As the clock ticks towards a greener future, the Australian Government has announced a tax concession to small businesses aiming to reduce their carbon footprint and slash energy bills. The Small Business Energy Incentive, a measure announced on 30 April 2023, is specifically tailored to assist businesses with an annual aggregated turnover of less than $50 million. This initiative offers an additional 20% tax deduction on investments geared towards electrification and enhancing energy efficiency; however, time is of the essence, with just four months remaining to leverage this opportunity before it concludes on 30 June 2024. The bill, while expected to pass, is yet to receive royal assent and is not law.
LEGISLATIVE LANDSCAPE
The Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Bill 2023 houses this incentive and is currently making its way through Parliament.
The incentive is designed to support a range of upgrades, from upgrading to electric heating and cooling systems to installing advanced refrigeration and embracing modern induction cooktops. Additionally, it supports the installation of batteries and heat pumps, marking a significant step towards sustainable business operations. Eligible businesses can claim this bonus on expenditures up to $100,000, translating to a maximum deduction of $20,000 in the year ending 30 June 2024.
The beauty of this incentive lies in its flexibility, it's not confined to a predefined list of eligible assets; instead, it operates on a set of criteria aimed at encouraging businesses to make decisions that align with energy efficiency and electrification goals. Whether it's acquiring new assets that utilise electricity more efficiently or upgrading existing ones to reduce their energy footprint, the incentive covers a broad spectrum of investments.
WHO STANDS TO BENEFIT?
This initiative embraces a wide array from tradies and manufacturers to restaurants and real estate agencies, ensuring the backbone of the Australian economy – our small businesses – are primed for success in the energy transition era. It represents an investment in their future, providing immediate energy bill relief and laying the groundwork for long-term sustainability — specifically tailored for entities with an annual turnover below $50 million. The incentive's broad eligibility criteria ensure that a diverse range of small businesses can access and benefit from this program.
MAKING THE MOST OF THE INCENTIVE
To capitalise on this incentive, businesses must act swiftly. The eligible assets or upgrades need to be either first used or installed ready for use between 1 July 2023 and 30 June 2024. This timeframe is crucial for businesses planning to make qualifying investments.
A cornerstone of the incentive is its focus on depreciating assets, which are crucial for businesses aiming to enhance their energy efficiency or transition towards electrification. Here's a breakdown of what qualifies:
1. Electricity-Using Assets:
- Assets that utilise electricity over fossil fuels, especially when a comparable fossil-fuel-using asset exists in the market.
- Assets that are more energy efficient than their predecessors or, if not a replacement, are more efficient than similar new assets available.
- Examples include electric reverse cycle air conditioners replacing gas heaters, energy-efficient commercial coffee machines and refrigerators with superior energy ratings.
2. Energy Management Assets:
- Assets designed for energy storage, time-shifting, or monitoring, or those improving the energy efficiency of another asset.
- This category includes batteries for electricity storage, thermal hot water systems, devices enabling off-peak operation of appliances and data logging devices for better energy consumption measurement.
3. Improvements to Existing Assets
- Improvements to newly acquired or existing assets also qualify, offering businesses additional pathways to claim the bonus deduction. This includes modifications that enable the asset to use electricity or renewable energy sources, make the asset more energy efficient, or enhance its ability to manage, store or monitor energy usage.
EXCLUSIONS AND CONSIDERATIONS
It's important to note, however, that not all assets are eligible. The program deliberately omits investments in assets or enhancements that depend on fossil fuels, including solar panels, motor vehicles (both hybrid and electric models), and specific other categories. This exclusion emphasises the initiative's dedication to encouraging a shift towards electricity and renewable energy sources, rather than fossil fuel reliance. The exclusions specifically target:
- Assets and improvements utilising fossil fuels.
- Assets primarily for electricity generation, such as solar panels.
- Motor vehicles, including hybrids and electric models.
- Capital works, ensuring the focus remains on movable assets and technological upgrades.
Additionally, for an entity to claim the bonus deduction, it is required that the eligible expenditure be deductible under a different provision of a tax law.
THE COUNTDOWN BEGINS
With the deadline rapidly approaching, businesses are urged to evaluate their energy needs and investment plans. The Small Business Energy Incentive is more than a tax deduction; it's a call to action for businesses to play a pivotal role in Australia's energy transformation. As we navigate towards a more sustainable and resilient economy, initiatives like these not only empower small businesses but also contribute to the broader goal of reducing national emissions; however, it's crucial to remember that this bill is still pending and has not yet become law. While we encourage businesses to prepare and consider how they might benefit from this incentive, we also commit to providing our clients with timely updates and commentary as soon as the legislation is enacted. This cautious approach ensures that our clients are well-informed and ready to act swiftly, leveraging the incentive to its fullest potential once it officially becomes available.
Please contact your Moore Australia advisor to see if your business qualifies for the additional deduction and what you should be doing in the lead up to year end.