The Small Business Energy Incentive

Exposure draft legislation has been released in relation to the Small Business Energy Incentive announced in the May 2023 Federal Budget.

The incentive allows businesses with aggregated annual turnover of less than $50 million to access a bonus deduction equal to 20% of the cost of eligible assets or improvements to existing assets that support electrification or more efficient energy use. The maximum bonus deduction is $20,000 (i.e., up to $100,000 of qualifying expenditure).

To be eligible for the bonus deduction:

The expenditure must be eligible for a deduction under another provision of the tax law; and
The asset must be first used or installed ready for use, or the improvement cost incurred, between 1 July 2023 and 30 June 2024.
Some further guidance has been provided on what will qualify as eligible expenditure and this appears to be reasonably broad, if somewhat difficult to quantify. A new depreciating asset is 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 (e.g., the taxpayer chooses an electric asset over a gas / petrol powered asset); or
It uses electricity and is more energy efficient than the asset it is replacing or, if it is not a replacement, a new reasonably comparable asset available in the market (e.g., broadly, upgrading to a more energy efficient asset, or picking a more energy efficient new asset); or
It is an energy storage, demand management or efficiency-improving asset.
Improvements to existing depreciating assets may also be eligible for the bonus deduction if they enable an asset to use electricity instead of fossil fuels, to be more energy efficient, or facilitate energy storage, demand management or monitoring.

There are a range of exclusions from the bonus deduction, including expenditure on assets that can use a fossil fuel, assets which have the sole or predominant purpose of generating electricity, capital works, and motor vehicles.

Financing costs, including interest and borrowing expenses, are also excluded.