Inventory write-offs aren’t just accounting jargon—they’re a reality for Australian businesses, from local retailers to national suppliers. As the economic landscape shifts in 2025, understanding how and when to write off inventory is essential for accurate financial reporting, minimising tax liabilities, and improving business resilience. Let’s break down what an inventory write-off means, explore this year’s regulatory updates, and outline actionable steps you can take to manage your stock (and your books) more effectively.
What Is an Inventory Write-Off?
When inventory loses value—due to damage, obsolescence, theft, or expiry—it must be removed from your balance sheet and recognised as an expense. This process is known as an inventory write-off. Unlike regular inventory shrinkage, which is often minor and recurring, a write-off typically refers to a significant loss that can’t be recovered or sold.
Common causes include:
- Natural disasters damaging stock
- Products expiring (think food or pharmaceuticals)
- Theft or loss during transit
- Technological obsolescence (especially in electronics)
For example, a Sydney-based electronics distributor might write off $50,000 worth of unsold smartphones when a new model launch renders old stock unsellable.
2025 Tax and Reporting Changes: What’s New?
This year, the Australian Taxation Office (ATO) has updated guidance on inventory valuation and write-offs, following shifts in supply chain volatility and inflation pressures. Notably:
- Simplified Small Business Rules: Businesses with turnover under $10 million can continue to use simplified stock valuation methods, streamlining write-off claims for unsaleable inventory.
- Temporary Full Expensing: Although the popular temporary full expensing regime ended in June 2024, 2025 sees a new instant asset write-off threshold of $20,000 per asset. While this is geared toward equipment, it’s prompting many businesses to review all asset and inventory management practices.
- Disclosure Requirements: The ATO is increasing scrutiny on inventory write-offs that significantly impact taxable income. Businesses must retain clear documentation and justification for any write-off entries, especially for items over $5,000.
For instance, a Brisbane grocer who writes off perished stock due to refrigeration failure must provide records of purchase, spoilage, and insurance claims if audited.
How to Manage and Minimise Inventory Write-Offs
Smart inventory management can reduce both the frequency and impact of write-offs. Here are practical steps for 2025:
- Regular Stocktakes: Schedule frequent physical counts to catch issues early. Use inventory management software that flags slow-moving or at-risk items.
- First-In, First-Out (FIFO): Prioritise selling older stock to minimise expiry or obsolescence—crucial for food, fashion, and tech businesses.
- Insurance Coverage: Review your policies to ensure losses from fire, flood, or theft are covered, and understand claim requirements.
- Donation or Liquidation: When possible, donate unsaleable but usable goods (and keep records for potential tax deductions) or sell at a loss to recoup some value.
- Document Everything: Keep thorough records—photos, supplier invoices, and disposal receipts—to support your write-off decisions in case of ATO review.
Let’s say a Melbourne fashion retailer identifies $10,000 worth of unsold winter stock in June. By quickly liquidating via a clearance sale, they might avoid a full write-off and recover some costs, while accurately recording any remaining loss for their tax return.
The Bottom Line: Write-Offs Are Manageable, Not Inevitable
While inventory write-offs can’t always be avoided, a proactive approach—supported by the latest 2025 tax rules and digital tools—can help you stay ahead. Regular reviews, robust documentation, and smart inventory strategies will keep your books healthy and your business resilient in a fast-changing market.
