Small Business Tax Deductions and the $20,000 Instant Asset Write-Off

Small businesses with an aggregated annual turnover of less than $10 million have access to a suite of ATO concessions designed to reduce compliance, reward investment, and protect working capital. Used deliberately — and combined with timing around 30 June — these concessions can materially reduce a year's tax bill and free up cash for growth. The most widely used is the instant asset write-off.

The $20,000 instant asset write-off

Eligible small businesses can immediately deduct the business portion of the cost of a depreciating asset costing less than $20,000 each. The threshold is applied per asset, so a business can write off multiple items in the same year. The asset must be first used, or installed ready for use, in the financial year the deduction is claimed. The cost is GST-exclusive where the business is registered for GST.

After several temporary extensions, the Government announced in the 2026-27 Budget that the $20,000 threshold will become permanent from 1 July 2026 for businesses with aggregated turnover under $10 million — ending the annual extend-or-expire cycle and giving owners certainty to plan multi-year equipment purchases.

Common allowable operating expenses

• Commercial rent, utilities, and business insurance premiums
• Staff wages, compulsory super guarantee (12% in 2026-27), and contractor fees
• Professional fees paid to accountants, bookkeepers, and registered tax agents
• Software subscriptions, point-of-sale systems, and cybersecurity tools
• Marketing, advertising, website development, and branding collateral
• Motor vehicle business use under the logbook or cents-per-kilometre method

Prepayments and the 12-month rule

Small business entities can claim an immediate deduction for prepaid expenses — such as 12 months of insurance or a professional membership — provided the eligible service period does not exceed 12 months and ends in the following income year. This makes a pre-June purchase a useful tool for bringing a deduction into the current year, but it must be a genuine prepayment for a defined period, not an artificial acceleration of a recurring cost.

The small business income tax offset

Sole traders and partners in small partnerships with aggregated turnover under $5 million may also qualify for the small business income tax offset, which reduces the tax payable on business income by up to $1,000 each year. It is calculated automatically by the ATO, but it still depends on the accuracy of the return it sits on.

Beyond the write-off, the biggest leverage comes from combining concessions with timing: completing equipment installation before 30 June, structuring prepayments within the 12-month rule, writing off obsolete stock and bad debts before year end, and ensuring super is paid before the cut-off so it is deductible in the right year. Freedom Taxation reviews each concession against your cash flow and turnover each quarter, so deductions are claimed at the right time and at the right rate.