Edited version of your private ruling

Authorisation Number: 1012522587933

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 photovoltaic system (solar system), on the roof of your private residence.

The agreement with your electricity retailer is in your name only.

The State Government's Solar Bonus Scheme (scheme) provides for a gross feed-in tariff. Under the scheme, electricity providers pay the electricity account holder an amount per kilowatt hour for energy exported to the grid as recorded by the meter. You entered into a contract under which you will be paid a race per kilowatt hour for the gross electricity generated by the network provider through your electricity retailer.

You will receive this as a credit on your electricity account and may receive a separate direct payment from your energy retailer when you request it.

You have generated over $X per quarter, however you are billed for your electricity consumption in the same manner and at the same rate as any other retail electricity customer in your state. This is deducted from the credits earned.

Your intention with the solar system is to provide electricity for your home, to recoup capital expense over time, to make additional money and to help reduce your carbon production.

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

Assessable income

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

Under the gross feed-in tariff scheme operating in State A and as described in your ruling application, the electricity company credits or pays a premium feed-in tariff to you for all electricity generated and contributed to the electricity grid. You then separately buy electricity from the company according to your consumption.

Payment for the electricity generated is distinct from and unrelated to the amount of electricity consumed. The rate paid by you for electricity consumed is the same as that applied to any other householder in State A. The payment for the electricity generated can be received by way of credit on your account, or paid to you when requested.

The scheme is connected with the electricity needs of your household as:

· the size of the solar system you have installed is essentially designed principally for ordinary domestic needs and will generate an amount of electricity suitable for household needs

· the electricity retailer is required to buy all electricity that is generated from the system under the gross feed in tariff scheme. The arrangement is under a standard agreement available to any customer to encourage the use of renewable energy, and

· the purpose of installing the system is to offset your average household consumption and reduce your carbon production.

Based on your factual circumstances, it is considered that the credits you receive on your electricity account (or payment for credits) are not ordinary income as the scheme is of a private or domestic nature. The size and scale of the system installed and the arrangement with the electricity retailer indicate there is connection of the scheme with the electricity needs of your household (as outlined above).

Accordingly, the payments you receive from the electricity retailer are part of an arrangement that is private or domestic in nature.

Consequently, all of the payments received for your electricity generated and sold to the electricity grid are not considered assessable income.

However, 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. Should you have doubt as to

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