On 30 April 2023, the Australian Government announced it will provide businesses with an annual turnover of less than $50 million with an additional 20% deduction on spending that supports electrification and more efficient use of energy.
On 28 June 2024, this announcement became law, along with the instant asset write-off threshold being increased to $20,000, which I have covered in my prior articles.
For many small businesses, you are now in a position to finalise your records and send to your accountant to finalise your income tax affairs for the 2024 year. It is important to consider this energy incentive before lodging your Income Tax Return, to ensure you do not miss out on this additional deduction.
The incentive applies to eligible expenditure on assets between 1 July 2023 and 30 June 2024, as well as eligible expenditure on improvements to existing assets incurred during the bonus period. Up to $100,000 of total expenditure will be eligible for the incentive, with the maximum bonus tax deduction being $20,000.
To be eligible for the incentive, the expenditure you are claiming must be a deductible expense. Also, the asset or improvement must be first used or installed ready for use between 1 July 2023 and 30 June 2024.
A depreciating asset may be eligible for the bonus deduction if it uses:
- Electricity and there is a new reasonably comparable asset that uses a fossil fuel available in the market, or
- The asset is more energy efficient that the asset it is replacing, or
- If not a replacement, it is more energy efficient than a new reasonably comparable asset available in the market. To be available in the market, you must have either been able to purchase a comparable asset either locally or on the internet in the same time period.
Examples of depreciating assets that the bonus deduction include:
- A reverse cycle air conditioner,
- Energy efficient refrigeration systems,
- Time-shifting devices which allow electrical appliances to operate at off-peak times,
- Electric motors,
- Virtual Power Plant enabled battery systems.
If expenditure is partly for private purposes, the bonus deduction is worked out with reference to the business-related portion of that expenditure. Also, if you are registered for GST then the bonus deduction is calculated on the amount of expenditure less the GST amount claimable.
You can use any reasonable basis to determine if an asset is more energy efficient than another asset. The Australian Government has advice on energy saving opportunities at energy.gov.au, and there is also an Energy Rating calculator online. The Australian Taxation Office will generally accept any reasonable basis for your claim, but make sure you keep records that confirm the claim you have made and how you compared different assets when upgrading or making improvements.
There are assets that do not qualify for the energy incentive, which include:
- Assets that can use a fossil fuel,
- Assets which have the sole or predominant purpose of generating electricity,
- Capital works,
- Motor vehicles,
- Financing costs.
Also, you cannot claim the bonus deduction if you dispose of the asset during the year, unless the disposal is involuntary. An example of an involuntary disposal is being destroyed by fire.
To ensure you minimise your tax position, please contact your taxation adviser to confirm your expenditure qualifies for the bonus deduction and recordkeeping required.