“SUSTAINABILITY” IS NO LONGER a buzzword, but a vital element of any responsible business practice.
In this article, we’ll discuss how businesses and owners of commercial buildings can improve their sustainability and use depreciation deductions to help recoup costs.
Why improve Sustainability practices?
Businesses that implement sustainable practices will create energy efficiency, save on overhead costs, reduce environmental impacts, and attract quality tenants while building customer loyalty.
With the wide range of options available, all commercial building owners and tenants can introduce sustainable practices and policies.
Implement Energy-efficient lighting and technology
One of the most significant contributors to energy consumption in commercial spaces is lighting. Therefore, switching to energy-efficient lighting, such as LED bulbs, can help reduce energy consumption and costs. Businesses can also install sensors and timers to ensure that lights are turned off when not in use.
Use renewable Energy sources
Not all businesses can install renewable energy sources but those that can, should consider installing solar panels or wind turbines to generate electricity and reduce reliance on fossil fuels. Installing renewable energy sources not only helps reduce fossil fuels but also saves money on energy costs.
Reduce Waste
From paper, cardboard, plastics, and food waste, commercial spaces generate significant amounts of waste. Implementing recycling and composting schemes can help reduce waste.
Businesses can also consider removing one-use plastics and instead introduce biodegradable alternatives, reducing packaging waste. They can also offer incentives for customers to use keep cups and other reusable items to help reduce unnecessary waste.
Implement sustainable Design Practices
At the construction stage, utilising smart and sustainable designs can avoid unnecessary use of power and air ventilation. For instance, designing buildings that use natural lighting and ventilation, utilising green roofs and walls, and using environmentally friendly materials will significantly improve sustainable practices.
Apply the Government incentives
The Australian Government introduced incentives to support and encourage business and investment by accelerating depreciation deductions.
Until 30 June 2023 temporary full expensing, the backing business incentive and the instant asset write-off incentive are available for eligible businesses.
Under temporary full expensing, eligible businesses can claim an immediate deduction for the business portion of the cost of an asset in the year it is first used or installed ready to use for a taxable purpose.
Businesses may find temporary full expensing as an opportune time to upgrade and install sustainable assets and recoup the costs in the same financial year.
After 30 June, the newly introduced small business incentive will be available which supports small and medium businesses to save on energy bills by incentivising the electrification of assets and improvements to energy efficiency.
Under this incentive, businesses with an aggregated turnover of less than $50 million will be able to deduct an additional twenty per cent of the cost of eligible depreciating assets that support electrification and more efficient use of energy.
The instant asset write-off has been temporarily extended, which allows businesses with an aggregated turnover of less than $10 million to immediately deduct the full cost of qualifying assets costing less than $20,000 that is first used or installed and ready for use, between 1 July 2023 and 30 June 2024.
This is on a per-asset basis, meaning multiple assets can be written off as long as they qualify.
It’s important to mention that businesses should speak with their accountant or financial adviser before applying incentives as they may not be suitable for all businesses.
Claim Depreciation Deductions to Recoup Costs
While introducing the previously mentioned materials and equipment can be costly, they all qualify for depreciation deductions.
Eligible businesses can apply temporary full expensing until 30 June 2023 or the extended instant asset write-off or the newly introduced small business energy incentive after 30 June 2023 to accelerate depreciation deductions for newly purchased qualifying assets.
Capital works deductions (Division 43) are claimable on the building’s structure and assets permanently fixed to the property. Plant and equipment depreciation (Division 40) is claimable on easily removable or mechanical assets.
Most of the sustainable assets mentioned fall under Division 40 and are eligible to be depreciated over the asset’s effective life or immediately written off, depending on the cost of the asset.
Plant and equipment assets can be depreciated using the diminishing value method which generates higher deductions in the first few years of ownership, or the prime cost (straight line) method of depreciation which generates deductions more consistently over the asset’s effective life.
Both methods claim the same total depreciation deductions but achieve different short- and long-term cash flow outcomes.
Low-cost and low-value assets with an opening value of less than $1,000 can be placed into a low-value pool which generates deductions sooner. Items costing $300 and under can be written off immediately in the same financial year.
Different capital works depreciation rates apply for different commercial properties based on property type, construction commencement date and industry.
Bottom Line: Regardless of which depreciation method is selected or government incentive is applied, claiming depreciation is essential in boosting cash flow and reducing potential taxation liabilities.
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