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Edited version of your private ruling
Authorisation Number: 1012463228471
Ruling
Subject: Capital gains tax
Question
Are you liable for capital gains tax on the sale of your main residence due to the installation of solar panels?
Answer
No.
This ruling applies for the following period:
Year ending 30 June 2013
The scheme commences on:
1 July 2012
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
Your spouse is the director of the company.
You wish to allow the company to install solar panels on the roof of your main residence.
You will not be collecting/charging any rent or fees for the solar panels.
The solar panels would operate as a back to grid system whereby the electrical supply company pays for the solar electricity produced that is put back into the grid system.
The system you installed is a 5KW photovoltaic system.
The credits received from the solar panel system will be issued in your name. All funds would then be transferred to the company's bank account.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1.
Income Tax Assessment Act 1997 Section 118-110.
Income Tax Assessment Act 1997 Section 118-190.
Reasons for decision
Summary
You are not earning assessable income from the company installing solar panels on the roof of your main residence. Therefore you are entitled to the full main residence exemption.
Detailed reasoning
Section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) states that capital gain or capital loss from a CGT event that happens to your main residence is generally exempt from CGT.
To be fully exempt from CGT:
· The dwelling must have been your home for the entire period you owned it.
· The dwelling must not have been used to produce assessable income, or
· Any land on which the dwelling is situated must be two hectares or less.
Your main residence exemption is reduced under subsection 118-190(1) of the Income Tax Assessment Act 1997 (ITAA 1997) and you only get a partial exemption if:
(a) the dwelling which was your main residence was used for the purpose of producing assessable income; and
(b) if you had incurred interest on money borrowed to acquire the dwelling, or your ownership interest in it, you could have deducted some or all of that interest.
If someone else uses part of your dwelling for income producing purposes and if you had incurred interest on money borrowed to acquire your dwelling, you cannot deduct any of that interest under section 8-1 of the ITAA 1997 because it would not be incurred in gaining or producing your assessable income.
Section 118-190 is directed at reducing your main residence exemption and only allowing you a partial exemption if you use part of your dwelling for income producing purposes.
In your case, you propose to allow the company to install solar panels onto the roof of your main residence. As you will not charge/collect any rent, the proposal is not commercial or an arms length transaction. The credits will be issued in your name and transferred to the company. The credits will be income in the hands of the company. You would not be able to claim any portion of mortgage interest as deductible expenditure in your tax return each year based on the roof use.
Consequently, you are entitled to continue to treat the dwelling as your main residence.