** Note that the $20,000 energy incentive is draft legislation at this stage.

The federal government has outlined its legislative plan for the Small Business Energy Incentive, framing expectations around the $20,000 ‘bonus’ tax deduction while excluding high-cost upgrades like new electric vehicles.

The new measure, formally announced in the 2023-2024 federal budget, is intended to provide an extra 20% tax deduction on energy-efficient business upgrades valued at up to $100,000.

Businesses with an annual turnover below $50 million will be eligible under the Labor government’s plan, echoing the recently-enacted Technology Investment Boost and Skills and Training Boost packages.

The package is intended to boost small business investment in energy-efficient technology, a move the federal government claims will both reduce Australia’s carbon footprint and shield SMEs against soaring power bills in the long run.

Overall, the federal government expects the package to be valued at $314 million over four years.

  1. What is eligible?

In the lead-up to the draft legislation, Small Business Minister Julie Collins said the boost will cover the electrification of energy-efficient heating and cooling systems, refrigerators, induction cooktops, batteries, and heat pumps among other upgrades.

The draft legislation is more specific, stating eligible upgrades will include:

  • Assets which use electricity, where a new “reasonably comparable depreciating asset” which uses fossil fuels is also available on the market.

Alternatively, the policy covers assets where all of these criteria are met:

  • Uses electricity
  • The new asset is more energy efficient than the asset it is replacing
  • If it is not replacing or substituting an existing asset, it is more energy-efficient than comparable assets on the market

Or assets which enable one or more of the following:

  • The use of electricity or energy from a renewable source
  • The storage of electricity or energy from a renewable source
  • The capability to use that electricity or energy at a different time
  • The monitoring of energy usage from a renewable source.
  1. What isn’t eligible?

Businesses should note this policy does not cover solar panels or similar energy-generating assets.

“An asset that solely or predominantly generates electricity from a renewable source (for example, photovoltaic cells)” will not be covered, the draft paperwork says. The policy covers assets that actively use electricity, suggesting other non-powered upgrades which improve energy efficiency — like insulation or double-glazed windows — will not be eligible.

Other federal government policies, like the separate Energy Efficiency Grants for Small and Medium-Sized Enterprises scheme, do cover upgrades like insulation and glazing.

Notably, the Small Business Energy Incentive draft legislation explicitly excludes spending on “a motor vehicle or expenditure on a motor vehicle”, categorically ruling out ‘bonus’ tax deductions when purchasing a new electric vehicle.

Assets which use fossil fuels, except where that usage is “incidental”, are “An asset, or expenditure on an asset, where expenditure on the asset is allocated to a software development pool” are not included. Deductions that would otherwise come under rules covering the construction of buildings and other capital works are also out.

Interest payments on eligible assets are not covered, either.

  1. What time period does it cover?

Under the draft legislation, expenses incurred between 30 June 2023 and before 1 July 2024, for assets installed and ready for use in the same time frame, will be eligible for the bonus deduction.

It is also expected that small businesses claiming the deduction will use the asset for the duration of its effective life, for a taxable purpose.

What else should you know?

As this is still draft legislation, a lot can change between now and its introduction into Parliament.

Then there is the matter of whether it passes into law at all. The Technology Investment Boost and Skills and Training Boost packages, which the Small Business Energy Incentive closely mirrors, enjoyed broad bipartisan support.

The exclusion of EVs is also notable, especially as the Temporary Full Expensing which allowed small businesses to claim major deductions on work vehicles has given way to a new, lowered Instant Asset Write-Off threshold.

How can we help?

If you have any questions or would like further information, please feel free to give our office on 08 9221 5522 or via email – info@camdenprofessionals.com.au  or arrange a time for a meeting so we can discuss your requirements in more detail.

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