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2023 Federal Budget supports small businesses with energy incentive bonus

Small businesses were greatly affected by the COVID-19 pandemic. Lockdowns, social distancing measures, and reduced consumer spending had a severe impact on many industries. However, as economies reopen and travel resumes, there is some ongoing support for small businesses to recover.

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The Australian Government announced in the 2023 Federal Budget the extension of the instant asset write-off (albeit at lower thresholds) and the introduction of a new Small Business Energy Incentive.

Instant asset write-off extension

From 1 July 2023, the extended instant asset write-off allows businesses with an aggregated turnover of less than $10 million to immediately deduct the full cost of qualifying assets costing less than $20,000 that are first used or installed ready for use between 1 July 2023 and 30 June 2024. Because this threshold is on a per-asset basis, it allows multiple qualifying assets to be written off.

The case study below demonstrates a business implementing the instant asset write-off.

Case study 1: Instant asset write-off

‘ABC Construction’ is a business with an aggregated turnover of $6 million. They upgrade assets (that are not energy efficient) within their office and take advantage of the instant asset write-off incentive. The new assets are listed in Table 1.

Table 1: New assets and their purchase price

New assets Cost
Chairs $12,000
Desks $17,000
Flooring $7,500
Kitchen appliances $13,500
Light fixtures $5,000
Total $55,000

The new assets total $55,000. Due to each asset’s cost being less than $20,000, the entire cost of each is eligible to claim in the year of purchase, resulting in an accelerated claim of $55,000.

Small Business Energy Incentive

The Small Business Energy Incentive will help up to 3.8 million small and medium-sized businesses generate ongoing power bill savings and contribute to Australia’s emission reduction efforts.

From 1 July 2023, small- and medium-sized businesses with an aggravated turnover of less than $50 million can deduct an additional twenty per cent of the cost of eligible depreciating assets that support electrification and more efficient use of energy. This encourages them to make investments like upgrading to more efficient fridges and induction cooktops and installing batteries and heat pumps.

A total expenditure of up to $100,000 will be eligible for the Small Business Energy Incentive, with the maximum bonus deduction being $20,000. Businesses can upgrade existing assets or purchase new ones. Eligible assets will need to be first used or installed ready for use between 1 July 2023 and 30 June 2024.

Qualifying assets include energy-efficient lighting, the adoption of energy management systems, or the utilisation of renewable energy sources. The Small Business Energy Incentive not only helps businesses reduce their environmental footprint but also lowers operational expenses, freeing up resources for further investment and growth.

The following case study demonstrates a business implementing the Small Business Energy Incentive.

Case study 2: Small Business Energy Incentive

‘XYZ Accountants’, with an aggregated turnover of $8 million, operates from an office. They buy new energy-efficient assets as set out in Table 2.

Table 2: Newly purchased energy-efficient assets

Assets Original cost Small Business Energy Incentive (20%) Deduction available (including 20% bonus)
Electric cooling and heating $11,220 $2,244 $13,464
Heat pump hot water system $4,500 $900 $5,400
Refrigerator $2,800 $560 $3,360
Solar batteries $13,500 $2,700 $16,200
Total $32,020 $6,404 $38,424

Table 2 illustrates the assets purchased, their original costs, the Small Business Energy Incentive, and available deductions in the first full financial year. Since each asset’s cost is less than $20,000, applying the instant asset write off, the full cost of each asset can be written off, and an additional 20 per cent can be claimed as a deduction under the Small Business Energy Incentive. This gives a total available deduction of $38,424 on the outlay of $32,020.

Without applying these incentives, the deductions would have been claimable over each asset’s effective life with a set rate according to the depreciation method selected.

By embracing business incentives and in turn, accelerating tax deductions, small and medium business incentives can boost cash flow and promote sustainable practices while contributing to long-term profitability and their competitive edge in an ever-evolving business landscape.

Businesses should engage a specialist quantity surveyor such as BMT Tax Depreciation for expert depreciation advice. BMT works with the Australian Taxation Office to complete compliant and maximised depreciation schedules while considering all business incentives and applying them where applicable.