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Edited version of your private ruling
Authorisation Number: 1012536136557
Ruling
Subject: Income from solar panels
Question
Are payments received from your electricity retailer for the generation of electricity from a photovoltaic solar system considered assessable income?
Answer
No.
This ruling applies for the following periods:
Year ended 30 June 2013
The scheme commences on:
1 July 2012
Relevant facts and circumstances
You have recently acquired and installed a 5.5 kilowatt photovoltaic system (solar system), on the roof of your private residence in Queensland.
The agreement with your electricity retailer is in you and your spouse's name.
The Queensland Solar Bonus Scheme (scheme) provides for a net feed-in tariff solar scheme (the scheme). Under the scheme, electricity providers pay the electricity account holder an amount per kilowatt hour for energy exported to the grid that is in excess of the household consumption at the time of generation as recorded by the meter.
You are billed for your electricity consumption in the same manner and at the same rate as any other retail electricity customer in Queensland.
For the 2013 financial year you generated more electricity that what your household consumed, and received a check from your electricity supplier.
Your intention for installing the solar system is to help reduce your carbon footprint and ease the burden of electricity charges relating to your husband's hobby.
The solar system is an eligible small generation unit (SGU) for the purposes of the Renewable Energy (Electricity) Act 2000 (REE Act).
The REE Act supports the Federal Government's Renewable Energy Target (RET) scheme which was established to encourage additional electricity generation from renewable energy sources.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 6-5(1)
Income Tax Assessment Act 1997 Subsection 6-5(2)
Income Tax Assessment Act 1997 Section 8-1
Income Tax Assessment Act 1997 Subsection 104-10(2)
Reasons for decision
Subsection 6-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997) defines ordinary income as income 'according to ordinary concepts'. Under subsection 6-5(2) of the ITAA 1997, the assessable income of an Australian resident includes the ordinary income derived directly or indirectly from all sources during the income year.
In determining whether payments or credits received in return for solar generated electricity exported to the grid are income, the factual circumstances, and in particular whether the receipts indicate an activity that is more than private or domestic in nature, need to be considered. The following are important:
§ the terms of the arrangement with the electricity retailer and in particular any requirement on the retailer to buy all electricity that is generated from the system (as occurs under a gross feed in tariff scheme)
§ the feed-in tariff payments and whether they are considered to represent a return on your investment in the solar system
§ whether there is a realistic opportunity for you to profit from the arrangement
§ the regularity of payments/credits received from the feed-in tariffs such that they can be relied upon.
Application to your situation
Based on your circumstances, it is considered that the credits you receive on your electricity account (or payment for credits) are not ordinary income because:
§ the scheme is of a private or domestic nature, this being demonstrated by the strong connection of the scheme with the electricity needs of your household. In particular:
o electricity generated from the solar system is used for personal consumption in your private residence, and only the excess is transferred to the electricity grid
o the credits you receive for excess electricity offset the cost of your electricity, effectively reducing your electricity account. You are unlikely to receive payments from Synergy for excess credits on your electricity account because of your electricity usage
§ there is no realistic opportunity for you to profit from the arrangement.
Accordingly, the payments you receive from the electricity retailer are part of an arrangement that is private or domestic in nature, and are not considered assessable income.
As a result any expenditure incurred in producing the receipts from the sale of the electricity generated to the electricity grid is not deductible. Further, expenses relating to repairs and maintenance are also not deductible.
Please note, if there were an increase in the size or scale of the activity in which you are engaged, or an increase in the payments / credits received or the regularity of the payments, this might indicate the payments were ordinary income and therefore assessable. Therefore you should evaluate your circumstances on a regular basis to determine whether your circumstances have changed. You can request a further ruling after the 2013 financial year if you are still unsure about this issue.
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