Tax Breaks for Green Buildings

6 Star NABERS rated Durack II Building, 2 Victoria Avenue, Perth

Perth’s CBD could be on the receiving end of a flurry of green make- over’s this year with the introduction of a Federal Government tax break for renovations likely to spur many building owners into action.

According to Colliers International, the scheme, Tax Breaks for Green Buildings, which kicks off from July, allows businesses investing in capital works that improve the energy efficiency of their existing buildings – from two stars or lower to four stars or higher – to apply for a one-off tax deduction.

The initiative will be available for retrofits of existing commercial buildings, including offices, hotels and shopping centres, currently covered by the National Australia Built Environment Rating System (NABERS) scheme.

The incentive allows building owners to claim a bonus tax deduction of 50 per cent of the cost of the eligible assets or capital works, a significant financial incentive and one that Bruce Thompson, Colliers International’s director of technology, operations, projects and sustainability, said could be enough to convince a number of building owners to push the button on plans to “green up” their assets.

“We’re already seeing tenants ask up-front about a building’s energy rating as part of their assessment prior to leasing, and that’s going to become a more significant driver going forward but despite all this, from what we’ve seen in the Perth market, the response so far to NABERS has been slow,” Mr Thompson said.

With the introduction of mandatory disclosure last year, which stipulates building owners leasing or selling an office space greater than 2000sqm must provide its NABERS rating, the property industry is well aware that greener buildings are where the market is heading.

“This will be really significant because a lot of building owners are having to go down this path anyway but have been slow on the uptake but the additional incentive of 50 per cent off the cost of work, provided it’s related to energy saving on the building, will give the scheme a real kick,” Mr Thompson said. “The big spin-off is that buildings will pump less greenhouse gasses into the atmosphere.”

One of the reasons for the slow uptake, according to Mr Thompson, is because the capital outlay needed to upgrade a building’s environmental status takes several years to recoup based on energy savings alone. “However, with this new tax incentive coming into play, it’s much more cost effective for a building owner to embark on the upgrades.”

Mandatory disclosure on its own is not enough, according to Mr Thompson, because it relied on market forces.

“There are still tenants out there who will accept space that has a low green star rating, and although there has been a drift towards the higher green star space and more energy efficient space, it was not happening quickly enough.”

Key items to be replaced when a building’s energy efficiency is upgraded include old air-conditioning plants and lighting systems that don’t operate as efficiently as newer models and new building management systems, which allow for the constant monitoring of energy being used in a building.

Although the scheme is still gaining a foothold, Mr Thompson said it was clear the market had already begun mulling the advantages of the tax break.

“We’re already seeing increased inquiry about how to go about these green upgrades, and for assessments of a building’s current star rating,” he said.

The tax break is expected to provide a fillip of roughly $1 billion over the life of the scheme to help “green up” existing buildings around Australia and building owners have a four-year window, from July 1 this year, to take advantage of the scheme.

Eligible capital expenditure under the scheme will be determined in consultation with environmental, industry and government stakeholders.

In order to be eligible for the tax break, the retrofit will need to be assessed by an accredited NABERS assessor at the beginning and then the end of the project to ensure improved energy efficiency is achieved.

The cost of a NABERS assessment depends on the size of the building but generally costs between $5000 and $7000.

Mr Thompson said a number of buildings in Perth could benefit from the initiative.

“Many buildings that are 25-30 years old do not have particularly high star ratings,” he said.

“In our experience, a typical CBD building of this era is around 2.5 stars or lower. To get up to four stars or higher usually involves a staged capital investment of several million dollars, which we have already packaged up for some of our clients such as AMP.”

For more information on the Tax Breaks for Green Buildings scheme, or sustainable Interior Design and Fit-out, please visit:

Source: Tax break gives owners incentive to upgrade

MARISSA LAGUE, The West Australian February 16, 2011