Edited version of private ruling

Authorisation Number: 1011543473722

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Ruling

Subject: Effective life of solar panels

Question 1

What effective life and depreciation rate should be applied to solar panels that are installed for selling power back to the main grid?

Answer

The effective life is as set out in TR 2010/2.

Question 2

Is there a difference in the effective life and depreciation rates applied to ground and roof-mounted solar panels?

Answer

No.

This ruling applies for the following period

1 July 2010 to 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts

The taxpayer has purchased land with the intention of installing solar panels for the main purpose of selling electricity back to the grid of power suppliers. The solar panels will be purchased no earlier than the year commencing 1 July 2010 but no decision has been made as to whether they will be ground-mounted or roof-mounted. It is also anticipated that storage sheds will be built on the land for rental purposes.

Relevant legislative provisions

Section 40-25 Income Tax Assessment Act 1997

Section 40-105 Income Tax Assessment Act 1997

Section 40-110 Income Tax Assessment Act 1997

Does Part IVA apply to this ruling?

Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA of the ITAA 1936 applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable.

We have not fully considered the application of Part IVA of the ITAA 1936 to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.

If you want us to rule on whether Part IVA of the ITAA 1936 applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA of the ITAA 1936 may apply.

For more information on Part IVA of the ITAA 1936, go to our website www.ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select: Part IVA: the general anti-avoidance rule for income tax.

Reasons for decision

Question 1

Summary

TR 2010/2 is the Commissioner's most current ruling in respect of the effective life of depreciating assets. At this point in time, there are no effective life figures in respect of solar systems used specifically to generate power to supply back to the electricity grid.

Detailed reasoning

TR 2010/2 is the Commissioner's most current ruling in respect of the effective life of depreciating assets. It provides an effective life figure of twenty years in respect of 'residential solar power generating system assets.' At this point in time, there are no effective life figures in respect of solar systems used specifically to generate power to supply back to the electricity grid.

The Commissioner has begun a review of the assets used in the solar electricity generation industry. Renewable energy has been identified as an area where the ATO can provide taxpayers with more guidance as to what depreciation rates they can use when determining their tax liabilities.

An important part of that review is to update and expand the Commissioner's effective life schedule. Following the review, those assets used in the solar electricity industry will be added to the Commissioner's effective life schedule and published on the ATO website. The review is expected to be completed around the middle of 2011 and a ruling is planned for release thereafter.

Please note that in answering this question, the Commissioner has not given consideration to whether or not the payments received are assessable as income.

Question 2

Summary

At present the Commissioner does not differentiate between ground and roof-mounted solar panel arrays for the purposes of determining effective life. Nevertheless, under section 40-105 of the Income Tax Assessment Act 1997 (ITAA 1997), it is open to taxpayers to employ an effective life for an asset which differs from that set out by the Commissioner where a different rate would be appropriate in the prevailing circumstances.

Detailed reasoning

At present the Commissioner does not differentiate between ground and roof-mounted solar panel arrays for the purposes of determining effective life. Nevertheless, under section 40-105 of the ITAA 1997, it is open to taxpayers to employ an effective life for an asset which differs from that set out by the Commissioner where a different rate would be appropriate in the prevailing circumstances. In addition, section 40-110 of the ITAA 1997 provides for subsequent recalculation of effective life where a previously used effective life is no longer considered accurate because of changed circumstances.

Where a taxpayer utilizes a self-assessed effective life in respect of an asset, the taxpayer must be able to demonstrate why their figure is more appropriate than that published by the Commissioner. They must also be able to show how they arrived at the rate used. Where a significant difference exists between the effective life employed by the taxpayer and that issued by the Commissioner, the Commissioner may review the methodology employed by the taxpayer.

Please note that in answering this question, the Commissioner has not given consideration to whether or not the payments received are assessable as income.

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