Blog Layout

$20k deduction for ‘electrifying’ your business
Liz Gibbs • October 22, 2023

The small business energy incentive is the latest measure providing a bonus tax deduction to nudge the investment behaviour of small and medium businesses, this time towards more efficient energy use and electrification. The Government's proposal says that fossil fuels are out, gas is out, electricity is the name of the game. Legislation before Parliament will see SMEs with an aggregated turnover of less than $50 million able to claim a bonus 20% tax deduction on up to $100,000 of their costs to improve energy efficiency in the business. But, the tax deduction is time limited. Assuming the legislation passes Parliament, you only have until 30 June 2024 to invest in new, or upgrade existing assets.


How much?

Your business can invest up to $100,000 in total, with a maximum bonus tax deduction of $20,000 per business entity. The energy incentive is not provided as a cash refund, it either reduces your taxable income or increases the tax loss for the 2024 income year.


What qualifies?

The energy incentive applies to both new assets and expenditure on upgrading existing assets. There is no specific list of assets that can qualify. Instead, the rules provide a series of eligibility criteria that need to be satisfied.


First, the expenditure incurred in relation to the asset must qualify for a deduction under another provision of the tax law. If your business is acquiring a new depreciating asset, it must be first used or installed for any purpose, and a taxable purpose, between 1 July 2023 and 30 June 2024. If you are improving an existing asset, the expenditure must be incurred between 1 July 2023 and 30 June 2024.


If your business is acquiring a new depreciating asset the following additional conditions need to be satisfied:

 

  • The asset must use electricity; and
  • There is a new reasonably comparable asset that uses a fossil fuel available in the market; or
  • It is more energy efficient than the asset it is replacing; or
  • If it is not a replacement, it is more energy efficient than a new reasonably comparable asset available in the market; or
  • It is an energy storage, time-shifting or monitoring asset, or an asset that improves the energy efficiency of another asset.


If you are improving an existing asset the expenditure needs to satisfy at least one of the following conditions:

 

  • It enables the asset to only use electricity, or energy that is generated from a renewable source, instead of a fossil fuel;
  • It enables the asset to be more energy efficient, provided that asset only uses electricity, or energy generated from a renewable source; or
  • It facilitates the storage, time-shifting or usage monitoring of electricity, or energy generated from a renewable source.


What doesn’t qualify?

Certain kinds of assets and improvements are not eligible for the bonus deduction, including where the asset or improvement uses a fossil fuel. So, hybrids are out. Solar panels and motor vehicles are also excluded. In addition, the following assets are specifically excluded from the rules:

 

  • Assets, and expenditure on assets, that can use a fossil fuel;
  • Assets, and expenditure on assets, which have the sole or predominant purpose of generating electricity (such as solar photovoltaic panels);
  • Capital works (such as buildings and structural improvements);
  • Motor vehicles (including hybrid and electric vehicles) and expenditure on motor vehicles;
  • Assets and expenditure on an asset where expenditure on the asset is allocated to a software development pool; and
  • Financing costs, including interest, payments in the nature of interest and expenses of borrowing.


What does qualify?

The legislation contains a few examples of what would qualify:

 

  • Electrifying heating and cooling systems
  • Upgrading to more efficient fridges and induction cooktops (for example replacing gas cook tops)
  • Installing batteries and heat pumps
  • Installing an electric reverse cycle air conditioner instead of a gas heater
  • Replacing a coffee machine with a more energy efficient coffee machine if the manufacturer’s electricity consumption information supports this – keep the documentation!
  • Thermal storage that can store heat or cold from a renewable source
  • Solar thermal hot water system (assuming it meets the other criteria)


The legislation to implement the energy incentive is before Parliament. We’ll keep you updated on its progress. If you intend to make a major outlay to take advantage of the bonus deduction, talk to us first just to make sure it qualifies.


Need help?

If you need help with how this proposal could apply to your business, please get in touch with us for assistance.


Please also note that many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances. Should you have any further questions, please get in touch with us for assistance with your SMSF, business, bookkeeping and tax requirements. All rights reserved. Brought to you by RGA Business and Tax Accountants. Liability Limited by a scheme approved under Professional Standards Legislation.


Office open
By Liz Gibbs March 10, 2025
With thanks to all Energex and Emergency services Crew, our electricity has been reconnected and our office is open from today 11 March. We hope you and your loved ones are safe and well following cyclone Alfred. These past few days have been challenging for many, and our thoughts are with everyone affected.
By Liz Gibbs March 10, 2025
Due to a power outage affecting the entire Samford area, the RGA Practice will be operating remotely today, 10 March, until electricity is restored. Please be assured that our team remains available and can be reached at 07 3289 1700. We appreciate your understanding and support during this time. Stay safe, and we look forward to seeing you soon.
Cyclone Alfred
By Liz Gibbs March 5, 2025
As Tropical Cyclone Alfred approaches, we want to remind everyone to take necessary precautions and ensure their safety. We have received some important information that we believe is crucial to share with you to help you prepare for the severe weather conditions ahead.
Work Health and Safety (Sexual Harassment) Amendment Regulation 2024
By Liz Gibbs February 26, 2025
In a significant move to combat workplace sexual harassment, Amendments to the Work Health and Safety Regulation 2011 (as per the Work Health and Safety (Sexual Harassment) Amendment Regulation 2024) will soon commence on 1 March 2025.
By Liz Gibbs February 25, 2025
The amount of money that can be transferred to a tax-free retirement account will increase to $2m on 1 July 2025.
What happens to your super when you die?
By Liz Gibbs February 25, 2025
The Government has announced its intention to introduce mandatory standards for large superannuation funds to, amongst other things, deliver timely and compassionate handling of death benefits. Do we have a problem with paying out super when a member dies?
By Liz Gibbs February 25, 2025
If credit card surcharges are banned in other countries, why not Australia? We look at the surcharge debate and the payment system complexity that has brought us to this point. In the United Kingdom, consumer credit and debit card surcharges have been banned since 2018. In Europe, all except American Express and Diners Club consumer surcharges are banned. And in Australia, there is a push to follow suit. But, is the issue as simple as it seems?
Babyboomer wealth
By Liz Gibbs February 25, 2025
“Succession planning, and the tax risks associated with it, is our number one focus in 2025. In recent years we’ve observed an increase in reorganisations that appear to be connected to succession planning.” ATO Private Wealth Deputy Commissioner Louise Clarke.
Penalty for False R&D claims
By Liz Gibbs February 25, 2025
A joint investigation involving the ATO found that, between 2014 and 2017, a Sydney business coach promoted unlawful tax schemes encouraging clients to lodge over-inflated, inaccurate or unsubstantiated research and development ('R&D') tax incentive claims
SMSF lodgement due dates
By Liz Gibbs February 25, 2025
All trustees of SMSFs with assets (including super contributions or any other investments) as at 30 June 2024 need to lodge an SMSF annual return ('SAR') for the 2023/24 financial year.
More Posts
Share by: