ATO issues update on loss carry back tax offset, IAWO incentives

In a recent update, the ATO said that as of 1 July 2026, the instant asset write-off for small businesses has been permanently increased to $20,000 to help improve cash flow and reduce compliance costs.

Under the measure, from 1 July 2026, small businesses with an aggregated turnover of less than $10 million can deduct:

• The full cost of eligible depreciating assets costing less than $20,000 that are first used or installed ready for use in an income year; and
• An amount included in the second element of an eligible depreciating asset's cost that they have incurred in an income year, if they claimed an immediate deduction for the asset under the simplified depreciation rules in a prior income year where the amount is:
• The first amount of second element cost incurred after the end of the income year in which the asset was written off; and
• Less than $20,000.

The ATO reminded small businesses that the $20,000 limit under the measure applies on a per-asset basis, so small businesses can instantly write off multiple assets.

"Assets valued at $20,000 or more can continue to be placed into the small business simplified depreciation pool and depreciated at 15 per cent in the first income year and 30 per cent each income year after that. In addition, pool balances under $20,000 at the end of the income year can be written off.

"The provisions that prevent small businesses from re-entering the simplified depreciation regime for 5 years after opting out will continue to be suspended until 30 June 2027."

The government previously extended the $20,000 instant asset write-off limit for the period between 1 July 2025 and 30 June 2026 in the Treasury Laws Amendment (Strengthening Financial Systems and Other Measures) Act 2025.

The Tax Office also reminded businesses that under the loss-carry back tax offset, corporate tax entities with an aggregated annual global turnover of less than $1 billion will be able to carry back a tax loss and offset it against the tax paid in either or both of the 2 previous income years.

"Loss carry back will apply to revenue losses only and will be limited by the entity's franking account balance," it said.

"The changes will apply to income years starting on or after 1 July 2026. Eligible corporate tax entities will first be able to claim the refundable tax offset in their 2026–27 income tax returns."