Small Business Tax Deductions in Australia: The 2025–26 Guide to Instant Asset Write-Off and CGT Concessions

For Australian small business owners, the end of the financial year is one of the most significant opportunities to legally reduce your tax liability and reinvest those savings back into your business. Yet many small businesses leave substantial deductions unclaimed simply because they are unaware of the concessions available to them or lack the professional guidance to apply them correctly.

The 2025–26 income year brings a particularly important set of opportunities, including the $20,000 instant asset write-off, simplified depreciation rules, capital gains tax concessions, and the small business tax offset. A registered tax agent can help you navigate these provisions, ensure you meet eligibility requirements, and structure your affairs to maximise your legitimate tax position before 30 June 2026.

Understanding Small Business Tax Concessions in Australia

The Australian Taxation Office (ATO) provides a suite of tax concessions specifically designed for small businesses. These concessions recognise that small businesses operate with fewer resources than large corporations and face disproportionate compliance burdens. To access most of these concessions, your business must meet the basic eligibility threshold of having an aggregated annual turnover of less than $10 million.

Aggregated turnover includes not just your own business's turnover, but also the turnover of any connected entities or affiliates. This is a common area of confusion, and a registered tax agent can help you calculate your aggregated turnover correctly to confirm your eligibility for each concession.

It is important to understand that these concessions are not automatic — you must actively elect to apply them, meet specific conditions, and maintain appropriate records. Errors in applying these rules can result in ATO audits, amended assessments, and penalties. Professional guidance from a registered tax agent is strongly recommended.

The $20,000 Instant Asset Write-Off for 2025–26

The instant asset write-off (IAWO) is one of the most valuable and widely used small business tax concessions available in 2025–26. It allows eligible small businesses to immediately deduct the full business portion of the cost of eligible assets costing less than $20,000, rather than depreciating them over several years.

For the 2025–26 income year, the $20,000 threshold applies to assets first used or installed ready for use between 1 July 2025 and 30 June 2026. The threshold applies on a per-asset basis, meaning you can write off multiple assets in the same income year provided each individual asset costs less than $20,000.

Key Rules and Conditions

• Eligibility threshold — Your business must have an aggregated annual turnover of less than $10 million and must apply the simplified depreciation rules.
• New and second-hand assets — The write-off applies to both new and second-hand assets, giving businesses flexibility in how they acquire equipment and tools.
• Business use only — Only the business portion of an asset's cost is deductible. If you use an asset for both business and private purposes, you can only claim the business-use percentage.
• Car limit applies — For passenger vehicles designed to carry fewer than nine passengers and a load of less than one tonne, a car limit restricts the amount that can be used to calculate depreciation. For 2025–26, this limit is set by the ATO and applies regardless of the vehicle's actual purchase price.
• GST-registered businesses — If your business is registered for GST, the cost of an asset for depreciation purposes generally excludes the GST component, as you can claim a GST credit separately.
• Record keeping — You must retain receipts, invoices, and records substantiating your claims for at least five years.

The government has announced plans to make the $20,000 instant asset write-off permanent from 1 July 2026, subject to the passage of legislation. A registered tax agent can advise you on the current status of this measure and how to plan your asset purchases accordingly.

Simplified Depreciation Pool for Assets Over $20,000

Assets that cost $20,000 or more cannot be written off immediately under the instant asset write-off. Instead, they must be placed into the small business simplified depreciation pool, where they are depreciated at a rate of 15% in the first income year and 30% in each subsequent income year.

One valuable feature of the simplified depreciation pool is the low-value pool write-off. If the pool balance falls below $20,000 at the end of an income year — before applying depreciation deductions — you can write off the entire remaining balance in that year, accelerating your deductions as the pool reduces over time.

The "lock-out" rule, which previously prevented businesses from re-entering the simplified depreciation regime for five years after opting out, remains suspended until 30 June 2027. Businesses that previously opted out can therefore re-enter without penalty during this period.

Small Business Capital Gains Tax Concessions

When a small business sells an active asset — such as business premises, goodwill, or equipment — it may be eligible for one or more of four powerful capital gains tax (CGT) concessions. These concessions can significantly reduce or even eliminate the capital gain that would otherwise be included in your assessable income.

• 15-Year Exemption — If you have continuously owned an active asset for at least 15 years and you are aged 55 or over and retiring (or permanently incapacitated), you may be able to disregard the entire capital gain. This is the most generous of the four concessions.
• 50% Active Asset Reduction — Reduces the taxable capital gain by 50% for assets that qualify as active assets. This concession can be combined with the general 50% CGT discount for assets held for more than 12 months, potentially reducing the taxable gain to just 25% of the original amount.
• Retirement Exemption — Allows you to disregard all or part of a capital gain, up to a lifetime limit of $500,000, provided the proceeds are contributed to superannuation or used for retirement purposes.
• CGT Rollover — Enables you to defer all or part of a capital gain if you acquire a replacement asset or incur expenditure on a replacement asset within a specified period.

Eligibility requires satisfying either the $2 million aggregated turnover test or the $6 million maximum net asset value (NAV) test. The rules around connected entities and active asset status are complex, and the order in which you apply the concessions matters significantly. A registered tax agent is essential for navigating these provisions correctly.

Other Key Small Business Tax Deductions and Strategies

Beyond depreciation and CGT concessions, small businesses have access to additional deductions and strategies that can meaningfully reduce their 2025–26 tax liability.

• Small Business Tax Offset — Sole traders, partners in a partnership, and trust beneficiaries who carry on a small business may be eligible for a tax offset of 16% of the tax payable on their net small business income, capped at $1,000 per year. This offset is applied directly against your income tax liability.
• Prepayment of Expenses — Small businesses can bring forward deductible expenses into the current income year by prepaying them before 30 June, provided the benefit period does not exceed 12 months. Common examples include prepaying rent, insurance premiums, and professional subscriptions.
• Superannuation Contributions — Contributions to superannuation for yourself (if you are a sole trader or partner) and your employees are generally deductible in the year they are paid, provided they are received by the fund before 30 June. Maximising concessional contributions before year-end is a common and effective tax planning strategy.
• Bad Debt Write-Offs — If you have outstanding invoices that are genuinely irrecoverable, writing them off as bad debts before 30 June allows you to claim a deduction in the current income year.
• Home Office Expenses — Business owners who work from home may claim a portion of home office running costs. The ATO's fixed rate method for 2025–26 allows a deduction of 70 cents per hour for eligible working-from-home hours.

ATO Compliance Focus Areas for Small Businesses

The ATO actively monitors small business tax compliance and has identified several focus areas for 2025–26. It is paying close attention to the correct application of small business CGT concessions, particularly around aggregated turnover calculations, the active asset test, and the retirement exemption. Businesses that apply these concessions incorrectly — even inadvertently — may face amended assessments and penalties.

The ATO is also scrutinising non-commercial losses and the correct treatment of private use of business assets. Clear records distinguishing business and private use are essential for any business claiming deductions on dual-use assets. A registered tax agent can help you structure your affairs to minimise audit risk while maximising your legitimate deductions.

Questions to Ask Your Tax Agent About Small Business Deductions

When meeting with a registered tax agent to review your 2025–26 tax position, these questions will help you get the most value from the engagement:

1. Am I eligible for the $20,000 instant asset write-off, and which of my recent asset purchases qualify? — Confirm eligibility and identify any assets purchased during the year that can be written off immediately.
2. Should I purchase additional assets before 30 June to maximise my write-off? — A tax agent can model the tax benefit of additional asset purchases against your cash flow position.
3. Am I eligible for any of the four small business CGT concessions if I sell a business asset? — This is particularly important if you are planning to sell your business or any significant business assets.
4. What expenses can I prepay before 30 June to bring forward deductions? — Identify opportunities to accelerate deductions into the current income year.
5. Am I claiming the small business tax offset, and am I calculating it correctly? — This offset is frequently overlooked by sole traders and partners.
6. Are my records adequate to substantiate all my deductions? — Ensure your record-keeping meets ATO requirements before lodging your return.

How MyMoney® Can Help You Find a Registered Tax Agent

Maximising your small business tax deductions in 2025–26 requires more than a basic understanding of the rules — it requires a registered tax agent who understands your industry, your business structure, and the specific concessions available to you. The difference between a well-advised tax position and an uninformed one can easily run to thousands of dollars.

Through the MyMoney® Marketplace, you can Post a Brief describing your business, your industry, your turnover, and what you are looking to achieve. Qualified, Tax Practitioners Board (TPB)-registered tax agents will respond with tailored proposals, allowing you to compare their experience, approach, and fees before making a decision.

You can also Browse Tax Agents on our platform to review profiles, credentials, and areas of specialisation. Whether you are a sole trader lodging your first business tax return or an established SME with complex depreciation and CGT considerations, MyMoney® connects you with the right professional for your needs.

With the 30 June deadline approaching, now is the time to engage a registered tax agent and ensure you are not leaving legitimate deductions on the table.