Small Business Energy Incentive Bonus Deductions

On 30 April 2023, the Australian Government announced it will provide eligible businesses with an additional 20% deduction on spending that supports electrification and more efficient use of energy. With less than 6 months left in the 2024 financial year, this means there’s less than 6 months left to take advantage of this incentive. We refer to this as announced because at the time of writing it is not yet law, but the expectation is that it will become law prior to 30 June 2024.

What is the incentive?

A 20% bonus deduction capped at $20,000 (a total of $100,000 ex-GST spent during the year) on assets that enhance energy efficiency of small & medium businesses. The assets in question must be installed and ready for use by 30th June 2024.

For example, if your business is eligible and spends $60,000 on multiple eligible assets, then there will be a bonus deduction of $12,000 available.  

Which businesses are eligible?

Small and medium sized businesses can claim the bonus deduction. These are businesses that have an aggregate turnover of $50 million or less. Aggregate turnover means that the business seeking to claim the incentive needs to include the turnover of controlled and controlling businesses in the $50 million threshold test. These related entities can be in Australia or overseas.

What is eligible expenditure?

The expenditure must be on depreciable assets that use electricity and:

  • There is a new reasonably comparable asset that uses fossil fuel in the market; or
  • Is more energy efficient than the asset it is replacing; or
  • If not a replacement, it is more energy efficient than a new reasonably comparable asset also available in the market; or
  • It is an energy storage, time-shifting or monitoring asset, or an asset that improves the efficiency of another asset.

Improvements to assets to enhance energy efficiency can be eligible if the improvement:

  • Enables the asset to only use electricity or energy generated from a renewable resource instead of a fossil fuel; or
  • Enables the asset to be more energy efficient, provided that asset only uses electricity or energy generated from a renewable resource instead of a fossil fuel; or
  • Facilitates the storage, time-shifting or usage monitoring of electricity, or energy generated from a renewable source.

Reasonably comparable assets are intended to take a broad meaning, so it will be for assets that have a similar purpose or function.  

Examples of these concepts provided by Treasury include:

Assets that use electricity instead of fossil fuel

A business installs an electric reverse cycle air conditioner in place of a gas heater.  However, the assets will not qualify if the only reasonable comparable asset that uses a fossil fuel is a second-hand asset.

Assets that replace a less energy efficient asset

A business that replaces an existing commercial coffee machine can claim the bonus deduction if the new machine is more energy efficient.  The business needs to check the electricity consumption information provided by the manufacturer and compare it to the same information or estimated consumption of the existing machine.

Assets that are more energy efficient than another available asset

This requirement doesn’t mean that the business needs to have the most efficient asset on the market available, just that it can’t have the least efficient (to qualify for the incentive).  

If a business installs a refrigerator (when it didn’t have one before), it can claim the bonus deduction if the purchased refrigerator is more efficient than a new reasonably comparable model available in the market. The business could use the Energy Rating Label to compare efficiency.

Assets that facilitate energy efficiency, storage, time-shifting or monitoring

For example, a battery that stores electricity may be eligible for the bonus deduction, or a thermal storage system that can store heat or cold from a renewable source. Furthermore, an asset that allows energy to be used at a different time, like off-peak, may be eligible, along with one that enables another asset’s energy use to be monitored. An example of this would be a data logging device attached to a regular utility meter that enables a business to better measure their energy consumption.

Which assets are ineligible?

The list of ineligible expenditure includes:

  • Assets that can use a fossil fuel, aside from incidental use, such as requiring an oil-based lubricant;
  • Assets which have the sole or predominant purpose of generating electricity (such as solar photovoltaic panels);
  • Motor vehicles (including hybrid and electric vehicles) and expenditure on motor vehicles;
  • Assets where expenditure on the asset is allocated to a software development pool; and
  • Financing costs, including interest, payments in the nature of interest and expenses of borrowing.

Note, if an asset is acquired and then disposed of prior to 30 June 2024, the bonus deduction is not available, unless that disposal was involuntary. 

As the deadline approaches, businesses are urged to carefully evaluate their energy-related expenditures. The pending legislation, if enacted, has the potential not only to provide financial benefits to eligible businesses but also to promote a more eco-friendly and energy-conscious business landscape in Australia.

For more information on how this affects you or your business, contact the experts at Accru today.

About the Author
Daniel Arnephy
Daniel is our technical expert for all your taxation needs. His diverse network and client base allows him to continuously build his knowledge and analyse every situation he is faced with an experienced outlook.
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