What energy efficient improvements are tax deductible?

by | Oct 16, 2022 | Budget

It is that time again: People all over Australia are getting their receipts in order for this year’s tax return. While probably no one particularly enjoys doing their tax, there is one thing that might bring a smile to your face after all: There are a few tax incentives waiting for you if you have made some energy efficient home improvements to your investment property.

So what does the government say about energy efficient home improvements? Let’s explore this topic together!

Disclaimer: We are not financial advisers and recommend you speak with an accountant or financial adviser before making any financial decisions.

A QUICK WORD ON TAXES

Before we head into what is considered an energy efficient home improvement, it is important that we clarify a few things about tax deductions.

Deductions are subtracted from your income before calculating how much needs to be paid in taxes. This means that if you have an expense that qualifies as a business related tax deduction, you won’t be rewarded back the full expense, but rather can deduct the amount you paid from the tax you owe to the ATO.

Depending on your income bracket, this can mean different things for your particular income tax – but either way, it generally means that you will have to pay less tax and therefore have more money to spend on other things.

WHAT ARE ENERGY EFFICIENT HOME IMPROVEMENTS?

When you’re preparing your taxes, it’s important to know which home improvements are tax deductible and which aren’t. Please note that these only apply to an investment property – so if you choose to improve the performance of your rental property, you are not only creating a healthier and more comfortable living environment for your tenants, but you also help reduce your taxable income!

Energy-efficient home improvements are those that reduce the amount of energy you use, such as installing solar panels or new windows. These types of upgrades can save you money on your energy bill year after year.

These include:

1. SOLAR POWER

The amount of money you save by installing solar panels depends on several factors including how much electricity is generated by them and how many hours per day/night they produce this electricity for your home or business.

But no matter how big your solar system actually is, you can deduct its price from your taxable income. However, they are offset against their depreciation rate, so you can’t claim the whole amount for one year, but rather claim only a portion of the expenses over several years.

Either way, installing solar power is a great way to reduce energy prices for your tenants, while ensuring a more sustainable approach to energy consumption – all while saving a buck on your tax report!

You can learn more about solar energy in this comprehensive guide

2. IMPROVED GLAZING 

Another energy efficient home improvement your tenants will be more than happy about is improved glazing, aka better windows. Windows are a massive source for thermal comfort or discomfort, and can help not only maintain a nicer indoor temperature, but also keep unwanted noise out.

An example of improved glazing would be replacing your old single-pane windows with double-glazed models. While it may not seem like much, this change can make a big difference in the amount of money you spend on heating and cooling your home in the winter and summer months respectively.

You can claim the cost for these new windows on your tax in the same way as the abovementioned solar system, meaning that you can depreciate the expense over time.

But keep in mind: If you choose to include safety upgrades such as new fly screens and window locks and each individual item costs less than $300, you can claim these expenses right away!

? Want to learn more about windows? This article will help you out! 

3. BLOWER DOOR TESTS

Finally, one of the most efficient starting points for any planned renovations is having a home performance test completed, including a blower door test and a thermal camera inspection. These checks will help you find out what you are working with and which area of energy efficient home improvements you should be focussing on first.

Given that a blower door test or other home performance inspections directly usually directly relate to completing home improvements, we don’t see why the ATO should not accept these expenses as energy efficient home improvements. However, you are probably best to speak to an accountant first to see if you can claim these costs on your tax.

Are you interested in having your home’s performance assessed? Here’s how we can help!

CONCLUSION

Based on what we’ve covered here, it’s clear that there are a lot of ways to make your home more energy efficient – and to save some money on your tax at the same time! The key is to make sure you do your research and choose the most effective upgrades for your needs.

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