The Albanese Government has announced a new tax incentive in the May 2023 budget to help small and medium-sized businesses reduce their energy costs through investment in energy efficiency and electrification.
The Small Business Energy Incentive is a tax deduction that will be available to businesses with an annual turnover of less than $50 million and will provide an additional 20% tax deduction on expenditure that supports energy efficiency and/or electrification. Up to $100,000 of total expenditure will be eligible for the incentive, with a maximum bonus tax deduction of $20,000 per business.
The incentive will be available for eligible assets or upgrades first used or installed ready for use in the 2023-24 financial year. Small businesses can take advantage of this tax deduction to help make investments in electrifying heating/cooling and hot water systems, upgrades to more energy efficient appliances such as fridges, induction cooktops and heat pumps, and the installation of batteries. Such investments will deliver ongoing power bill savings for businesses and help businesses and Australia lower carbon emissions.
With the current small business tax rate of 25% the Small Business Energy Incentive effectively works out to a 5% saving on your energy efficiency or electrification investment with a maximum saving of $5000 per business.
Energy efficiency and electrification is an important component of reducing carbon emissions and needs to happen on a large scale and as soon as possible in response to the climate emergency we are currently in. For businesses considering electrification and efficiency upgrades the new tax incentive will hopefully tip the business case in favour of the upgrade. Although a step in the right direction, the new tax incentive is small and we question whether this is a big enough carrot for businesses to make changes on a scale that will have a significant impact.
Two examples of potential payback improvement
Example 1
A business wants to replace an old refrigerator with an energy efficient model. The cost of the new refrigerator is $6000, and can reduce energy costs by $2231 per year. The simple payback for the new refrigerator is calculated to be 2.7 years.
With a 5% saving from the tax deduction, equating to $300, the payback improves to 2.5 years.
Example 2
Another business wants to install a more efficient split-system air conditioner, costing $3500, and can reduce energy costs by $478 per year. The simple payback for the new air conditioner is calculated to be 7.3 years.
With a 5% saving from the tax deduction, equating to $175, the payback improves to 6.9 years.
If you are considering purchasing a new appliance to take advantage of this tax deduction, contact us to find out how we can help you maximise your savings.
