Maximising Depreciation Deductions: The Small Business Guide

Who Qualifies for Simplified Depreciation?

You can choose simplified depreciation if your business has aggregated turnover under $10 million. The rules bundle two key features: the instant asset write-off (IAWO) and a small business general pool with simplified rates. If you opt in, you apply the whole set to eligible assets (business-use portion only) until you opt out or become ineligible.

Why it matters: The simplified rules reduce admin, accelerate deductions for lower-cost assets, and streamline calculations via the pool.

Instant Asset Write-Off: $20k per Asset (to 30 June 2025)

For the 2023–24 and 2024–25 income years, the IAWO limit is $20,000 per asset for businesses using simplified depreciation with aggregated turnover < $10 million. You can claim an immediate deduction for the business portion of each eligible asset costing less than the limit, provided it’s first used or installed ready for use within the relevant year. Multiple assets under the limit can each be written off.

Quick rules

• Per-asset threshold: each asset under the limit can be claimed immediately.
• Timing: asset must be first used/installed ready for use in the year (don’t rely only on order date).
• Business-use only: apportion mixed-use items; keep notes supporting %.
• Second-element costs: certain improvements can also be immediately deducted if under the limit and timing rules are met.
• Interaction with historic incentives: Temporary Full Expensing (TFE) applied to assets first used 6 Oct 2020–30 Jun 2023 and is now ended; post-2023 assets are back under IAWO/pooling.

Tip: If an asset is at or above the limit, add the business portion to your small business pool instead of claiming it outright.

Small Business Pool: 15% / 30% & Pool Write-Off

Assets at or above the IAWO limit go into your small business pool at their business-use portion. You then claim:

• 15% deduction in the year the asset is first used/installed ready for use; and
• 30% each year after the first, on the pool’s opening balance (after additions/disposals).

At year-end, if your pool balance (before current-year depreciation) is below the IAWO limit, you can write off the entire pool balance—a handy accelerator when the pool is small.

Vehicles & the Car Limit

Passenger vehicles are subject to a car depreciation limit. If the cost exceeds the limit for the year you first use the car, you calculate depreciation only up to that limit (and apportion business use). Luxury-priced passenger cars won’t qualify for an immediate deduction above the limit via IAWO or pooling—only up to the cap.

Workhorse exceptions: Some utes/vans designed to carry more than one tonne or nine passengers are not “cars” for this rule—check specs carefully.

Common Exclusions & Traps

• Assets excluded from simplified depreciation (certain leased assets, assets allocated to a low-value pool under general rules, etc.).
• Private use portions are never deductible—keep a reasonable apportionment basis.
• Buildings/structural improvements follow capital works rules (Division 43), not Division 40 depreciation.
• Switching methods: if you opt out of simplified depreciation, you can’t cherry-pick elements; you’ll move to general rules going forward.

Worked Examples (with Numbers)

Example 1 — Multiple Sub-$20k Assets

Facts: Aggregated turnover $2.2m; using simplified depreciation. In October, the business buys:

• Laptop (100% business): $2,600
• Label printer (100%): $780
• Cordless tool kit (business 80%): $1,499

Outcome: Each asset costs less than $20k, so the business can immediately deduct the business-use portion in the year first used. The tool kit is claimed at 80% of cost.

Example 2 — Asset Above the Limit → Pooling

Facts: CNC machine for $38,000 (100% business) first used in January.

• Add $38,000 to the small business pool.
• Deduction this year: 15% × $38,000 = $5,700.
• Next year, claim 30% on the reduced pool balance (subject to other additions/disposals).

Example 3 — Pool Write-Off at Year End

Facts: Opening pool balance $18,400; no new additions; normal 30% deduction would be $5,520.

Outcome: Because the pre-depreciation pool balance is below the IAWO limit, the business can deduct the entire $18,400 rather than 30%—accelerating the write-off.

Example 4 — Passenger Car Over the Limit

Facts: New passenger car purchased for $84,000; business use 60%; first used this income year.

Outcome: Depreciation is limited to the car limit for the year you start to use it (apply business-use % to the capped value). Any cost above the limit isn’t depreciable.

Illustrative only: Figures ignore GST and disposal adjustments for simplicity. Keep an asset register and workpapers to support every claim.

Pre-Lodgement Checklist

• Confirm you qualify for simplified depreciation (aggregated turnover < $10m).
• List assets first used/installed this year and identify those < $20k for IAWO.
• For assets ≥ $20k, add the business portion to your small business pool.
• Check whether your pool balance (before depreciation) is below the IAWO limit to claim a pool write-off.
• Apply the car limit to passenger vehicles and apportion business use.
• File evidence: invoices, proof of installation/first use date, business-use % notes, asset register.

FAQs