Are high energy bills weighing down your small business finances? Managing operational expenses effectively is crucial, especially when it comes to energy costs. Fortunately, there's a solution tailored to help businesses like yours thrive sustainably.

By leveraging the small business energy incentive, eligible businesses can significantly reduce their energy bills while enhancing their operational efficiency. Whether you're looking to upgrade to energy-efficient heating systems, install solar panels, or implement other sustainable solutions, now is the time to take advantage of these benefits.

Contact us today to explore how you can maximise your savings and efficiency through the small business energy incentive by using the link here.

What is the small business energy incentive?

The small business energy incentive aims to help businesses improve energy efficiency and save on energy bills. If your business has an aggregated annual turnover of less than $50 million, you can access a bonus 20% tax deduction for the cost of eligible assets and improvements that support more efficient use of energy.

How does the energy incentive work?

The incentive covers eligible expenditure on assets and improvements made between 1 July 2023 and 30 June 2024 (referred to as the 'bonus period').

This includes expenditures on improvements to existing assets during this period. Businesses can claim up to $100,000 of total expenditure under this incentive, with a maximum bonus tax deduction of $20,000.

The bonus deduction is distinct from and additional to other deductions typically claimed under taxation law. This initiative aims to support businesses in enhancing their energy efficiency while reducing their tax liabilities.

Who is eligible for the energy incentive?

To access the small business energy incentive, you must meet the following criteria:

1. Your business must adhere to the standard aggregated annual turnover rules, with an increased threshold of $50 million.
2. The expenditure you are claiming must be deductible under other provisions in the taxation law.

For eligible assets during the bonus period, the asset must be:

• First used or installed ready for use for any purpose.
• Used or installed ready for use for a taxable purpose.

If you first use or install an asset for any purpose before 1 July 2023, you cannot claim a bonus deduction for its cost, even if you don't use it for a taxable purpose until the bonus period.

For improvements to existing assets, the expenditure must be incurred during the bonus period.

What can you claim?

Eligible expenditures

Expenditure eligible for the bonus deduction may include, but is not limited to:

• Electrifying equipment, such as installing a reverse cycle air conditioner in place of a gas heater.
• Upgrading to more energy-efficient appliances and equipment, such as energy-efficient refrigeration systems.
• Installing time-shifting devices that allow electrical appliances to operate at off-peak times.
• Replacing a diesel engine with an electric motor.
• Installing a Virtual Power Plant enabled battery system.

If the expenditure is partly for private purposes, the bonus deduction is calculated based on the business-related portion of that expenditure.

If your business is registered for GST and the expenditure is not GST-free, the bonus deduction is calculated on the amount of expenditure less the GST amount claimable as an input tax credit.

Depreciating assets and the small business energy incentive

The bonus deduction applies to the expenditure on a depreciating asset that is:

• First used or installed ready for use for any purpose, and
• Installed ready for use for a taxable purpose, between 1 July 2023 and 30 June 2024.

A depreciating asset may qualify for the bonus deduction if it uses electricity and one or more of the following conditions apply:

• There is a new reasonably comparable asset that uses fossil fuels available in the market.
• The asset is more energy efficient than the asset it is replacing.
• If it is not a replacement, it is more energy efficient than a new reasonably comparable asset available in the market.

"Available in the market" means you could have readily purchased the comparable asset either locally or online during the same time period.

A depreciating asset may also be eligible if it is an energy storage, time-shifting, or monitoring asset, or an asset that improves the energy efficiency of another asset. The asset can be second-hand, but the comparable asset must be available in the market as new.

Why does the small business energy incentive exist?

The small business energy incentive is designed to help small and medium businesses reduce their energy bills and improve energy efficiency. By investing in eligible assets like solar panels, efficient fridges, heat pumps, and hybrid and electric vehicles, businesses can make significant energy efficiency improvements. This incentive covers both new assets and upgrades to existing assets, encouraging a transition to renewable energy sources and a more sustainable future.

The Australian government supports this initiative to assist businesses in their energy transformation, promoting a resilient economy through smart energy consumption and electricity generation.

What is the cap on the bonus energy deduction?

The maximum amount of expenditure eligible for the small business energy incentive is $100,000. This means that the bonus deduction is capped at $20,000 per business entity. This cap ensures that while small businesses can significantly improve their energy efficiency and reduce energy bills, the tax incentives remain fair and manageable.

What expenditures are excluded?

You are not eligible to claim the bonus deduction for the following:

• Assets and expenditure on assets that can use a fossil fuel, except when that use is minor, like an asset using an oil-based lubricant.
• Assets and expenditure on assets intended mainly to generate electricity, such as solar panels.
• Capital works projects.
• Motor vehicles, including hybrid and electric vehicles, and any related expenditures.
• Expenditure assigned to software development pools.
• Financing costs, such as interest and borrowing expenses.

Additionally, if a balancing adjustment event happens to the asset during the bonus period, you cannot claim the bonus deduction, unless the asset is lost or destroyed through an involuntary disposal.

When can you claim the deduction?

When it comes to deducting expenses, you typically do so in the income year they are incurred.

• For depreciating assets that are first used or installed ready for use during the bonus period, claim the bonus deduction in the same income year that the asset is first used or installed ready for use and is also used for a taxable purpose.
• For improvements made to existing assets, claim the bonus deduction in the income year when the expenditure on the improvement occurs.

Entities with a substituted accounting period can spread the bonus deduction across multiple income years if the eligible asset was first used or installed ready for use during the bonus period, or if the improvement cost was incurred during this time.

The maximum bonus deduction available through the energy incentive is $20,000. If you spread the deduction over several income years, any amount claimed in a previous year reduces the maximum amount you can claim in subsequent years. This ensures that the $20,000 cap on bonus deductions is applied consistently, whether your business follows a standard accounting period or a substituted one.