The federal government has recently announced a third small business boost – the small business energy incentive which will allow small businesses (turnover of less than $50M) to deduct an additional 20% of the expenditure incurred on eligible assets or improvements to existing assets for supporting electrification and more efficient energy use.
This third incentive is similar to the two boosts already announced by the Federal Government on the 29 March 2022 (Small Business Technology Investment Boost and Skills and Training Boost) .
Up to $100,000 of total expenditure will be eligible for this incentive, with the maximum bonus deduction being $20,000 per business.
This incentive (if it becomes law) will apply to eligible assets first used or installed ready for use, or improvement costs incurred, between 1 July 2023 and 30 June 2024. This boost will be claimed when we prepare and lodge your business’ 2024 income tax return.
The Small business energy incentive
Eligible depreciating assets
An asset is eligible for the bonus deduction if it meets one or more of the below requirements:
- it uses electricity and:
- there is a new reasonably comparable asset that uses a fossil fuel available in the market or
- is more energy efficient than the asset it is replacing; or
- if it is not a replacement, it is more energy efficient than a new reasonably comparable asset available in the market; or
- it is an energy storage, time-shifting or monitoring asset, or an asset that improves the energy efficiency of another asset.
Excluded assets
Some assets are specifically excluded from being eligible for the bonus. These are:
- assets which have a sole or predominant purpose of generating electricity (such as solar panels);
- Motor vehicles including electric and hybrid vehicles;
- assets that can use a fossil fuel;
- capital works;
- financing costs, including interest or borrowing costs.
Eligible business expenditures – examples:
- Installation of an electric reverse cycle air conditioner in place of a gas heater
- Installation of an electric water pump in place of a diesel water pump
- Replacing an existing commercial coffee machine with a new machine that is more energy efficient than the machine it is replacing. In this case, the business could see if the new machine is more energy efficient by checking the electricity consumption information provided by its manufacturer, and comparing that to the same information about the existing machine or to the estimated electricity consumption of the existing machine.
- Purchasing a new refrigerator (when it previously did not have one) and the purchased refrigerator is more energy efficient than a new reasonably comparable refrigerator available in the market. In this case, the business could use the Energy Rating Label to compare energy efficiency.
- a battery that stores electricity.
- a thermal storage system that can store heat or cold from a renewable source, such as a solar thermal hot water system.
- a time-shifting device that allows electric appliances to be operated at off-peak hours.
- a data logging device attached to a regular utility meter that enables a business to better measure their energy consumption.
Eligible improvements to existing assets – examples
- an electric motor if it replaces a diesel engine in an asset, allowing that asset to only use electricity.
- a variable speed drive fitted to an existing electric motor.
- a switchboard-mounted device that enables the shifting of loads from peak times to off-peak times may be eligible for the bonus deduction.
In anticipation of this incentive becoming law, we recommend you keep appropriate evidence (purchase receipts and energy efficiency comparisons where applicable) to support your eligibility for the boost.
Contact your HCQ advisor today to learn more about these measures and make the most of them in relation to your specific circumstances.
