The federal government detailed new legislation in July 2023 for small businesses seeking energy efficiency upgrades. The Small Business Energy Incentive offers a 20% tax deduction on these upgrades, valued at up to $100,000.

The incentive is available to businesses with an annual turnover less than $50 million, similar to the Technology Investment Boost and Skills and Training Boost packages. This measure is intended to reduce Australia’s carbon footprint and help small businesses tackle rising power bills in the long term. The program is valued at $314 million over four years.

Eligible upgrades will include:

• Assets which use electricity, where a new “reasonably comparable depreciating asset” which uses fossil fuels is also available on the market.

Alternatively, the policy covers assets where all of these criteria are met:

• Uses electricity.
• The new asset is more energy efficient than the asset it is replacing.
• If it is not replacing or substituting an existing asset, it is more energy-efficient than comparable assets on the market.

Or assets which enable one or more of the following:

• The use of electricity or energy from a renewable source.
• The storage of electricity or energy from a renewable source.
• The capability to use that electricity or energy at a different time.
• The monitoring of energy usage from a renewable source.

It’s crucial to note that the policy does not cover solar panels or similar energy-generating assets. Only assets that actively use electricity are included in the policy. This suggests that non-electric upgrades, such as insulation or double-glazed windows, will not be eligible for coverage.

However, the federal government has other policies in place, like the Energy Efficiency Grants for Small and Medium-Sized Enterprises scheme, which covers these types of upgrades.

It’s also worth noting that the Small Business Energy Incentive draft legislation explicitly excludes spending on motor vehicles or expenditure on a motor vehicle. This means that tax deductions for new electric vehicles are not permitted under this policy.

Assets that use fossil fuels, except where usage is “incidental,” are also ruled out. Additionally, deductions that would otherwise come under rules governing the construction of buildings and other capital works are not covered. Lastly, interest payments on eligible assets are not included in the policy.

It is important to note that this legislation is still in draft form, and can be subject to changes before it is introduced to Parliament. Moreover, there is no guarantee that it will actually pass into law. In the case that it is passed into law, eligible assets or upgrades will need to be first used or installed ready for use between 1 July 2023 and 30 June 2024.