• The federal government has promised a tax break program for green buildings worth up to to $1billion. How the program will work in practice may change following a call for public submissions, now closed. Following are details of original proposals for the program.

11 March – Under the tax breaks program, successful applicants will be able to apply for a one-off bonus tax deduction of 50 per cent for investments in eligible assets or capital works associated with the retrofitting of existing buildings to improve the energy efficiency rating under the existing NABERS rating system.
Total funding for the program is proposed to be up to $1billion.

What buildings will be eligible for a bonus tax deduction under the tax break program?

The tax breaks program is intended to apply to the retrofitting of buildings satisfying the following criteria:

Table 1: Assessment criteria

Building categoryProposed minimum criteriaNABERS rating tool

Office

Net lettable area greater than 2000 sq mNABERS base building energy rating for offices

Shopping centre

Gross lettable retail area greater than 15,000 sqmNABERS energy rating for shopping centres

Hotel

§   At least 50 per cent of rooms have little or no in-room cooking facilities

§   At least 50 per cent of rooms are sold on the basis of a single guest per night, typically with short stays

§   Heating pool facilities typically limited to less than 200 sqm surface area

§   No dedicated on-site overnight accommodation for staff

NABERS energy rating for hotels

What energy savings are eligible for the tax break?
To be eligible under the tax breaks program, the building upgrade must achieve a two star improvement in NABERS rating – from two stars or lower to a rating of four stars or higher. The relevant building must therefore have a ‘baseline’ NABERS rating to determine whether it has a rating of two stars or less before an application is made and the upgrade work is carried out.

The usual NABERS rating systems will apply according to building type (refer to Table 1 above) – requiring relevant energy data for the period of 12 months before the proposed upgrade, and then for 12 months following completion to demonstrate the required improvements in energy efficiency.
Establishing the necessary ‘baseline’ NABERS rating for vacant buildings will obviously be problematic given the lack of operational data. The consultation paper has sought further submissions on how this may be addressed.

Who can apply for the tax break?
An applicant under the tax breaks program must be either:

  • the same entity that is entitled to a regular tax deduction for the eligible retrofit under the current tax law; or
  • the owner or part owner of the building that is subject to the eligible retrofit.

Applicants will also be required to demonstrate an ability to fund those costs of the proposed project that will not be met by the expected tax deduction.

What kinds of expenditure will be eligible?
Eligible retrofits may include upgrades to improve common area lighting, heating, ventilation and air-conditioning systems, building fabric and monitoring and control systems.

Expenditure will be assessed on a global costing approach, meaning that the total cost of the retrofit project will be the basis for the calculation, rather than individually costed upgrade items.

Eligible expenditure will be capped at the maximum market value of the relevant building. For example, if the costs of the retrofit are $3 million, but the eligible building has a market value of $2 million, then the eligible expenditure will be capped at $2 million, for the purpose of the tax breaks program.

In addition, only expenditure incurred after an application under the program has been successful will be eligible – therefore, the upgrade work cannot commence before an application is made.

Upon achievement of the required NABERS rating improvements and issuing of certification by DCCEE the tax deduction that may be claimed under the program will be 50 per cent of eligible expenditure.

What is the time period in which the tax breaks program will apply?
The tax breaks program will only be available for expenditure incurred between 1 July 2011 and 30 June 2015.

For projects that cannot be completed on or before 30 June 2015, only expenditure incurred on or before 30 June 2015 will be considered as eligible.

In some cases, a grace period of a maximum of six months may be available if an applicant can demonstrate that delays to the completion of the retrofit were caused by factors beyond their control.

What is the procedure for an assessment under the tax breaks program?
The application and assessment process under the tax breaks program is divided into four stages, as described below.

Stage 1 – pre-installation registration
Stage 1 is the application stage, during which the applicant must provide all information, including NABERS rating certificates, for assessment by DCCEE.

The applicant will be notified by DCCEE of a successful registration under the scheme. Contracts for retrofit works must not be executed and works must not be commenced before the applicant has received notification from DCCEE of successful registration.

Successful applications will be published on the tax breaks program register, which will be publicly accessible online.

Stage 2 – implementation of retrofit
After notification of successful registration, the applicant may execute contracts and commence retrofit works. The applicant will be required to provide biannual progress reports until project completion.

Stage 3 – post installation certification
Following completion of retrofit works and the required operational period during which data is collected for the NABERS rating process, the applicant will have to prepare and submit a completion report, including evidence of expenses incurred and a NABERS rating certificate confirming the required NABERS rating increase.

This report will be assessed by DCCEE and a certificate will be issued by DCCEE if it is satisfied that the retrofit has been completed within the original application criteria.

If the building does not achieve the required improvement of the NABERS rating in that period, the applicant may be able to apply for an extension of the monitoring period for assessment under the NABERS scheme up to 31 March 2019.

Stage 4 – tax deduction claim
An applicant that has received a final compliance certificate from DCCEE will be able to claim the tax deduction under the tax breaks program as part of the usual tax processes. If the actual cost of a retrofit is less than the registered costs, the actual cost will be used for calculating the tax deduction. If the actual cost is higher than the cost registered during the application process, only registered cost will be used to calculate the tax deduction.

Where to from here?
The government is seeking to introduce legislation to implement the program in the first half of 2011. If it is introduced as proposed, it will provide businesses with a significant incentive to undertake building upgrades to increase energy efficiency by reference to the existing NABERS scheme.

For details see the federal government website
https://www.climatechange.gov.au/government/initiatives/tax-breaks-for-green-buildings.aspx

Andrew Chapman is partner, Maddocks construction and major projects