Energy Efficiency Incentive Scheme Passes Parliament

New measures to support small businesses invest and grow recently passed the Australian Parliament, including extension of the of the $20,000 instant asset write-off and a new energy efficiency incentive scheme.

The Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Bill 2023 delivers measures announced in last year’s Budget.

The Bill implements a $20,000 instant asset write-off for assets first used or installed ready for use between July 1, 2023 and June 30, 2024. The incentive is available to businesses with a turnover up to $10 million and applies on a per asset basis, so small businesses can write-off multiple assets.

The Bill also implements the Small Business Energy Incentive, a 2023-24 Budget measure designed to help small and medium businesses save on energy bills.

Businesses with turnover up to $50 million are eligible for the incentive to pay for upgrades to heating and cooling systems, install batteries and switch to energy-saving electrical goods such as efficient fridges.

This is in addition to the $3.5 billion of energy bill relief to households and small businesses through the Energy Bill Relief Fund. From July 1, 2024, the Government will deliver rebates of $325 to some one million small businesses.

About The Energy Incentive

The small business energy incentive is designed to help businesses improve energy efficiency and save on energy bills.

Businesses with an aggregated annual turnover of less than $50 million will have access to a bonus 20 per cent tax deduction for the cost of eligible assets and improvements that support more efficient use of energy.

The incentive applies to eligible expenditure on assets between July 1, 2023 and June 30, 2024.

The incentive also applies to eligible expenditure on improvements to existing assets incurred during this period.

Up to $100,000 of total expenditure will be eligible for the incentive, with the maximum bonus tax deduction being $20,000.

What You Can Claim

For expenditure on eligible assets during the bonus period the asset must be both: first used or installed ready for use for any purpose; and used or installed ready for use for a taxable purpose.

For most entities, this means that if you first use or install an asset for any purpose before July 1, 2023, you cannot claim a bonus deduction for the cost of the asset.

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

The bonus deduction is available for eligible expenditure on depreciating assets and improvements to assets that increase the energy efficiency of your business.

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

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

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.

Devices for the storage, time-shifting or usage monitoring of electricity, or energy generated from a renewable source, such as a battery that stores electricity, are eligible for the incentive

A depreciating asset can be a second-hand asset but the comparable asset must be available in the market as new.

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

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

In addition to newly acquired depreciating assets, improvements to existing depreciating assets may also be eligible for the bonus deduction. An improvement to a depreciating asset is eligible if it:

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

What You Can’t Claim

You can’t claim the bonus deduction for:

• Assets and expenditure on assets that can use a fossil fuel (except if that use is merely incidental such as where an asset uses an oil-based lubricant);
• Assets and expenditure on assets which have the sole or predominant purpose of generating electricity (such as solar panels);
• Capital works;
• Motor vehicles (including hybrid and electric vehicles) and expenditure on motor vehicles;
• Expenditure allocated to software development pools; and
• Financing costs, including interest and borrowing expenses.

When You Can Claim

You generally claim a deduction in the income year the expenses are incurred.

For depreciating assets first used or installed ready for use during the bonus period, you must claim the bonus deduction in the income year in which the asset is first used or installed ready for use, which must also be the income year the asset is used for a taxable purpose.

For improvements made to existing assets, you must claim the bonus deduction in the income year in which the expenditure on the improvement is incurred.

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