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Small business energy incentive

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Small business energy incentive

July 7, 2024      In Uncategorized No Comments

The small business energy incentive aims to assist businesses in enhancing energy efficiency and reducing energy costs.

Eligible businesses with an annual turnover of less than $50 million can benefit from a 20% bonus tax deduction on the cost of qualifying assets and improvements that promote more efficient energy use.

This incentive covers eligible expenditures on assets made between July 1, 2023, and June 30, 2024 (the “bonus period”).

It also includes eligible expenditures on improvements to existing assets during the bonus period.

A total of up to $100,000 in expenditures can qualify for the incentive, with a maximum bonus tax deduction of $20,000.


To access the small business energy incentive, the following criteria must be met:

  • Your business must adhere to the standard aggregated annual turnover rules, with an increased threshold of $50 million.
  • The expenditure being claimed must be deductible under other provisions of the taxation law.
  • For expenditures on eligible assets during the bonus period, the asset must:
    • Be first used or installed ready for use for any purpose, and
    • Be used or installed ready for use for a taxable purpose.

For most entities, this means that if you first use or install an asset for any purpose before July 1, 2023, you cannot claim a bonus deduction for the cost of that asset, even if you do not use the asset for a taxable purpose until the bonus period.

For improvements to existing assets, the expenditure must be incurred during the bonus period.

What You Can Claim

The bonus deduction is available for eligible expenditures on depreciating assets and improvements that enhance your business’s energy efficiency.

Depreciating Assets

The bonus deduction applies to expenditures on a depreciating asset that is both:

  • First used or installed ready for use for any purpose, and
  • Used or installed ready for use for a taxable purpose,

between July 1, 2023, and June 30, 2024.

A depreciating asset may be eligible for the bonus deduction if it uses electricity and meets one or more of the following criteria:

  • A new, reasonably comparable asset that uses fossil fuel is available in the market.
  • The asset is more energy efficient than the asset it is replacing.
  • If it is not a replacement, it is more energy efficient than a new, reasonably comparable asset available in the market.

“Available in the market” means that you could have readily purchased the comparable asset either locally or online during the same period.

A depreciating asset may also be eligible if it is an energy storage, time-shifting, or monitoring asset, or an asset that improves the energy efficiency of another asset.

A depreciating asset can be second-hand, but the comparable asset must be available in the market as new.

Eligible Expenditures for the Bonus Deduction may include, but are not limited to, expenditures on:

  • Electrifying equipment (e.g., installing a reverse cycle air conditioner in place of a gas heater)
  • Upgrading to more energy-efficient appliances and equipment (e.g., energy-efficient refrigeration systems)
  • Installing time-shifting devices that allow electrical appliances to operate during off-peak times
  • Replacing a diesel engine with an electric motor
  • Installing a Virtual Power Plant-enabled battery system

Where the expenditure is partly for private purposes, the bonus deduction is calculated based on the business-related portion of that expenditure.

If your business is registered for GST and the expenditure is not GST-free, the bonus deduction is calculated on the amount of expenditure less the GST amount claimable as an input tax credit.


In addition to newly acquired depreciating assets, enhancements to existing depreciating assets may also qualify for the bonus deduction. Expenditure on eligible improvements must occur between July 1, 2023, and June 30, 2024, to be eligible.

An improvement to a depreciating asset is eligible if it:

  • Enables the asset to exclusively use electricity or energy derived from renewable sources instead of fossil fuels.
  • Increases the energy efficiency of the asset, provided the asset only uses electricity or energy generated from renewable sources.
  • Facilitates the storage, time-shifting, or monitoring of electricity or energy generated from renewable sources (e.g., a battery that stores electricity). 

Cap on the Bonus Deduction

The maximum eligible expenditure for the energy incentive is $100,000, limiting the bonus deduction to $20,000 per entity.

Energy Efficiency

You can use any reasonable method to determine if an asset is more energy efficient than another. For instance, you might rely on electricity consumption data provided by manufacturers for comparison.

For advice on energy-saving opportunities, visit Energy ratings, such as those provided by the Energy Rating Calculator, offer a tool to compare appliance energy efficiencies. Products with more stars indicate higher energy efficiency.

We generally accept any reasonable basis, including assuming that a new asset is more energy efficient than a very old one (e.g., manufactured before energy efficiency ratings existed).

Exclusions from the Bonus Deduction

You cannot claim the bonus deduction for:

  • Assets or expenditures on assets that primarily use fossil fuels, except in cases where the use is incidental (e.g., an asset using an oil-based lubricant).
  • Assets or expenditures on assets primarily intended for generating electricity, such as solar panels.
  • Capital works.
  • Motor vehicles, including hybrid and electric vehicles, and related expenditures.
  • Expenditures allocated to software development pools.
  • Financing costs, such as interest and borrowing expenses.

Additionally, you are ineligible for the bonus deduction if a balancing adjustment event occurs to the asset during the bonus period, unless the event involves an involuntary disposal (e.g., loss or destruction of the asset).

If you believe you are eligible to utilise the Small business energy incentive as would like to review your claimed, please contact JMH tax to discuss further.

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