A Win-Win for Small Businesses and the Environment: The Small Business Energy Incentive Explained 

By Raunaq Chopra

The federal government has introduced ‘The Small Business Energy Incentive’ in its budget. It offers a new tax deduction for small and medium-sized entities aiming to transition to more sustainable energy sources. For businesses to be eligible for this incentive, they must have an annual turnover below $50 million. By taking advantage of this deduction, businesses can significantly reduce their tax liability, while investing in sustainable and environmentally friendly practices.  

To qualify, businesses need to either purchase new assets or make changes to their existing assets that promote more efficient energy use. They can then deduct up to 20 per cent of the total expenditure, capped at $20,000 per business ($100,000 in total expenses). The eligible costs include acquisition, installation, and/or improvement of depreciating assets. 

It is important to note that the current tax laws will still apply to the cost of these assets and improvements. For instance, if an asset is used for both personal and business purposes, only the portion used for business activities is eligible for the deduction.  

While a complete range of eligible assets is yet to be finalised, some confirmed examples include:  

  • Assets that can be upgraded to more energy-efficient models, such as fridges with improved efficiency. 
  • Assets that support the transition to electrification, such as heat pumps and electric cooling. 
  • Assets which enable demand management, such as batteries or thermal energy storage have also been tabled as possibilities. 

The incentive is not available for assets or expenses related to fossil fuels, electricity generation, construction projects, vehicles (including hybrid and electric vehicles), software development, or financing costs.  

For an asset to be eligible for the bonus deduction, it must have been installed in the current fiscal year. If it was installed in the 2022-23 financial year, the bonus deduction cannot be applied, even if it was not used until after July 1, 2023. However, costs associated with improving the energy efficiency of assets installed before this financial year can still be claimed. Examples of eligible improvements include the asset’s ability to store more energy, monitor energy use, or operate solely on electricity or renewable energy. 

The bonus deduction is an incentive to businesses to adopt energy-efficient assets and technologies that contribute to energy storage, efficiency, demand management, and monitoring. It comes at the perfect time for small businesses to bounce back and grow after recent challenges. Not only does this program benefit small and medium-sized businesses, but it also helps Australia to reach climate targets and advance its sustainability goals for future development.  

Please reach out to your EQ8 contact Director, should you require assistance with this matter.