immediate deductions.
Taxable income may increase quickly without careful planning.

This shift makes proactive tax planning far more important than it has been in recent years.

Plan ahead and avoid tax surprises

The Instant Asset Write-Off 2025–26 continues to provide valuable opportunities for small businesses to invest in equipment and claim immediate deductions for smaller purchases. However, businesses should also consider the long-term tax effects of earlier instant asset write-off rules when selling equipment.

For industries such as agriculture, construction, earthmoving and transport—where machinery is regularly upgraded—these tax outcomes can be significant.

If you are planning to sell equipment, upgrade machinery, or want to understand how the Instant Asset Write-Off 2025–26 may affect your business, now is the ideal time to review your position.

Book an appointment with our team today so we can help you plan ahead, minimise unexpected tax liabilities, and ensure your equipment investment strategy is working effectively for your business.

Disclaimer  

This article does not constitute financial advice and is for general information only. It does not take into account any individual’s personal objectives, situation or needs, and is not intended as professional advice. Any similarity to an individual’s personal circumstances and the examples provided in this article is purely coincidental. Any person acting upon such information without receiving specific advice, does so entirely at their own risk.  

Authorisation under an Australian Financial Services Licence (AFSL) is not required in the provision of this article and the author plus Future Accounting Group Pty Ltd is not acting in its capacity as an Australian Financial Services Licence holder 

Liability limited by a scheme approved under professional standards legislation.