The $20,000 instant asset write-off is now permanent law, and loss carry-back is back. What it means for SMEs.

The $20,000 instant asset write-off is no longer an annual guessing game. Schedule 2 of the Tax Reform No. 2 Act makes it a permanent part of the small business tax rules from 1 July 2026. Businesses with aggregated turnover under $10 million can immediately deduct the business portion of each eligible asset that costs less than $20,000, in the income year it is first used or installed ready for use. There is no sunset date. Treasury puts the number of eligible businesses at up to 4.1 million.

Since 2015 the threshold has been a moving target, set by a string of one-off extensions and temporary expansions, several of them legislated only after the year they applied to had begun. The practical effect was a June scramble every year, with businesses buying gear before 30 June in case the limit fell back to $1,000. That risk is now gone. The same Act also brings back loss carry-back for companies (Schedule 1), permanently this time. Here is what each measure does and how it interacts with the way you pay for equipment.

The $20,000 write-off: the rules as legislated

• Who: businesses with aggregated turnover under $10 million that use the simplified depreciation rules. Aggregated turnover includes connected entities and affiliates.
• Threshold: the asset must cost less than $20,000. It is a per-asset test, so you can write off several assets in the same year.
• GST: if you are registered for GST and can claim the full credit, the cost is measured excluding GST. If you are not registered, the GST is part of the cost.
• Timing: the deduction falls in the income year the asset is first used or installed ready for use. Ordering, paying for or taking delivery of it is not enough.
• Business use: you deduct only the business portion, but the whole cost of the asset must still be under $20,000. A $6,800 computer used 80 per cent for work gives a $5,440 deduction.
• New or second-hand: both qualify. With a trade-in, the cost is the price before the trade-in credit.
• Improvements: the first amount of later cost added to an asset you have already written off (a new excavator bucket, say) can also be written off if it is under $20,000.
• Start date: assets first used or installed ready for use on or after 1 July 2026, with no end date.

Assets that cost $20,000 or more go into the small business pool, which depreciates at 15 per cent in the first year and 30 per cent each year after that. If the pool's balance at the end of an income year is under $20,000, you can write off the whole balance. And the rule that locks a business out of simplified depreciation for five years after it opts out stays suspended until 30 June 2027. Passenger cars also run into the car limit, and the ATO's own worked example has an $80,000 car going into the pool, not the write-off. Most new utes and vans cost well over $20,000 anyway, so the write-off is really a tools, fit-out, IT and second-hand equipment measure.

What permanence actually changes

The write-off never created a deduction you would not otherwise get. It brings forward a deduction you would have claimed over the asset's life. Before this Act, missing 30 June could cost you the whole instant deduction, because nobody knew whether the $20,000 limit would survive into the next year. Now, if the installer runs late and your new cool room goes live on 3 July instead of 28 June, you lose one year of timing, not the write-off. That is a much smaller problem, and it means the right time to buy is when the business needs the asset.

It also removes the reason to buy something just for the deduction. A company paying the 25 per cent base rate that spends $19,000 on an asset saves $4,750 in tax. The other $14,250 is still gone. If the asset does not earn or save more than that over its life, the write-off has only made a bad purchase slightly less bad.

Pairing the write-off with equipment finance

This is where the cash flow and the tax benefit split apart. Under a chattel mortgage you own the asset from day one, so you can claim the write-off on the full cost in the year it is installed ready for use, even though you have paid only a few instalments. You also claim the GST credit on the purchase price in your next BAS, and the interest is deductible as you pay it. A balloon does not change the deduction, because the write-off is based on the asset's cost, not on what you have repaid. An operating lease or rental is different: you do not own the asset, so there is no write-off, and you deduct the rentals as you pay them.

An illustrative example. A GST-registered company buys a $19,000 machine ($20,900 including GST) and finances the full $20,900 on a five-year chattel mortgage at 9 per cent with no balloon. Repayments are about $434 a month, or about $5,206 over the first 12 months. The $1,900 GST credit comes back on the next BAS. The $19,000 write-off plus about $1,740 of first-year interest is worth roughly $5,185 in tax at the 25 per cent company rate. On paper, the first year is cash positive. In practice, the repayments start in month one and the tax saving only reaches you through lower PAYG instalments or when the 2026-27 return is assessed, which could be more than a year after you first paid.

Whether finance beats cash depends on your rate, your margin and how tight working capital is, not on the tax rules, which treat both the same way. Paying cash avoids the interest. Financing keeps cash in the business for wages, stock and, since 1 July, super paid with every pay run. Match the loan term to the asset's working life, so you are not still paying for a laptop three years after it is replaced.

Loss carry-back: back, and permanent

Loss carry-back lets a company that has paid tax in good years claim some of it back when it makes a loss, instead of waiting to use the loss against future profits. Under the new rules, a corporate tax entity that is not a significant global entity (broadly, one with annual global turnover under $1 billion) can carry a revenue loss back against tax paid in either or both of the two previous income years, and receive a refundable tax offset. The rules apply to losses in income years starting on or after 1 July 2026, so a 2026-27 loss can be carried back against tax paid for 2024-25 and 2025-26.

According to the ATO, to be eligible you must:

• be a corporate tax entity (a company, or another entity taxed as a company) that is not a significant global entity
• have a revenue tax loss in the current year (capital losses cannot be carried back)
• have paid tax in one or both of the previous two income years
• have lodged, or not been required to lodge, your tax returns for the previous five income years
• have a franking account balance at the end of the loss year, and choose to carry back the loss in your company tax return.

The refund is capped by your franking account balance at the end of the loss year, as well as by the tax you actually paid. Sole traders, partnerships and ordinary trusts cannot use it; they keep carrying losses forward. And because the choice is made in the company tax return, the earliest a 2026-27 loss becomes cash is when that return is lodged after 30 June 2027. It is a genuine cash-flow tool, but not an overnight one.

The two measures also work together. Write-off deductions count towards a company's tax loss, so a business that buys equipment in a lean year can end up with a bigger loss to carry back. That was how temporary full expensing and loss carry-back were used during the pandemic, and it is worth modelling with your accountant before you lock in a large purchase.

R&D Tax Incentive: announced for 2028, not yet law

The budget's R&D changes are not in this Act. The ATO still lists them as not yet law, starting 1 July 2028. As announced, supporting R&D activities stop being eligible, the offset for core experimental R&D goes up by 4.5 percentage points, refundable offsets are limited to a company's first 10 years with the turnover limit lifted from $20 million to $50 million, and the minimum spend rises from $20,000 to $50,000. The 2026-27 and 2027-28 years run under the current rules. If you claim now, ask your R&D adviser which parts of your claim are core and which are supporting, because the supporting parts are what disappear.

What else is in the Act, and what did not change

• Negative gearing: Schedule 4 amends the investment property changes so that the grandfathered treatment can continue when a residential property is acquired through inheritance or a relationship breakdown. The main negative gearing and CGT changes, which apply from 1 July 2027, were legislated separately in June; our budget-2026-negative-gearing-changes piece covers them.
• Company tax rate: unchanged at 25 per cent for base rate entities (turnover under $50 million) and 30 per cent for other companies.
• GST: unchanged at 10 per cent.
• Payday super: started on 1 July 2026. The super guarantee (12 per cent) now goes out with every pay run, which ends the quarterly cash float many small employers relied on.

What an SME should do now

1. Stop timing purchases around 30 June. Buy an asset when the business case stands up without the deduction, then take the write-off as a bonus.
2. Plan around the date the asset is first used or installed ready for use, not the invoice date. Book delivery and installation before you commit to a finance start date.
3. Check the cost test before you buy: under $20,000 per asset, excluding GST if you are registered. A $21,000 asset goes into the pool instead, which is not a disaster, but it is not an instant deduction.
4. If you finance, run the repayments against your real cash flow, not against the tax saving. The instalments start next month; the tax benefit arrives with your return.
5. If you run a company and 2026-27 looks like a loss year, talk to your accountant now about loss carry-back. Paying franked dividends reduces your franking account, which is what caps the refund, and any overdue tax returns from the last five years need to be lodged.
6. If you claim the R&D Tax Incentive, get your current claims reviewed well before 1 July 2028.

Disclosure: Your Finance Guide works in conjunction with ALG Australian Lending Group (ACL 505575). Licensed brokers who meet our criteria pay Your Finance Guide a partnership fee to receive enquiries from this site. The fee is paid by the broker, not by you, and is not added to your loan. Brokers are usually also paid a commission by the lender on finance they arrange. Several steps in this article, such as paying cash for an asset or checking your franking account with your accountant, pay a broker nothing. Tax rules are as legislated in the Treasury Laws Amendment (Tax Reform No. 2) Act 2026 and described in ATO guidance, as at 28 September 2026; the R&D changes are announced but not yet law. Repayment and tax figures are illustrative calculations on the stated assumptions, not quotes or tax estimates. This is general information, not personal advice, and it is not tax advice: confirm how the write-off and loss carry-back apply to your business with your accountant or the ATO before you buy an asset or lodge a return.