Tax Breaks for Green Buildings

23 Sep 2010Archived News Climate Change Matters

The Labor Party's recently announced Tax Breaks for Green Buildings policy is intended to provide an additional incentive for owners of commercial buildings to fund large-scale energy efficient retrofits.

The incentive will enable businesses to claim a bonus tax deduction of 50 per cent of the cost of the eligible assets or capital works.

For example, under a 29 per cent company tax rate, a $1 million building upgrade would normally be eligible for tax deductions worth $290 000. With the additional 50 per cent tax bonus, the value of the tax deduction increases to $435 000 ($290 000 + $145 000 which is 29% of $500 000 = $435 000).

Qualifying retrofit projects undertaken between 1 July 2011 and 30 June 2015 would be eligible for the Tax Break.

To qualify, a building must also have an accredited NABERS rating of two stars or less and implement upgrades to achieve an accredited NABERS rating of four stars or more. This constitutes a very substantial building retrofit including such actions as a major HVAC and BMS and lighting upgrades, as well as the installation of additional sub metering. Cogeneration and trigeneration opportunities will also be eligible. Buildings may be NABERS-rated commercial offices, hotels or shopping centres.

Typically this scale of upgrade is not commercially viable on the basis of energy savings alone, and would normally be part of a longer term asset management plan for the building. In these cases the new tax breaks may provide an incentive for building owners to bring forward planned capital works and also to consider higher efficiency equipment and systems as part of those works. This will be supported by the new requirements for the mandatory disclosure of the NABERS rating as part of the Building Energy Efficiency Certificate which came into law this year and will come into effect on 1st November.

The policy does not specify whether the improvements need to be shown in relation to the whole building or base building rating. If it's the former, landlords will face the risk of missing the required performance improvement levels due to lack of control over tenant power consumption. Imposing the requirement in relation to the whole building rating will require additional management and reduction of tenant loads. Due to these issues, it appears likely that the base building rating will be used to measure performance improvements. If used, whole building ratings would be reserved for owner-occupied buildings only. Read more

Written by Jon Sibley, Principal Consultant at Energetics 


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