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Instant Asset Write Off 2021: How to Use It

man considering the instant asset write off

You can take advantage of the instant asset write-off before the end of each financial year. As part of the 2020-2021 Federal Budget, the Australian Government announced an increase in the instant asset write-off by removing the $150,000 per asset limit in response to the economic impact of the coronavirus. Initially, this was in effect until 30 June 2022, but has been extended to 30 June 2023 under the 2021 budget released in early May 2021. 

As a result of the COVID-19 pandemic, this is welcome news for many Australian SMEs that want to upgrade assets and realise the tax deduction benefits when they purchase assets before 30 June. 

What's the instant asset write-off scheme?

The instant asset write-off scheme enables you to write off the entire amount of asset purchases in the financial year they were purchased. It started in 2011 with a limit of $1,000 and instant asset write off threshold has been raised several times since then. In addition, the scheme has been expanded to apply to businesses with an aggregated turnover up to $5 billion annually. In the past, a business purchasing an asset could only write off a portion of an asset expense over several years. By deducting the full expense in a single year, you can decrease your taxable income and the tax you owe. 

How does the instant asset write-off work in 2021?

With the ATO instant asset write-off extension in 2020, you can claim a deduction on your tax return for the full cost of an asset in the year that it’s purchased and installed. This applies to a range of assets, including:

  • Tools and machinery
  • IT hardware – computers, laptops, monitors, printers
  • Machinery and equipment
  • Office and shop furniture and fittings
  • Kitchen equipment
  • Signage 
  • Air conditioners
  • Motor vehicles

You could say nearly everything, including the kitchen sink. So when you purchase an asset for business use, you don’t have to depreciate it and claim the costs over time. 

The challenge for many small businesses is the delay in cash flow between purchasing the asset and receiving the tax benefit and a return on investment. It can take years. 

An example of the instant asset write-off extension in action

Nick runs a bakery and wants to upgrade to a new high-capacity oven. On 31 March 2021, he buys a new oven for $40,000, exclusive of GST, and has it installed and operating by 15 May 2021. At the small business company tax rate of 27.5 per cent, Nick will reduce his tax bill by $11,000 (which is the $40,000 price x 0.275) as a result of the purchase when he applies the instant asset write off. 

As always, consider the details

There are several factors to consider before acquiring an asset and using the instant asset write off in 2021. 

As with any business decision, we suggest that you consult with your accountant to determine whether utilising the instant asset write-off 2021 is the right move for your business. 

Here are a few more details:

  • The asset purchase can be new or used.
  • The deduction needs to be made in the financial year that you’ve used or installed the asset for business purposes. 
  • You can only claim the portion you use for business. For example, if you purchase an asset that is used 50 per cent for business purposes and 50 per cent for personal use, you can only claim 50 per cent of the value. 
  • There’s no limit to how many assets you can purchase.

If you weren’t able to purchase and have it delivered by 30 June 2021, you can still take advantage of it in the next financial year and claim the deduction on your 2021-2022 taxes. Visit the ATO website for full details and updates.

If you’re considering purchasing an asset, you’ll need to come up with the funds to make the purchase. In this situation, a short-term business loan can help you unlock the full potential of this tax break.  Also, check out our business loan calculator to get an estimate of principal and interest repayments. 


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