SMALL BUSINESS ENERGY INCENTIVE
If you want to become more energy conscious within your business operations the good news is that now you can get a bonus tax deduction from doing so.
The Australian Government announced it will provide businesses that have an annual turnover of less than $50 million with an additional 20% deduction on spending that supports electrification and more efficient use of energy.
The decision to move away from the use of fossil fuels and gas has pushed the use of electrification across small and medium-sized businesses.
This effort will help small businesses make investments like:
- Electrifying their heating and cooling systems
- Upgrading to more efficient fridges and induction cooktops
- Installing batteries and heat pumps
The energy incentive applies to both new assets and expenditure on upgrading existing assets. This can include:
- business installing a solar thermal hot water system; or
- a business installing a refrigerator, if it is more energy efficient than another comparable
- refrigerator available in the market; or
- a business installing an electric reverse cycle air-conditioner in place of a gas heater
HOW LONG DO I HAVE TO TAKE ADVANTAGE OF THIS INCENTIVE?
The cost must be incurred between 1st July 2023 and 30th June 2024. If it is a depreciable asset, it must be installed ready for use in the same period.
HOW MUCH WILL BE COVERED?
The maximum bonus deduction will be $20,000, meaning the maximum expenditure eligible for the
bonus deduction is $100,000.
WHAT ASSETS ARE ELIGIBLE?
We can claim the additional 20% deduction on a depreciating asset if:
• It uses electricity and there is a new reasonably comparable asset that uses a fossil fuel
available in the market;
• It uses electricity and is more energy efficient than the asset it is replacing or, if it is not a
replacement, a new reasonably comparable asset available in the market; or
• It is an energy storage, demand management or efficiency-improving asset
WHAT ISN’T ELIGIBLE
First of all, there are TWO major exclusions: assets that have the sole or predominant purpose of generating electricity, such as solar panels and hybrid and electric vehicles.
Other assets or expenditure that is not eligible for this bonus deduction include:
• expenditure on assets that can use a fossil fuel;
• capital works (building extensions, altering a building or structural improvements);
• expenditure allocated to a software development pool; and
• financing costs, including interest, payments in the nature of interest and expenses of borrowing
If you’re a business that wants to take advantage of this incentive, make sure you keep a record what you are upgrading, or any new assets purchased with in the time frame as the challenge will be identifying if any client has incurred this type of expenditure when preparing tax returns next year.
Additionally, if you are in the process of making a purchase of any equipment that will provide a more efficient use of energy and need to know if it falls within the criteria, please speak to one of our knowledgeable accountants.
This is a complex incentive to navigate we suggest having a chat with a professional that can provide you with clarity with the above.