Small Business Energy Incentive

Posted at 10:39h in Business, Saving by Simmons Livingstone

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Exciting news for small business owners! In May, the government introduced a new initiative aimed at reducing Australia’s carbon footprint and accelerating the transition to net zero.

The small business energy incentive offers a significant opportunity for businesses to enhance energy efficiency and lower their energy costs. Through this incentive, businesses can access a 20% tax deduction on eligible assets and improvements that support more efficient use of energy.

Read on to learn more about the key details of the incentive and eligibility requirements for businesses.

Eligibility

To qualify for the small business energy incentive the Australian Taxation Office (ATO) has outlined specific requirements.

The incentive is available to businesses with an aggregated turnover of less than $50 million.
It applies to eligible expenditures on assets or improvements to assets between 1 July 2023 and 30 June 2024.
Up to $100,000 of total expenditure will be eligible for the incentive, with the maximum bonus tax reduction being $20,000.
The expenditure being claimed must be deductible to your business under other provisions in the taxation law.
For expenditure on eligible assets between 1 July 2023 and 30 June 2024 (the bonus period), the asset must be both, first used or installed ready for use for any purpose and or installed ready for use for a taxable purpose.

For most businesses, this means if you first use or install an asset for any purpose before 1 July 2023, you cannot claim a bonus deduction for the cost of the asset. This is the case even if you do not use the asset for a taxable purpose until the bonus period.

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

Understanding depreciating assets and bonus deductions

The bonus deduction applies to spending on depreciating assets and improvements to assets that increase the energy efficiency of your business. The depreciating asset must both be first used or installed ready to use for any purpose and specifically for a taxable purpose, between 1 July 2024 and 30 June 2024. To qualify, the asset must use electricity and meet at least one of the following criteria:

There’s a newer, fossil fuel-powered asset available in the market
The asset is more energy-efficient than the one it replaces
If it’s not replacing anything, it’s more energy efficient than a new, comparable asset available in the market

Eligible assets can include energy storage or monitoring systems, equipment that enhances the energy efficiency of other assets or second-hand assets, as long as a new, comparable version is available for purchase.

Examples of eligible expenditures include:

Replacing a gas heater with an electric reviewer cycle air conditioner
Upgrading to energy-efficient refrigeration systems
Installing devices that enable appliances to run during off-peak hours
Switching from a diesel engine to an electric motor
Installing a battery system for a Virtual Power Plant

Please take note that if the expenditure is partly for personal use, only the business-related portion qualifies for the bonus deduction. Additionally, for businesses registered for GST, the deduction is based on the expenditure amount minus any GST that can be claimed back.

Improvements to depreciating assets

In addition to new depreciating assets, improvements to existing assets can also qualify for the bonus deduction. To be eligible, the improvements must be made between 1 July 2023 and 30 June 2024.

An improvement to a depreciating asset qualifies if it:

Makes the asset use only electricity or renewable energy instead of fossil fuels
Increases the asset’s energy efficiency, provided it uses only electricity or renewable energy
Helps store, shift or monitor the use of electricity or renewable energy (for example, installing a battery to store electricity)

Additional key information

The maximum amount of expenditure eligible for the energy incentive is $100,000. This means you can get up to $20,000 back as a bonus deduction.

To meet record-keeping requirements, it is advisable to keep documents that prove your expenditure claims and show how you compared different assets when upgrading or improving. Make sure any electronic records are in a format that the ATO can access.

If your business earns less than $10 million annually, you may be eligible to claim both the instant asset write-off and the energy incentive for the 2023-24 year. Similar to the research and development (R&D) tax incentive, if your business qualifies for the R&D notional deduction, you can still claim the bonus deduction.

To correctly claim the bonus deduction in your tax return and make the most of the small business energy incentive, contact your Simmons Livingstone advisor. We can guide you through the application process, ensure you meet all eligibility requirements and maximise deductions.

Whether you need assistance with record keeping or understanding the impact of other tax incentives, we’re here to support your business every step of the way. Contact Simmons Livingstone today at 1800 618 800 or via email at admin@simmonslivingstone.com.au.