Part 1 The $20,000 instant asset write-off
The instant asset write off lets an eligible business claim the business use portion of a qualifying depreciating asset in the year it is first used or installed ready for use, instead of claiming deductions over several years.
Normally, if you buy a $15,000 piece of equipment, the ATO makes you spread the deduction over its ‘useful life’ maybe 5–7 years. With the write-off, you claim the full cost in the year you buy it.
Here is how it actually saves you money
Under the instant asset write-off, a sole trader on a 32.5% marginal tax rate gets an immediate tax saving of $3,900 on a qualifying asset. If the same asset went into the pool and only 15% was deductible in the first year, the first-year tax saving would be just $585. The write-off brings the full benefit into Year 1 rather than drip-feeding it over years.
And crucially, the $20,000 limit applies on a per asset basis, so small businesses can instantly write off multiple assets.
Here’s a look at the types of assets you claim
The write off usually applies to depreciating assets used in the business, including tools, office equipment, computers, and some vehicles, provided the basic rules are met.
Power tools, hand tools, utes, trailers, site equipment, laptops, and safety gear all qualify if used in the business and costing less than $20,000 GST-exclusive.
The #1 Mistake businesses make
To claim the deduction in a financial year, you can't simply pay for the asset by 30 June. The asset must be first used or installed ready for use for a taxable purpose by 30 June. If you order a piece of equipment in late June, but supply chain delays mean it doesn't arrive at your office until July, you generally can't claim the write-off for that year.
Part 2 The loss carry back
Loss carry-back arrangements act as a vital fiscal safety net. They allow your business to apply current trading losses against taxed profits you earned in previous years, resulting in a direct cash refund from the government.
If your business paid tax in a profitable year, then made a loss in a later year, you can go back and "reclaim" some of that tax you already paid — as a real cash refund into your bank account.
Here's the Federal Budget's own example: A restaurant with $1 million in turnover generated $50,000 in taxable profits and paid $12,500 in tax in 2025–26. In 2026–27, it purchases new equipment totalling $65,000, with each piece costing less than $20,000.
Due to the instant asset write-off, these items can be immediately deducted. Without those investments, it would have reported a $50,000 profit. With them, it reports a $15,000 tax loss and pays zero tax. Further, it can carry back that tax loss to the previous year's tax paid, generating a $3,750 cash refund ($15,000 × 25% tax rate).
Important: Loss carry-back is relevant if you trade through a company. If you're a sole trader, you can still use the instant asset write-off to reduce your taxable income — but the cash refund mechanism of carry-back is only available to companies.
PART 3 The power combo: how they work together
This is where the magic happens. The two measures are specifically designed to stack:
Step 1 Buy assets under $20,000 each - instantly deduct them all in year 1.
Step 2 Those deductions push your profit into a loss - you pay zero tax this year.
Step 3 Carry that loss back to a prior profitable year - get a cash refund of tax you already paid.
Without asset purchases there is $40,000 taxable profit, $10,000 tax. With them there are $55,000 in deductions → $15,000 tax loss for 2026–27. Under the permanent 2 year loss carry back, the business claims a refund of $15,000 × 25% = $3,750 against the prior year's tax paid. The net effect is a single year of asset investment converts directly into immediate cash flow.
Part 4 What you need to do step by step
For the Instant Asset Write-Off:
Step 1 - Confirm eligibility
Check your aggregated turnover and confirm you're using simplified depreciation for the relevant income year.
Step 2 - Check the asset before you buy
Make sure it's the kind of depreciating asset that can qualify. Owners often confuse equipment with building works or other excluded categories.
Step 3 - Calculate the cost correctly
Use the GST-exclusive price if you're GST-registered, and apply your business-use percentage if the asset has mixed personal/business use.
Step 4 - Get the asset ready for use before year end
This is the step people miss. Delivery alone isn't enough. The asset needs to be operational or installed ready for use by 30 June.
Step 5 - Keep your records
Keep the tax invoice, delivery receipt, and any evidence of when you put the asset to work. The ATO requires records for five years.
Step 6 - Claim it in your tax return
To notify the Commissioner of your choice, lodge your tax return and keep your records for the required period of time. You aren't required to lodge any other form to notify of your choice.
For the Loss Carry-Back (Companies only):
Step 1 - Confirm you're structured as a company
Loss carry-back is only available to corporate tax entities. If you're a sole trader, speak to your accountant about whether restructuring makes sense.
Step 2 - Review prior years' tax paid
Check how much company tax was paid in the previous two income years — that's the maximum you can reclaim.
Step 3 - Check your franking account balance
The refund is capped at your franking account balance. Your accountant can run this figure.
Step 4 - Plan asset purchases to generate the loss
Work with your accountant to identify which asset purchases, when combined with the write-off, would strategically push you into a loss position.
Step 5 - Claim in your company tax return
The carry back is claimed when lodging your company income tax return for the loss year. Your tax agent handles this.
For this to work it takes careful planning. If you have any questions please contact me at paul@congdonfuzi.com.au