Tools, Equipment & Depreciation 2025-26: The $300 Instant Deduction Explained

Search "instant asset write-off Australia" and you'll mostly find articles about the $20,000 small business threshold — which is largely irrelevant if you're an employee claiming a deduction for a laptop, tools, or office equipment. The rule that actually applies to most individual taxpayers is a different, much smaller one: the $300 immediate deduction. This guide covers that rule in depth, plus what happens once your equipment costs more than $300 and depreciation enters the picture.

Two different rules — don't mix them up

There are genuinely two separate concepts that get conflated constantly:

The $300 immediate deduction (for everyone, including employees) — if a work-related item costs $300 or less and you use it mainly to produce your income, you can claim the full cost immediately, in the year you bought it
The small business instant asset write-off ($20,000 for 2025-26) — this applies only to businesses with aggregated turnover under $10 million, for assets used in that business. It does not apply to employees claiming work-related deductions on their individual tax return, even if the employee also happens to run an unrelated small side business

If you're an employee — even a high earner with significant equipment costs — the $300 rule, not the $20,000 one, governs your individual deductions. Sole traders and small businesses get access to the $20,000 threshold for assets used in the business.

The $300 immediate deduction for employees

What qualifies

You can claim an immediate deduction for the full cost of a depreciating asset in the year you buy it if:

The asset cost $300 or less, and
You use it mainly (more than 50%) for the purpose of earning your employment income

This is genuinely simple compared to formal depreciation — no effective life calculations, no spreading the deduction over multiple years. Buy it, use it mainly for work, claim the full cost (or the work-related portion, if there's some private use — see below).

Common items that fall under $300

This covers a surprisingly wide range of everyday work purchases:

Keyboards, computer mice, USB drives, power boards, and chargers
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Work bags, satchels, or laptop bags used mainly for carrying work equipment
Desk lamps, small tools, and basic hand tools
Protective equipment like safety glasses, gloves, or hi-vis vests (where not provided by an employer)
Subscriptions to software or apps used for work, where purchased as a one-off cost under $300
Reference books, manuals, and trade publications

Apportioning for mixed use

If an item is used for both work and private purposes, you can still claim it under the $300 rule — but only the work-related percentage of the cost, and the "mainly for work" test (more than 50% work use) still needs to be met for the immediate deduction to apply at all. For example, a $250 bag used 70% for carrying work tools and 30% for personal use would generally support a claim of $250 × 70% = $175, claimed immediately.

If work use is 50% or less, the item doesn't qualify for the $300 immediate deduction treatment at all — though depending on the asset, ordinary depreciation rules might still allow a smaller, apportioned claim over the asset's effective life.

What happens above $300: depreciation

Once an item costs more than $300, you generally can't claim the full cost immediately. Instead, you claim its decline in value over its effective life — the period the ATO considers the asset will be useful for producing income.

The two depreciation methods

Diminishing value method — calculates a larger deduction in the earlier years of an asset's life, tapering off over time. The formula effectively applies a percentage rate to the asset's remaining value each year (so the deduction shrinks as the base shrinks).

Prime cost method — spreads the deduction evenly across the effective life, claiming the same dollar amount each year (based on the original cost).

Over the full effective life, both methods add up to the same total deduction — the difference is purely about when you get the deduction. Diminishing value front-loads it; prime cost spreads it evenly.

Effective life — who decides?

The ATO publishes effective life determinations for a huge range of asset types, updated periodically. Two of the most commonly relevant for individuals:

Laptops, tablets, and portable computers: effective life of 2 years — under diminishing value, this converts to a rate of 100% per year; under prime cost, 50% per year
Desktop computers: effective life of 4 years — diminishing value rate of 50%; prime cost rate of 25%

For tools, equipment, and other asset types, the ATO's effective life schedules cover thousands of categories — if you're claiming depreciation on something specific (power tools, musical instruments, specialised equipment), it's worth checking the current Commissioner's determination for that asset type, since effective life can vary significantly by category and is reviewed periodically.

Worked example: a $1,500 laptop, diminishing value method

James buys a laptop for $1,500 on 1 July (the start of the income year), and uses it 80% for work.

Using the diminishing value method with a 2-year effective life (100% annual rate):

Year 1: $1,500 × 100% = $1,500 decline in value × 80% work use = $1,200 deduction
Year 2: the asset's remaining value is now effectively $0 under this rate (100% diminishing value on a 2-year effective life depreciates the asset fully within the period, though the exact year-two outcome depends on the precise calculation and timing)

Compare this with prime cost: $1,500 × 50% (the prime cost rate for a 2-year effective life) × 80% = $750 per year for two years, totalling the same $1,500 work-related base over the full period — just spread evenly instead of front-loaded.

For most employees, diminishing value gives a bigger deduction sooner — useful if you want the tax benefit upfront rather than spread out.

Use our Income Tax Calculator to see how a $1,200 deduction in a single year affects your refund at your marginal rate.

What if you buy partway through the year?

Depreciation is calculated on a pro-rata basis for the number of days you held and used the asset during the income year. If James bought the laptop on 1 January instead of 1 July, his first-year deduction would be roughly halved (approximately 182/365 of the full-year amount), with the remainder of the depreciation continuing into the following year.

The low-value pool

If you have several items that individually cost more than $300 but are each under $1,000, you can choose to add them to a low-value pool instead of depreciating each one separately. Pooled assets are depreciated at:

18.75% in the year you add them to the pool (a half-rate, regardless of when during the year you acquired them)
37.5% in each subsequent year, on the diminishing balance

This is mainly a simplification tool — instead of tracking individual effective lives and calculation methods for a desk, a monitor, and a printer separately, you can pool them and apply one consistent rate. Assets that have already been partly depreciated under diminishing value can also be transferred into the pool once their value falls below $1,000.

The "sets" rule

A common (and incorrect) strategy is trying to split a single purchase into multiple sub-$300 items to claim each piece immediately. The ATO looks at whether items function together as a set. If you buy, for example, a matching desk-and-drawer unit, or a complete tool kit in one purchase, and the combined cost exceeds $300, you generally can't treat each component as a separate sub-$300 item — the set is treated as a single asset for depreciation purposes.

This doesn't mean every purchase made on the same day is automatically a "set" — genuinely separate, independently functional items (say, a $200 keyboard and a $250 monitor bought in the same online order) can usually still be treated individually. The test is whether the items are designed to function together as a single unit.

Common mistakes

Claiming the full cost of a $1,500 laptop immediately, thinking the $20,000 small business instant asset write-off applies to them as an employee — it doesn't
Not apportioning for private use — claiming 100% of an item's cost when it's genuinely used for both work and personal purposes
Splitting a set of items to artificially bring each "item" under $300
Forgetting depreciation continues into future years — many people claim a deduction in the year of purchase and then forget to continue claiming the remaining decline in value in subsequent years for assets depreciated under prime cost or the low-value pool
Not keeping the purchase receipt — for any depreciating asset, you need the original purchase price, date, and a record of how you calculated the work-related percentage and effective life used

Frequently asked questions

I'm a sole trader — can I use the $20,000 instant asset write-off for my work tools?

If you run a business (even a small side business) with aggregated turnover under $10 million, and the asset is used in that business, the $20,000 instant asset write-off may apply to assets used in the business — first used or installed ready for use by 30 June 2026 under current settings. This is separate from, and more generous than, the $300 rule that applies to employees claiming work-related deductions on assets used for their job.

What if I'm both an employee and run a small side business?

You'd apply the relevant rule depending on which activity the asset relates to: the $300 immediate deduction (or standard depreciation) for items used for your employment, and potentially the $20,000 instant asset write-off for assets used in your business activity — these are assessed separately based on the asset's use.

Can I choose diminishing value one year and prime cost the next for the same asset?

No — once you choose a depreciation method for a particular asset, you generally continue using that method for that asset's remaining effective life. The choice is made when you first start claiming depreciation on that asset.

My work tool cost exactly $300 — does it qualify for the immediate deduction?

Yes. The threshold is "$300 or less," so an item costing exactly $300 qualifies, provided it's used mainly for work purposes.

Do I need a receipt for every item under $300?

You should keep records for all work-related purchases, but if your total work-related expense claims for the year are $300 or less in total, the substantiation requirements are less strict. Once your total claims exceed $300, written evidence (receipts or invoices) is required for the expenses making up that total.

How do I find the effective life for a specific tool or piece of equipment?

The ATO publishes detailed effective life determinations covering a huge range of asset categories, reviewed periodically. For anything beyond common items like laptops and computers, it's worth checking the current determination for your specific asset type, or discussing with a registered tax agent if the asset is unusual or high-value.

This article is general information only and does not constitute tax advice. The $300 immediate deduction threshold for individuals, the 2-year effective life for portable computers, and the $20,000 small business instant asset write-off (for assets first used or installed ready for use by 30 June 2026) are current as at June 2026. Always check the ATO website or speak with a registered tax agent for advice specific to your circumstances.

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