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Ruling

Subject: Solar power electricity generation

Question 1

Are payments by an electricity retailer for the generation of electricity from a solar system installed on the property that you own, but received by an individual living in the property, considered assessable income to you under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

Question 2

Are depreciation costs associated with the solar system deductible to you under section 8-1 of the ITAA 1997, where the property does not earn you assessable income?

Answer

No

This ruling applies for the following period:

Year ending 30 June 2012

The scheme commences on:

1 July 2011

Relevant facts and circumstances

You acquired and had installed a 1.5kW system (solar system), on the roof of property you own.

The state government 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.

The electricity account is held in the name of an individual who lives at the premises rent free.

The solar installer was contracted to install the solar system in your name.

The cost was paid by the individual living in the property.

You do not derive income from the property.

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, and

Income Tax Assessment Act 1997 section 8-5.

Reasons for decision

Assessable income

Subsection 6-5(1) of the 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 you derive directly or indirectly from all sources during the income year.

In your case, although the solar system is on the property that you own, the electricity account is not in your name. Therefore you are not considered to have derived the income from the electricity provider. As such you are not required to include the credits received by the individual in your tax return.

Deducibility of solar expenses

Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, except where the outgoings are of a capital, private or domestic nature.

Section 8-5 of the ITAA 1997 also allows specific deductions, such as expenses for depreciating assets (section 40-25 of the ITAA 1997), provided they are incurred in gaining or producing assessable income.

In your case you do not earn assessable income from the property where the solar panels are installed, as the individual lives there rent free. Therefore any expenses relating to property, including the decline in value of solar panels, are not incurred in the course of gaining or producing your assessable income and are not deductible.