When your business buys an asset, you deduct its cost one of two ways. Write it off in full the year you start using it, or spread the deduction across several years as the asset declines in value. Which one you get is not a free choice. It turns on what the asset cost, your turnover, and whether the instant write-off threshold reaches it.
The split matters because it changes when you get the deduction, not whether you get it. Across the life of the asset the total deduction is identical. Timing is the whole game, and for a small business timing is cash flow.
What each one is
Instant write-off means you deduct the full cost in the year the asset is first used or installed ready to use. One deduction, one year. Depreciation, which the law calls decline in value, spreads that same cost across the asset’s effective life. A $9,000 asset either drops your taxable income by $9,000 this year, or by a slice each year for the next 5 to 10. Same $9,000 either way.
The threshold that decides it, and the moving part
For a small business using the simplified rules, the instant write-off applies to assets under a set threshold. This is where you have to be current, because the number is in flux. The threshold standing in the law from 1 July 2026 is $1,000. The Government announced in the 2026-27 Budget that it will make a $20,000 threshold permanent from that same date, but as at July 2026 that measure is still a Bill, not law. It is widely expected to pass. Confirm the ATO’s position before you rely on $20,000, because the gap between $1,000 and $20,000 changes the answer for almost every asset a small business buys.
A client bought a $14,000 packing machine in July and asked whether they could just write it off. The honest answer that week was that it depended on whether the $20,000 Bill had passed. Under a $20,000 threshold the whole $14,000 comes off this year. Under the $1,000 default the machine goes into the small business pool and deducts at 15% in year one, then 30% of the balance after that, so year one is about $2,100, not $14,000. Same machine, same section of the Act, a $12,000 swing in this year’s deduction riding on a Bill. I told them to buy it because they needed it, not for the tax, and to let me confirm the threshold at lodgment. That is the right order. The asset earns its keep or it does not, and the deduction timing follows.
If the asset is over the threshold
Above the threshold, a small business on the simplified rules puts the asset into the general small business pool. The pool deducts at 15% in the first year the asset is added, then 30% of the declining balance each year after. There is a useful quirk: if the whole pool balance falls under the write-off threshold at year end, you write the lot off. So pooled assets still clear faster than textbook depreciation, just not all in year one.
If you are not a small business, or don’t use the simplified rules
Outside the simplified rules you depreciate over the asset’s effective life, and you pick a method. Prime cost spreads the cost evenly, the same dollars each year. Diminishing value front-loads it, a bigger deduction early that tapers. A car has an effective life of 8 years, so prime cost gives you 12.5% a year while diminishing value gives you 25% of the falling balance. Most businesses take diminishing value for the larger early deduction, but once you choose a method for an asset you keep it for that asset’s life.
Cars carry their own cap
One trap on vehicles. Passenger cars are capped by the car limit, which is $69,883 for 2026-27. Buy a car above that and you can only depreciate up to the cap, whatever you actually paid, and the instant write-off does not get you around it. Utes and vans over one tonne generally sit outside the car limit, which is why a work ute is often treated more generously than a passenger car at the same price. Keep the paperwork either way, because a write-off or a depreciation claim both need the invoice and a business-use record behind them.
So which do you want
For most small businesses the instant write-off wins when you can get it, because a deduction now beats the same deduction spread over years. But it is not automatic and it is not always better. If you are near a tax loss already, a large up-front deduction can be wasted, and depreciation landing in a higher-income year is worth more against a higher rate. Asset cost, the threshold in force, your structure, and your company or personal tax rate this year all feed the answer. Buy the asset because the business needs it, then take the fastest deduction the law actually allows that year. It sits alongside your other small business deductions, and the structure you trade through, sole trader or company, shapes how much each deduction is worth. Homepedia’s Tax Assistant builds the depreciation schedule and applies the current threshold, so the claim follows the law in force rather than last year’s number.
Technical reference
Simplified depreciation (small business). Subdivision 328-D ITAA 1997, available to small business entities with aggregated turnover under $10 million that choose to use it.
Instant write-off threshold. The threshold legislated from 1 July 2026 is $1,000. The 2026-27 Budget (12 May 2026) announced a permanent $20,000 threshold from 1 July 2026 (Treasury Laws Amendment (Tax Reform No. 2) Bill 2026, Schedule 2); as at July 2026 this measure is not yet law (ATO, last updated 25 June 2026). The $20,000 threshold for 2025-26 is law under the Treasury Laws Amendment (Strengthening Financial Systems and Other Measures) Act 2025. Confirm the current threshold before relying on it.
Small business pool. Assets at or above the threshold are pooled and deducted at 15% in the first income year and 30% of the balance each year after (ss 328-185, 328-190 ITAA 1997). A pool balance under the threshold at year end is written off (s 328-210). The 5-year re-entry lock-out (s 328-175) is suspended until 30 June 2027.
General depreciation. Division 40 ITAA 1997, decline in value over effective life. Prime cost is even (s 40-75); diminishing value is base value multiplied by 200% divided by effective life for assets from 10 May 2006 (s 40-72). Effective life is self-assessed or taken from the ATO determination.
Car limit. $69,883 for 2026-27, indexed under s 40-230 ITAA 1997. Depreciation and the GST credit are capped at the limit; the maximum GST credit is 1/11 of $69,883, which is $6,353. The limit applies to passenger cars designed to carry a load under one tonne and fewer than 9 passengers.
GST. A GST-registered business measures cost against the threshold on a GST-exclusive basis and claims the GST separately; a business not registered uses the GST-inclusive cost.
Currency. Current as at July 2026.
Frequently asked questions
Should I write an asset off now or depreciate it?
Writing it off gives you the full deduction in the year you first use or install it. Depreciating spreads the same total deduction across later years. The choice is about timing, not about total value.
What is the instant asset write-off threshold?
$20,000 per asset for the 2025-26 income year, for small businesses using the simplified depreciation rules. The legislated default from 1 July 2026 is $1,000. A measure to make $20,000 permanent has been introduced but is not yet law, so confirm the current position before you rely on it.
What if the asset costs more than the threshold?
It goes into the small business pool instead, depreciating at 15% in the first year and 30% each year after.
Is there a separate limit for cars?
Yes. The car limit caps the cost you can depreciate on a passenger vehicle regardless of what you paid, and it sits on top of the write-off threshold.
