14/12/2025 • 16 min read
Maximising Depreciation 2025: IAWO vs TFE
Professional Accounting Practice Analysis
Maximising Depreciation 2025: IAWO vs TFE
Maximising depreciation in Australia is achieved by correctly applying the instant asset write-off (IAWO) and (where applicable to prior income years) temporary full expensing (TFE) so that eligible business assets are either immediately deducted or accelerated, while still satisfying the core tax law tests: asset eligibility, timing (first used/installed ready for use), and business use percentage. In practice, the “best” outcome is not simply claiming the biggest immediate deduction—it is structuring acquisition dates, pooling choices, and usage evidence so the deduction is available, substantiated, and optimised across taxable income, GST/BAS, and cash flow.
Featured Answer: Maximising depreciation using instant asset write-off and temporary full expensing requires matching the right concession to the right income year and entity, then evidencing when the asset was first used or installed ready for use and the business-use percentage. Temporary full expensing is largely historical (ended 30 June 2023 for most taxpayers), while instant asset write-off remains relevant (with rules varying by year and entity), so the optimal strategy is often a combination of immediate deductions, small business simplified depreciation rules, and disciplined documentation aligned to ATO guidance.
What are “instant asset write-off” and “temporary full expensing” in Australian tax?
They are depreciation concessions that accelerate deductions for depreciating assets under Division 40 of the Income Tax Assessment Act 1997 (ITAA 1997).- Instant asset write-off (IAWO): Allows an immediate deduction for eligible assets under a threshold (and subject to the rules applying to the relevant income year and entity type). It generally operates through the small business simplified depreciation regime in Subdivision 328-D of ITAA 1997, but thresholds and eligibility have changed frequently through amendments and Budget measures.
- Temporary full expensing (TFE): Allowed an immediate deduction for the full cost of eligible depreciating assets first held and first used/installed ready for use in the eligible period, plus certain improvement costs. TFE was enacted as a temporary stimulus and, for most taxpayers, ceased for assets first used/installed ready for use after 30 June 2023.
- ATO guidance: ATO webpages and practical guidance on “temporary full expensing” and “instant asset write-off” (eligibility, timing, exclusions, interaction with pooling).
- Legislation: ITAA 1997 Division 40 (capital allowances), Subdivision 328-D (simplified depreciation), and amending Acts introducing and ending TFE/expanded IAWO.
- Core principles: The “start time” and decline in value concepts in Division 40 remain foundational even where immediate expensing applies.
Is temporary full expensing still available in 2025?
For most taxpayers, no—temporary full expensing is not generally available for assets first used or installed ready for use after 30 June 2023.- Current-year planning (2024–25): Usually focuses on instant asset write-off (where legislated for the year and where the client qualifies) and/or standard Division 40 depreciation (including pooling for small business entities if applicable).
- Amendments and reviews: TFE remains highly relevant when:
Practical practice point: many “TFE issues” in 2025 are evidence and timing issues, not calculation issues—particularly proving the asset was installed ready for use by 30 June 2023.
How do you maximise depreciation deductions without triggering ATO risk?
You maximise depreciation by aligning (1) eligibility, (2) timing, (3) business use, and (4) recordkeeping, because ATO scrutiny typically focuses on those four areas.- Timing (installed ready for use):
- Business use percentage:
- Asset vs repair:
- Excluded assets / integrity rules:
Which rules matter most: Division 40, Subdivision 328-D, or both?
Both matter, because immediate expensing is still grounded in the capital allowance system and the small business simplified depreciation regime.- Division 40 ITAA 1997: Determines whether something is a depreciating asset, its cost, start time, effective life, and decline in value method (prime cost vs diminishing value).
- Subdivision 328-D ITAA 1997 (small business simplified depreciation): Provides simplified pooling and (when available for the year) the instant asset write-off pathway and rules for pool write-offs.
Practice workflow tip: treat IAWO/TFE as overlays on the Division 40 asset register discipline—if the asset register is weak, the concession claim is weak.
How does instant asset write-off differ from temporary full expensing for planning?
The difference is primarily (1) timing availability by year, (2) thresholds/eligibility, and (3) interaction with pooling.- Deduction size:
- Timing requirement:
- Ongoing relevance (2025):
What are the key eligibility tests accountants must apply?
Eligibility is determined by the concession rules for the relevant year and the taxpayer’s profile, but the recurring tests are consistent.- Entity eligibility: small business entity status and/or turnover tests as applicable to the concession and year.
- Asset type: depreciating asset under Division 40; exclusions (if any) tested.
- Acquisition and start time: when first held and when first used/installed ready for use.
- Taxable purpose proportion: the business use percentage.
- Cost base / adjustable value inputs: including delivery, installation, and directly attributable costs.
ATO-aligned documentation principle: the claim should be reconstructable from source documents without relying on oral explanations.
How do you plan acquisitions to lawfully maximise deductions?
You maximise lawful deductions by managing timing and configuration—without contrivance.- Control “installed ready for use” timing, not just invoice timing
- Bundle vs separate assets analysis
- Improvement costs and second element costs
- Pooling strategy for small business entities
- Taxable income smoothing
Professional caution: anti-avoidance (Part IVA) risk is fact-driven; planning must be commercially driven, properly evidenced, and consistent with ATO guidance.
What practical examples show “maximised” but defensible depreciation?
They show controlled timing, strong evidence, and correct business-use apportionment.- Small Australian accounting practice acquires laptops, docking stations, and a server upgrade.
- The practice wants maximum deduction in the current year.
- Ensure assets are configured and deployed (installed ready for use) before 30 June if claiming in that year.
- Keep evidence:
- Eligible assets can be immediately deducted if the firm qualifies under the relevant IAWO rules for that year; otherwise, they enter Division 40 depreciation or simplified pooling (if applicable).
- A practitioner purchases a device used 80% for clinic work and 20% private.
- Claim immediate expensing or depreciation only on the taxable purpose proportion.
- Keep appointment logs or usage tracking and a contemporaneous basis for the 80/20 split.
- Stronger ATO defensibility; reduced adjustment risk.
- A client purchased and installed production machinery in June 2023 but originally depreciated normally.
- Review eligibility for TFE in 2022–23.
- Prove “installed ready for use” by 30 June 2023 using commissioning reports and installer certificates.
- Amend the return (if within amendment period) to claim TFE.
- Potentially material cash tax benefit; high evidentiary standard required given typical claim size.
How do GST and BAS interact with depreciation maximisation?
GST and depreciation interact, but they are not the same calculation.- Depreciation deduction is income tax; GST credits are BAS.
- Asset cost for depreciation is generally considered net of GST if GST credits are claimable (subject to specific rules and entity circumstances).
- Timing mismatch is common:
ATO compliance point: BAS and tax workpapers should reconcile asset purchases, GST credits claimed, and the asset register additions.
What records does the ATO expect for instant write-off and full expensing claims?
The ATO expects source evidence that proves eligibility, cost, timing, and business use.- Supplier invoices and contracts (including terms that clarify delivery and installation).
- Proof of payment (where relevant).
- Delivery dockets and installation/commissioning evidence.
- Asset register entries with:
- For vehicles: logbook and odometer records (where applicable).
If reviewed, the ATO will typically challenge timing and private use first—ensure those are audit-ready.
How should Australian accounting practices operationalise this work efficiently in 2025?
They should systemise asset data capture, reconciliation, and workpaper generation so depreciation planning does not rely on manual spreadsheets.- Quarterly asset review linked to BAS coding (reduces year-end surprises).
- Asset onboarding checklist (invoice, install date, business use, funding).
- End-of-year “installed ready for use” verification for June acquisitions.
- Separate workpapers for concessions (IAWO eligibility, TFE amendments, pooling decisions).
- Reconcile asset additions to bank transactions to ensure completeness and correct GST treatment.
This is where modern automation is material: it reduces the risk of missing assets and accelerates evidence compilation.
How Fedix can help (and where MyLedger fits)
Fedix helps Australian accounting practices reduce the manual workload that typically sits around depreciation planning—especially the reconciliation and workpaper assembly that underpins defensible claims.- Automated bank reconciliation: MyLedger’s AutoRecon can reduce reconciliation from 3–4 hours to 10–15 minutes per client (around 90% faster), helping you identify asset acquisitions earlier in the year rather than at year-end.
- AI-powered categorisation: Up to 90% auto-categorisation helps surface “asset-like” transactions that should be assessed for capitalisation vs deduction.
- Automated working papers: Streamlines year-end substantiation so the depreciation schedule is supported by transaction-level evidence.
- ATO integration support: Fedix’s ATO-connected workflows assist with compliance context avoidable rework, particularly when managing amendments and multi-year reviews.
Next step: If your practice wants faster, more defensible depreciation outcomes (without expanding headcount), review how Fedix and MyLedger can systemise your asset capture, reconciliation, and workpapers from the start of the year.
Conclusion: what “maximising depreciation” means in a compliant Australian practice
Maximising depreciation is the disciplined application of the right concession (IAWO for current relevance; TFE primarily for prior-year amendments), supported by strong evidence of installed-ready-for-use timing and business-use apportionment, and documented under Division 40 principles and (where relevant) Subdivision 328-D. The most reliable strategy in 2025 is to systemise asset identification and substantiation throughout the year so immediate deductions are both optimised and ATO-defensible.Disclaimer: This content is general information only and does not constitute tax advice. Australian tax laws and thresholds change frequently, and eligibility depends on specific facts. Consideration should be given to the relevant income year law and current ATO guidance, and advice should be obtained from a qualified tax professional for your client’s circumstances.