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Harness the $20k Deduction for Energizing Your Small Business

The government has decided the future is electric! In a world shifting away from fossil fuels, small businesses are being nudged towards greater energy efficiency.

As of writing this, this piece of legislation has not yet ascended parliament. Last year they passed a similar piece of legislation 6 days before the end of the year. The certainty of this is unknown at this time.

What’s the Small Business Energy Incentive?

The Small Business Energy Incentive is a government measure aimed at providing a tax deduction for small and medium businesses to drive investment in energy efficiency and electrification. With a focus on ditching fossil fuels and embracing electricity, this incentive is a step towards a cleaner, greener future.

How Much Can You Deduct?

Small business owners with an aggregated turnover of under $50 million can claim a generous 20% tax deduction on up to $100,000 worth of costs to enhance energy efficiency within their business. However, it’s essential to note that this tax deduction is time-limited. Assuming the legislation passes Parliament, the deadline for making these investments is the 30th of June 2024.

Eligibility Criteria

Wondering what qualifies for this incentive? The rules aren’t restrictive in terms of specific assets, but rather the criteria need to be met:

  • The expenditure incurred must qualify for a deduction under another provision of the tax law.
  • If it’s a new depreciating asset, it should be first used or installed between 1st July 2023 and 30th June 2024.
  • If it’s an upgrade to an existing asset, the expenditure must occur within the same time frame.

For New Depreciating Assets, the Following Conditions Need to be Met:

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

For Improvements to Existing Assets, the Expenditure Must Satisfy at Least One of the Following Conditions:

    • It enables the asset to solely use electricity or energy from a renewable source, replacing fossil fuels.
    • It enhances energy efficiency and the asset only uses electricity or renewable energy.
    • It facilitates the storage, time-shifting, or usage monitoring of electricity or renewable energy.

What Doesn’t Qualify?

Certain assets and improvements don’t qualify, especially those involving fossil fuels. This means hybrids, solar panels, and motor vehicles are excluded. Also, assets used for electricity generation (like solar photovoltaic panels), capital works, motor vehicles, assets in software development pools, and financing costs are ineligible.

What Does Qualify?

The legislation offers several examples of what qualifies, including electrifying heating and cooling systems, upgrading to efficient fridges and induction cooktops, installing batteries and heat pumps, and more. Examples also cover energy-efficient coffee machines and thermal storage systems.

Keep in mind that the legislation for this energy incentive is currently before Parliament. For significant investments to take advantage of the bonus deduction, it’s advisable to consult with experts to ensure your plans meet the criteria. We’ll keep you updated on the progress of this legislation

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