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Ruling
Subject: Deductibility of expenses
Question 1
If you are running a business from your premises, during those billing periods when you have a net debit owing to your electricity supplier can you claim an appropriate proportion of those electricity costs as a business expense?
Answer
Yes.
Question 2
Is the deduction which you can claim based on the electricity which you actually consume or the electricity for which you are billed?
Answer
You can claim an appropriate proportion of the expense actually incurred.
This ruling applies for the following periods:
1 July 2011 to 30 June 2012.
The scheme commences on:
1 July 2011.
Relevant facts and circumstances
You run a business from your home and claim a percentage of your electricity consumption as a deduction against your income. Some time back you installed a solar system. The sales people indicated that you could anticipate getting credits for the power generated but to date you have always had a net debit and a bill to pay at the end of the period. You expect that there will usually not be large amounts involved either way.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1
Reasons for decision
Unless otherwise stated, all legislative references in the following Reasons For Decision relate to the Income Tax Assessment Act 1997 (ITAA 1997).
The general provision that determines the deductibility of expenses is section 8-1. Under section 8-1 you can deduct any loss or outgoing to the extent that it is incurred in gaining or producing your assessable income. However you cannot deduct a loss or outgoing that is capital, private or domestic in nature.
In your case, you incur electricity expenses in the process of earning your income. Under section 8-1 you are able to claim a deduction for those expenses against your income.
For periods where the cost of your consumption of electricity exceeds the value of the power exported to the grid and you receive a bill for the difference, you would be able to claim a deduction for the business portion of that excess power usage. It is necessary to apportion the electricity expenses and claim deductions only in respect of the business percentage.
Note that deductions can only be claimed for costs actually incurred. Therefore, the deduction which can be claimed is for the business percentage of the amount charged for excess usage for a period - the cost actually incurred. It follows that, in those periods for which the credit for power returned to the grid is sufficient to reduce your bill to nil or produce a surplus, no power cost has been incurred by you and no deduction is available.