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Time restrictions and financial constraints limit the usefulness of the measure, it says, and proving eligibility will be a burden.
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Small business energy incentive ‘hobbled by short shelf life’: IPA
10 July 2023
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10 minute read
The IPA has slammed the Small Business Energy Incentive for its exclusion of spending on energy generation such as solar panels and says the bonus is too restricted by its financial and time limits.
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The body said the scheme also set a high bar for eligibility that would impose a compliance burden on small business when it needed “all the help it can get” to reduce operating costs and switch to alternative energy.
General manager for technical policy Tony Greco said exclusions in the draft legislation are “at odds” with the inclusion of spending on renewable energy storage such as batteries.
“Assets which have the sole or predominant purpose of generating electricity (such as solar panels) are specifically excluded,” Mr Greco said. “This seems at odds with the fact that the storage of renewable energy (i.e. batteries) are in. Many state-based incentives for solar installations exclude small business.”
The draft legislation proposes a bonus 20 per cent tax deduction for the cost of assets that support electrification and more efficient energy use for businesses with a turnover under $50 million.
The Small Business Energy Incentive runs for the 2023–24 financial year and sets the maximum bonus tax deduction at $20,000.
Mr Greco said that meant it only applied to spending up to $100,000 and the long-term goal of emissions reduction is being addressed with a short-term measure.
“It’s temporary in nature – not ideal as this transition is long term to help with our greenhouse emission goal,” Mr Greco said.
“Small businesses need all the help they can to move to more energy efficient alternatives which will also hopefully reduce their operating costs in the long term and reduce their carbon footprint.”
He said the tight time limit was “not ideal” for accountants trying to maximise benefits to clients.
“What is not understood is the time and effort that needs to go into understanding the eligibility criteria before the incentive evaporates due to its limited shelf life,” he said.
“This initiative requires taxpayers to prove additional eligibility criteria over and above normal substantiation requirements.”
The draft legislation, which invites submissions until 18 July, says:
“A 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.
- 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.
- Is an energy storage, demand management or efficiency-improving asset.”
Mr Greco said these details would ideally be captured at the time of purchase or as part of an evaluation process but the bottom line was more data-gathering for small business.
“These additional eligibility requirements will impose compliance burdens on taxpayers claiming the bonus deduction depending on what level of substantiation is required from the ATO to prove eligibility.
“We expect the ATO to have more to say on this after the tax law amendment passes into law.”
He said the scheme has similarities with two other bonuses that aimed to spur spending on training and digital adoption by small business, and that the IPA supports the intent of the measure.
One positive feature is the ability to claim a bonus deduction even if the expenditure qualified for instant asset write-off.
“All these bonus deductions aimed at small business have good, intended policy objectives and are worthy of extended tax concessional treatment,” he said. “With the cost of doing business rising faster than revenue for many, these tax incentives assist this sector in keeping their head above water.”
“Their purposefulness extends beyond their limited legislative timeframe, unfortunately.”
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