Why the small business energy incentive is failing businesses

- June 12, 2024 4 MIN READ

Thirteen months ago, the Australian Government announced a new Small Business Energy Incentive to give a tax break worth up to $20,000 to support electrification and more efficient use of energy. But Small and family businesses with the means and capacity to play a part of the energy transition have been treated in a very shabby way by squabbling in our Federal Parliament which has left the Bill unpassed and businesses in a quandary, reports Australian Small Business and Family Enterprise Ombudsman Bruce Billson.

This bonus 20 per cent depreciation was available for those with a turnover below $50 million and promoted as helping them to save money on energy bills by electrifying their heating and cooling systems, upgrading to more efficient fridges and induction cooktops, and installing batteries and heat pumps.

The Government boasted the $314 million scheme had been “specially timed” to help small businesses lay the foundations for their future growth.

Now the clock is running out. The scheme requires a small business to have the assets or upgrades not only purchased but installed and “ready for use” by 30 June.

However, the legislation that would make this tax break law has still not been passed by the Parliament and is caught in a battle between the parties about other legislation.

Small businesses political pawns

It is fine for opposition parties to seek to change government legislation and it is equally fine for the Government to say no.

But it is not fine for this squabbling to run down the clock so there is no realistic prospect a small business can have certainty to provision for and spend this money with confidence the tax deduction is real.

We’re talking about a small or family business spending $100,000 to get the full value of this tax incentive. That’s a big commitment, and as recognised by the Government, the tax break may be the critical difference in being able to afford to do this.

As it currently stands, the package of bills has passed the House of Representatives but been changed by the Senate. The Government rejected those changes and sent it back to the Senate, which stood its ground. As did the House.

So, this stalemate goes back to the Senate, but it does not sit again until 24 June. Even if this is the first item of business and the Senate changes its mind, it will leave small business with less than a week to buy, install and use this equipment. That’s if it’s even available.

It’s just not realistic and it’s an insult to small businesses.

Businesses want certainty

We’re hearing from confused small businesses who just want certainty. Until it passes Parliament, they cannot know what the final law will say and if an intended investment is eligible.

Leading accountants say it is difficult for tax agents to advise clients about the Small Business Energy Incentive and until it becomes law, the Tax Office can’t provide guidance to understand the types of investments that qualify for the incentive.

Small businesses need time to plan investment decisions, not be forced in the final weeks of the financial year when they have so many other deadlines to meet, to rush such big spending decisions.

Frustratingly, this is not the first time this has happened.

The $1 billion technology investment boost, announced in the March 2022 budget was not made law until 15 months later on 23 June 2023 and then expired a week later on 30 June 2023.

It offered businesses with an annual turnover of less than $50 million a bonus 20 per cent deduction for investing in digital operations such as new equipment like technology, cloud-computing, eInvoicing or cyber security.

We don’t know how much of the proposed $1 billion in tax breaks were actually used.

Instant asset write-off

Then there’s the perennial uncertainty about the Instant Asset Write-Off measure, that is again held up in parliament.

It has become the practice for the eligible amount and the qualifying threshold to be adjusted by governments from year to year, and during the pandemic this was generous to help business confidence.

However, for the soon to be completed 2023-24 financial year, the amount announced last year of $20,000 per asset basis for eligible small businesses with a turnover up to $10 million, has not yet become law.

It may not be settled until a week before the end of the financial year. If there’s no agreement by the Parliament, the rate will only be $1000 – so that’s a big risk for a small business to take.

This highlights the need for predictability and certainty so a small business can plan in a sure-footed way for important investments that uplift the capacity, the productivity and drive innovation in their business.

Laws with a time deadline must come with a minimum implementation period. We would suggest no less than 6 months from Royal Assent until the time a scheme ends.

Such incentives help energise enterprise. That’s why they are announced in the first place.

We need to give more encouragement for people to turn an idea into an investment and to make that big decision to turn scarce resources into new capability, new equipment, new technology to help with the success of that enterprise and the livelihoods that depend upon it.

Small businesses need to be able to trust Parliament to give them enough time to understand changes and with certainty factor them into their planning.

Most of all small and family businesses need to be treated with respect.

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