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Ruling

Subject: Income from solar panels

Question

Are the credits or payments received from the solar power generating system on your home assessable income?

Answer

No

This ruling applies for the following periods

Year ended 30 June 2012

Year ending 30 June 2013

Year ending 30 June 2014

Year ending 30 June 2015

Year ending 30 June 2016

The scheme commences on

1 July 2011

Relevant facts and circumstances

You had a solar power generating system installed on your home.

You paid cash for the installation and assigned the Renewable Energy Certificates (RECs) back to the installer in return for a discount on the purchase price.

You are the sole owner of your home. You do not use your home for income producing purposes.

Your electricity provider account and system is in your name.

The system you installed is a photovoltaic system. The power generated from your solar panels results in a credit every three months.

You receive a direct payment each 12 months for your accumulated credits.

To date you have only received one payment.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5.

Reasons for decision

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

Assessable income also includes statutory income under section 6-10 of the ITAA 1997. However, there are no specific legislative provisions relating to money or credits received from electricity suppliers. Therefore such amounts are not statutory income.

Whether the payments received are assessable as ordinary income depends upon a close examination of all relevant circumstances.

Relevant factors in determining whether an amount is ordinary income include:

· whether the payment is the product of any employment, services rendered, or any business,

· the quality or character of the payment in the hands of the recipient,

· the form of the receipt, that is, whether it is received as a lump sum or periodically, and

· the motive of the person making the payment, but noting that this latter factor is rarely decisive, as a mix of motives may exist.

Amounts that are periodical, regular or recurrent, relied upon by the recipient for their regular expenditure and paid to them for that purpose may be ordinary income. However, receipts that indicate the arrangement is private or domestic in nature are not likely to be ordinary income.

In determining whether the receipts are assessable income, consideration needs to be given as to whether the receipts indicate an activity that is more than private or domestic in nature. The following factors are relevant:

· the size of the solar system,

· the terms of the arrangement with the electricity retailer,

· whether there is a realistic opportunity for you to profit from the arrangement and

· the regularity of payments received such that they can be relied upon.

Under the scheme operating for your solar system, you receive credits and/or payments when your electricity generation exceeds your household consumption.

Although you are expecting to receive a payment each quarter, based on your circumstances, it is considered that the payments/credits are largely private and domestic in nature and not assessable income. This is based on the following:

· The scheme is connected with the electricity needs of your household and primarily satisfies the electricity consumption of the householder.

· The size of the solar system is essentially designed principally for ordinary domestic needs.

· The system is installed on your home.

· Payments/credits are received only after your personal consumption in your private residence has been accounted for.

· The amounts received are not considered to be substantial.

· There is no realistic opportunity for you to profit greatly from the arrangement.