If you’re a small business owner, tradie, or contractor planning an equipment purchase before 30 June 2026, understanding how the instant asset write-off works alongside equipment finance could save you thousands. The $20,000 instant asset write-off for equipment allows eligible businesses to claim the full cost of qualifying assets as an immediate tax deduction in the year of purchase — rather than spreading it across several years through depreciation. Combined with the right finance structure, this concession can significantly improve your cash flow position in the current financial year.
But here’s the catch: the threshold is legislated to drop back to just $1,000 from 1 July 2026. No further extension has been committed to, and industry bodies have been calling for certainty without success. That makes the next few months a genuine window of opportunity for businesses with planned capital expenditure. Working with an equipment loan broker can help you structure your finance in a way that maximises the tax benefit while keeping your repayments manageable.
In this guide, we break down the eligibility rules, explain how different equipment finance structures affect your tax position, and outline a practical approach to making the most of this concession before the deadline.
How the $20,000 Instant Asset Write-Off Works in 2025–26
The instant asset write-off is a simplified depreciation concession that allows eligible small businesses to deduct the full cost of qualifying assets immediately, rather than claiming depreciation over the asset’s effective life. For the 2025–26 income year, the threshold sits at $20,000 per asset — meaning each individual item costing less than $20,000 can be written off in full.
The concession was extended for 2025–26 after Parliament passed the Treasury Laws Amendment (Strengthening Financial Systems and Other Measures) Act 2025 in November 2025. Without that legislation, the threshold would have already reverted to the ongoing legislated amount of $1,000. There is no guarantee of a further extension, so businesses should treat 30 June 2026 as a firm deadline. An experienced asset finance broker can help you move quickly if you’re considering financing equipment before the cut-off.
For a detailed walkthrough of the application process for equipment finance, our guide on how to apply for equipment finance covers what documentation you’ll need and what to expect at each step.
To qualify, your business must meet all of the following criteria:
- Your aggregated annual turnover must be less than $10 million (in either the previous or current income year)
- You must elect to use the simplified depreciation rules for the relevant income year
- Each asset must cost less than $20,000 — exclusive of GST if your business is GST-registered, or inclusive of GST if you’re not registered
- The asset must be first used or installed ready for use for a taxable purpose between 1 July 2025 and 30 June 2026
That last point is critical. Purchasing equipment before 30 June is not enough — it must be operational by that date. If you order a piece of machinery in late June but delivery and installation occur in July, you miss the write-off for 2025–26. Allow adequate lead time, particularly for items that require shipping, assembly, or commissioning.
The $20,000 threshold applies per asset, so you can write off multiple qualifying items in the same financial year. A business purchasing three separate pieces of equipment at $15,000, $12,000, and $8,000 could claim the full $35,000 as an immediate deduction — provided each item individually costs less than $20,000 and all other conditions are met.
Both new and second-hand assets are eligible on the same basis. The ATO’s guidance on the $20,000 instant asset write-off for 2025–26 (opens in a new tab) confirms that the concession applies to eligible depreciating assets first used or installed ready for use during the income year, with no distinction between new and pre-owned items.
Equipment Finance Structures and Their Tax Implications
How you finance equipment directly affects your equipment finance tax deduction. Not all finance structures deliver the same tax outcome, and choosing the wrong one can mean missing out on the instant asset write-off entirely. Here’s how the most common arrangements work from a tax perspective.
Chattel Mortgage
A chattel mortgage is often the most tax-effective structure for small businesses purchasing equipment. Under this arrangement, you take ownership of the asset from day one while the lender holds a mortgage over it as security. Because you own the asset, you can claim depreciation — including the instant asset write-off if eligible — and deduct the interest component of your repayments as a business expense.
For GST-registered businesses, there’s an additional benefit: you can claim the GST credit on the full purchase price in your next BAS, rather than progressively over the life of the loan. This makes chattel mortgage tax benefits particularly attractive for businesses looking to maximise upfront deductions. It’s the structure most commonly used by tradies, contractors, and small business owners who want to combine equipment finance with the instant asset write-off.
Finance Lease
Under a finance lease, the lender retains ownership of the asset for the duration of the lease term. Because you don’t own the equipment, you generally cannot claim depreciation or the instant asset write-off. However, your lease payments are typically deductible as a business operating expense. GST is claimed progressively on each lease payment rather than upfront. A finance lease may suit businesses that prefer to keep assets off their balance sheet or that plan to upgrade equipment frequently.
Hire Purchase
Hire purchase sits somewhere between a chattel mortgage and a lease. You take possession of the asset immediately, and ownership transfers to you once all payments are made. For tax purposes, you can generally claim depreciation on the asset — including the instant asset write-off — and deduct interest charges. GST treatment depends on the specific arrangement, so it’s worth confirming with your accountant.
Choosing the Right Structure
The right equipment finance structure depends on your business circumstances, cash flow, and tax position. If your primary goal is to maximise the equipment finance tax deduction and claim the instant asset write-off, a chattel mortgage or hire purchase will generally be more effective than a lease. However, other factors — such as balance sheet treatment, GST cash flow, and end-of-term flexibility — also matter. Your broker and accountant should work together to recommend the structure that best fits your overall position.
What Can and Can’t Be Claimed
The instant asset write-off covers a broad range of depreciating assets used for business purposes. Common items that qualify include tools and power equipment, diagnostic and workshop machinery, computers and IT hardware, software, point-of-sale systems, commercial kitchen equipment, fit-out items like shelving and display units, and commercial vehicles.
However, there are some important exclusions and limitations to be aware of.
The deduction is limited to the business-use portion of the asset. If you purchase a $16,000 laptop and use it 70% for business and 30% for personal purposes, only $11,200 is deductible. Keep records that clearly demonstrate the business-use percentage.
Passenger vehicles carry an additional complication. The car limit for the 2025–26 income year caps the depreciable value of passenger vehicles (designed to carry fewer than nine passengers with a load capacity under one tonne). Importantly, the instant asset write-off threshold operates independently — if a passenger vehicle costs more than $20,000, it cannot be immediately written off regardless of the car limit. It must instead be placed into the small business depreciation pool at 15% in the first year and 30% thereafter. Commercial vehicles with a load capacity over one tonne, such as most tradies’ utes and vans, are not subject to the car limit and can be written off in full if they cost less than $20,000.
Certain asset types don’t qualify at all, including horticultural plants, capital works (building construction), and assets leased to another party on a depreciating asset lease. If you’re unsure whether a specific purchase qualifies, check with your accountant before committing.
Assets costing $20,000 or more don’t miss out entirely. They can be allocated to the general small business depreciation pool and claimed at 15% in the first income year and 30% in each subsequent year. Under finance structures like chattel mortgage, you can also separately deduct the interest component of repayments, which provides an ongoing tax benefit even when the write-off threshold doesn’t apply.
Strategic Timing: Making the Most of the Next Few Months
With the threshold set to revert to $1,000 from 1 July 2026, there is a genuine incentive to bring forward planned purchases. But strategic timing doesn’t mean rushing into purchases your business doesn’t need. The tax deduction reduces your taxable income — it doesn’t put money back in your pocket dollar for dollar. A $20,000 deduction at a 25% company tax rate saves $5,000 in tax, but you’ve still spent $20,000 on the asset.
The smart approach is to review capital expenditure you were already planning for the next 12 to 18 months and assess whether any of those purchases can sensibly be brought forward to before 30 June 2026. Consider delivery and installation lead times — particularly for imported equipment or items that require specialist commissioning. Remember, the asset must be operational by 30 June, not merely ordered or paid for.
Also be aware of the lock-out rules for simplified depreciation. If your business previously opted out of the simplified depreciation regime, there is ordinarily a five-year waiting period before you can opt back in. However, this lock-out remains suspended until 30 June 2026, meaning businesses that previously exited can re-enter and access the write-off this financial year. This is a one-off opportunity that may not be available again.
If you’re financing the purchase, the structure you choose affects both the timing of your deduction and your cash flow. A chattel mortgage, for example, lets you claim the instant asset write-off and the GST credit upfront while spreading the actual cost of the asset over a manageable repayment term. This combination — an immediate tax benefit paired with structured repayments — is one of the most practical ways to manage cash flow while still taking advantage of the concession.
FAQ
Is equipment finance tax deductible in Australia?
Yes. Equipment finance repayments can be tax deductible, but the treatment depends on the finance structure. Under a chattel mortgage, you own the asset and can claim depreciation plus the interest component of repayments. Under a finance lease, lease payments are generally deductible as an operating expense. Under hire purchase, you claim depreciation and deduct interest charges. The business-use portion determines how much you can claim. Speak with your accountant or broker to confirm which structure suits your situation.
How does the instant asset write-off work?
The instant asset write-off allows eligible small businesses to deduct the full cost of qualifying assets immediately, rather than depreciating them over several years. For 2025–26, the threshold is $20,000 per asset (excluding GST if registered). Your business must have aggregated annual turnover under $10 million, use the simplified depreciation rules, and the asset must be first used or installed ready for use by 30 June 2026. Multiple assets can be written off in the same year.
Can I claim equipment finance on a chattel mortgage?
Yes. A chattel mortgage is one of the most tax-effective structures for equipment finance. Because you take ownership of the asset from settlement, you can claim depreciation — including the instant asset write-off if eligible — and deduct the interest portion of repayments. GST-registered businesses can also claim the GST on the purchase price upfront in their next BAS. This makes it a popular choice for businesses looking to maximise tax benefits.
What is the $20,000 instant asset write-off threshold for 2025–26?
Eligible small businesses can immediately deduct the full cost of assets costing less than $20,000 each in the 2025–26 financial year. The threshold applies per asset, so multiple items can be written off. If GST-registered, the $20,000 limit is exclusive of GST. The asset must be first used or installed ready for use between 1 July 2025 and 30 June 2026. Without further legislation, the threshold reverts to $1,000 from 1 July 2026.
Does the instant asset write-off apply to second-hand equipment?
Yes. The instant asset write-off applies equally to new and second-hand assets, provided all eligibility criteria are met. The asset must cost less than $20,000, be used for a taxable business purpose, and be first used or installed ready for use by 30 June 2026. Second-hand machinery, vehicles, and tools all qualify on the same basis as new purchases.
What happens to equipment that costs $20,000 or more?
Assets costing $20,000 or more cannot be immediately written off under the current concession. Eligible small businesses can place these assets into the general small business depreciation pool, where they depreciate at 15% in the first income year and 30% in subsequent years. Under finance structures like chattel mortgage, the interest component of repayments can also be deducted separately as a business expense.
Can I claim the instant asset write-off on a financed asset?
Yes, but only under structures where your business takes ownership. Chattel mortgage and hire purchase transfer ownership to the borrower, allowing you to claim depreciation and the instant asset write-off. Under a finance lease, the lender retains ownership, so the write-off typically doesn’t apply — though lease payments may be deductible as an operating expense. The finance structure you choose directly affects your tax position.
Do I need to use simplified depreciation rules to claim the write-off?
Yes. The instant asset write-off is only available to businesses that elect to use the simplified depreciation rules. If your business previously opted out, you would ordinarily face a five-year lock-out before re-entering. However, this restriction remains suspended until 30 June 2026, allowing businesses that opted out to re-enter and access the write-off this financial year. Confirm your eligibility with your accountant.
What is the difference between a chattel mortgage and a finance lease for tax?
The key difference is asset ownership. With a chattel mortgage, you own the asset from day one, so you can claim depreciation (including the instant write-off if eligible) and deduct interest charges. With a finance lease, the lender owns the asset, so you cannot claim depreciation — but lease payments are generally deductible. GST also differs: chattel mortgage allows upfront GST credits, while lease GST is claimed progressively on each payment.
When does the $20,000 instant asset write-off end?
The current $20,000 threshold applies to assets first used or installed ready for use by 30 June 2026. After this date, it reverts to $1,000 unless the government legislates a further extension. Industry groups have called for a permanent increase, but no commitment has been made. Ensure eligible assets are operational — not just purchased — before 30 June 2026 to qualify.
Want to understand how equipment finance and the instant asset write-off work together for your business? Talk to the team at Unconditional Finance about structuring your next equipment purchase for maximum tax benefit.