Instant Asset Write-Off for Residential Builders (2025-26)

What it is

The instant asset write-off (IAWO) lets eligible small businesses immediately deduct the business portion of the cost of a depreciating asset in the year it is first used or installed ready for use. For residential builders running a small business in Australia, this is one of the most useful tax concessions in the simpler depreciation rules.

For the 2025-26 income year, the threshold is $20,000 per asset. The asset must be first used or installed ready for use for a taxable purpose between 1 July 2025 and 30 June 2026. The threshold was extended by the Treasury Laws Amendment (Strengthening Financial Systems and Other Measures) Act 2025.

How it works for a builder

A residential builder buying a $15,000 second hand excavator on 1 March 2026 can deduct the full business-use portion in the 2025-26 tax return, rather than depreciating it over several years. Buy two assets at $15,000 each and you write off both. The $20,000 limit applies per asset, not per business.

If the asset cost is $20,000 or more, you cannot use the instant write-off. You allocate it to a small business pool and depreciate it at 15% in the first year and 30% in later years under the simpler depreciation rules.

Who qualifies

You need to be a small business entity with aggregated turnover under $10 million and choose to use the simpler depreciation rules. Aggregated turnover includes your turnover plus that of any connected or affiliated entities. A trust trading as a builder, a company, a sole trader or a partnership can all qualify if they meet the turnover test.

Assets that work for builders

The asset must be a depreciating asset used in carrying on a business and the business use portion must be claimed. Common eligible assets for a residential builder include:

• Utes, vans and light trucks under $20,000 (subject to the car limit if a passenger vehicle)
• Trailers, scaffolding, ladders, props and formwork
• Power tools, nail guns, drop saws, generators and compressors
• Small plant such as compactors, concrete mixers and laser levels
• Computers, monitors, site safety cameras and CCTV
• Office furniture used in a home office or display suite

What is excluded

Some assets are excluded from the simpler depreciation rules. Buildings and capital works fall under Division 43 of the Income Tax Assessment Act 1997, not simpler depreciation. Horticultural plants, software allocated to a software development pool and assets leased out on a depreciating asset lease are also excluded. Trading stock is not a depreciating asset so timber, fixtures and fittings that are part of the build are not in scope.

The car limit (set annually by the ATO) caps the cost of a passenger vehicle for depreciation. If your dual cab ute is designed primarily for carrying goods rather than passengers, the car limit does not apply and you assess against the full $20,000 IAWO threshold.

GST and the threshold

If you are registered for GST, the threshold is the GST-exclusive cost. If you are not registered, you use the GST-inclusive cost. So a GST-registered builder buying a tool that costs $21,000 including GST has a GST-exclusive cost of $19,090, which is under $20,000 and eligible.

Improvements to existing assets

If you previously claimed an asset under simpler depreciation in an earlier year, you can immediately deduct the first improvement cost on that asset if the cost was incurred between 1 July 2025 and 30 June 2026 and is less than $20,000. Replacing a worn engine in a small excavator or upgrading a generator with a new control unit can qualify.

Records you need

Keep tax invoices, finance contracts and evidence of when the asset was first used or installed ready for use. The "ready for use" date matters because an asset bought on 28 June 2026 but not commissioned until July 2026 falls into the next income year. Keep a log or photo evidence if the timing is tight.

For mixed use assets, keep a usage log to support the business-use percentage. A ute used 80% for site work and 20% privately gives you an 80% deduction of the cost.

Common builder traps

Buying the asset is not enough. It must be first used or installed ready for use in the income year. A custom built trailer ordered in June but delivered in August does not qualify for that year's IAWO.

Aggregated turnover catches builders who run several connected entities. If a husband and wife each run a small building business and they are affiliates, their turnovers combine for the test.

Financing the asset does not change the IAWO position. A chattel mortgage gives you the deduction up front and you still claim the interest on repayments. A hire purchase works the same way. A genuine operating lease is a different beast and is not eligible because you do not own the asset.

Talk to your accountant

The IAWO interacts with capital gains tax on sale, GST input tax credits and the car limit. A registered tax agent can confirm eligibility for your specific structure and timing.