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About the energy incentive
The small business energy incentive helps businesses improve energy efficiency and save on energy bills.
Businesses with an aggregated annual turnover of less than $50 million can access a bonus 20% tax deduction for the cost of eligible assets and improvements that support more efficient use of energy.
The incentive applies to eligible expenditure on assets between 1 July 2023 and 30 June 2024 (the ‘bonus period’).
The incentive also applies to eligible expenditure on improvements to existing assets you incur during the bonus period.
Up to $100,000 of total expenditure will be eligible for the incentive, with the maximum bonus tax deduction being $20,000.
The bonus deduction is separate and additional to other deductions you would ordinarily claim under tax law.
Eligibility
The following criteria must be met to access the small business energy incentive.
Your business needs to meet the standard aggregated annual turnover rules (with an increased $50 million threshold).
The expenditure you claim must be deductible to your business under other provisions in the tax law.
For expenditure on eligible assets during the bonus period, you must both:
- first use or install ready for use the asset for any purpose
- use or install ready for use the asset for a taxable purpose.
For most entities, this means that if you first use or install an asset for any purpose before 1 July 2023, you can’t claim a bonus deduction for the cost of the asset. This is the case even if you don’t use the asset for a taxable purpose until the bonus period.
For improvements to existing assets, you must incur the expenditure during the bonus period.
Find out if you’re eligible for other bonus deductions at Small business skills and training boost.
What you can claim
The bonus deduction is available for eligible expenditure on depreciating assets and improvements to assets that increase the energy efficiency of your business.
Depreciating asset
The bonus deduction applies to expenditure on a depreciating asset that you both first use or install ready for use for any purpose, and install ready for use for a taxable purpose, between 1 July 2023 and 30 June 2024.
A depreciating asset may be eligible for the bonus deduction if it uses electricity and when one or more of the following apply:
- there is a new reasonably comparable asset that uses a fossil fuel available in the market
- the asset is more energy efficient than the asset it’s replacing
- if it isn’t 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 on the internet in the same period.
A depreciating asset may also be eligible if it’s an energy storage, time-shifting or monitoring asset, or an asset that improves the energy efficiency of another asset.
A depreciating asset can be a second-hand asset but the comparable asset must be available in the market as new.
Expenditure eligible for the bonus deduction may include, but is not limited to, expenditure on:
- electrifying equipment (for example, installing a reverse cycle air conditioner in place of a gas heater)
- upgrading to more energy efficient appliances and equipment (for example, energy efficient refrigeration systems)
- installing time-shifting devices which allow electrical appliances to operate at 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, work out the bonus deduction with reference to the business-related portion of that expenditure.
If your business is registered for GST and the expenditure is not GST-free, calculate the bonus deduction on the amount of expenditure less the GST amount claimable as an input tax credit.
Example: claiming the bonus deduction for an eligible depreciating asset
A Co Pty Ltd (A Co) is a small business entity. On 30 October 2023, A Co purchases and installs a refrigeration system at a cost of $1,100 (GST inclusive) to replace an old refrigeration system. A Co is registered for GST and entitled to a GST credit of $100.
Using the electricity consumption information provided by the manufacturer, A Co compares the electricity consumption information of the new refrigeration system to the old one. The rate of energy consumption for the new refrigeration system is lower compared to the old system.
The expenditure on the new refrigeration system is an eligible depreciating asset as it’s more energy efficient than the asset it is replacing. A Co can claim a bonus deduction of $200 (20% of $1,000).
Depreciation deductions that A Co can claim for the cost of purchasing the new refrigeration system are not altered by the bonus deduction.
End of example
Improvements
In addition to newly acquired depreciating assets, improvements to existing depreciating assets may also be eligible for the bonus deduction. Expenditure on eligible improvements needs to be incurred between 1 July 2023 and 30 June 2024 to be eligible.
An improvement to a depreciating asset is eligible if it:
- enables the asset to only use electricity, or energy that is generated from a renewable source, instead of a fossil fuel
- enables the asset to be more energy efficient, provided that asset only uses electricity, or energy generated from a renewable source
- facilitates the storage, time-shifting or usage monitoring of electricity, or energy generated from a renewable source (for example, a battery that stores electricity).
Example: claiming the bonus deduction for an improvement to an eligible depreciating asset
B Co Pty Ltd (B Co) is a small business entity. On 15 July 2023, B Co purchases and installs 10 variable speed drives that it fits to existing electric motors that it owns and uses in its business for a cost of $55,000 (GST inclusive). B Co is registered for GST and entitled to a GST credit of $5,000. The variable speed drives enable each motor to run more efficiently.
The expenditure on each variable speed drive is an eligible improvement to a depreciating asset. So B Co can claim a bonus deduction of $10,000 (20% of $50,000 – expense less the GST credits).
Depreciation deductions that B Co can claim for the cost of the existing electric motors ($50,000) are not altered by the bonus deduction.
End of example
Cap on the bonus deduction
The maximum amount of expenditure eligible for the energy incentive is $100,000. This means that the bonus deduction is capped at $20,000 per entity.
Energy efficiency
You can use any reasonable basis to determine if an asset is more energy efficient than another asset. For example, you can refer to the electricity consumption information provided by the manufacturer to compare assets.
We will generally accept any reasonable basis for this, including an assumption that a new asset will be more energy efficient than a very old asset (for example, one manufactured before energy efficiency ratings were in place).
You can also check out energy.gov.auExternal Link for advice on energy saving opportunities. Energy ratings are one of the tools you can use for comparing the energy efficiency of appliances. The Energy Rating CalculatorExternal Link includes a star rating to compare different models – the more stars a product has, the greater the energy efficiency rating.
Record keeping
In line with general record keeping requirements for taxpayers, you should keep records that confirm the expenditure claimed and explain how you compared different assets when upgrading or making improvements. Any electronic records must be in a form we can access.
Depreciation and the instant asset write-off
If your business has an aggregated annual turnover of less than $10 million, you may be eligible to claim both the instant asset write-off and the energy incentive in the 2023–24 income year.
The bonus deduction is equal to 20% of eligible expenditure on assets or improvements, with the maximum bonus deduction being $20,000. This applies regardless of how you calculate your deduction for the cost of the asset or improvement (whether immediately or over time).
What you can’t claim
You can’t claim the bonus deduction for:
- assets and expenditure on assets that can use a fossil fuel (except if that use is merely incidental such as where an asset uses an oil-based lubricant)
- assets and expenditure on assets which have the sole or predominant purpose of generating electricity (such as solar panels)
- capital works
- motor vehicles (including hybrid and electric vehicles) and expenditure on motor vehicles
- expenditure allocated to software development pools
- financing costs, including interest and borrowing expenses.
You can’t claim the bonus deduction if a balancing adjustment event occurs to the asset during the bonus period, unless the event is an involuntary disposal (for example, the asset is lost or destroyed).
Research and development tax incentive
If your business is entitled to a research and development (R&D) notional deduction under the R&D tax incentive program, you are only entitled to the notional R&D deduction and not a deduction under other taxation law. Your bonus deduction is still claimed based on what that other deduction would have been.
You can claim both the bonus deduction and the R&D notional deduction. The bonus deduction will not affect the amount of the R&D notional deduction. The R&D notional deduction amount is the actual expenditure amount, not the expenditure amount and the bonus deduction amount.
When you can claim
You generally claim a deduction in the income year the expenses are incurred.
For depreciating assets first used or installed ready for use during the bonus period, you must claim the bonus deduction in the income year in which the asset is first used or installed ready for use, which must also be the income year the asset is used for a taxable purpose.
For improvements made to existing assets, you must claim the bonus deduction in the income year in which the expenditure on the improvement is incurred.
An entity with a substituted accounting period may claim the bonus deduction across more than one income year, provided the eligible asset was first used or installed ready for use, or the improvement cost was incurred, during the bonus period.
The maximum amount you can claim as a bonus deduction under the energy incentive is $20,000. If you can claim the bonus deduction across more than one income year, then the maximum amount of the bonus deduction you can claim in a subsequent income year is reduced by any amount claimed in the previous income year. This ensures that the $20,000 cap on bonus deductions applies equally to businesses with normal accounting periods and with substituted accounting periods.
How to claim the energy incentive
To correctly claim the bonus deduction in your tax return, see:
Early balancers – how to claim
If you have a substituted accounting periodExternal Link and you’re an early balancer, you may need to claim the bonus deduction in your tax return 2024–25. If you’re using the 2024 form, use the tax return instructions for 2024.
If you’re using the 2025 form, choose from the following options:
- Individuals
- Claim the bonus deduction in the Business and professional items schedule 2025 at item P8 Expense reconciliation adjustments – label H.
- Use Worksheet 4 – Reconciliation statement to work out your total expense reconciliation adjustment at item P8 – label H.
- In worksheet 4, enter the bonus deduction amounts to the primary production or non-primary production columns at row t.
- Partnership
- Claim the bonus deduction at item 5 Expense reconciliation adjustments – label B.
- Use Worksheet 1 – Reconciliation statement to work out your total expense reconciliation adjustment at item 5 – label B.
- In Worksheet 1, enter the bonus deduction amounts to the primary production or non-primary production columns at row T.
- Company – claim the bonus deduction at item 7 Reconciliation to taxable income or loss – label X Other deductible expenses.
- Trust – claim the bonus deduction at item 5 Expense reconciliation adjustments – label B.
- Attribution Managed Investment Trust – claim the bonus deduction at the Other deduction label of the AMIT Schedule.
- Attribution Corporate Collective Investment Vehicle sub-fund – claim the bonus deduction at your ordinary deduction label.
- Self-managed superannuation fund – claim the bonus deduction at item 12 Deductions and non-deductible expenses – label L1 Other amounts.