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Edited version of private advice
Authorisation Number: 1012678649500
Ruling
Subject: Assessable income
Question
Will the credits/payments received from your electricity retailer for the generation of electricity from a solar system installed on your commercial rental property be assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) and expenses incurred in respect of the system deductible under section 8-1 of the ITAA 1997?
Answer
Yes
This ruling applies for the following period(s)
Income year ended 30 June 2014
The scheme commences on
1 July 2013
Relevant facts and circumstances
You have received quarterly electricity rebates on 2 commercial rental properties from AGL Energy as part of the Solar Bonus Scheme during the relevant financial year.
Both properties are classified as a business real property under the Superannuation Industry (Supervision) Act 1992.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-5
Income Tax Assessment Act 1997 section 8-1
Reasons for decision
Section 6-5 of ITAA 1997 provides that assessable income is income according to ordinary concepts. While 'ordinary concepts of income' is not defined within the act there exists a substantial body of case law which identifies the likely characteristics of income. Amounts that are periodical, regular or recurrent, relied upon by the recipient for their regular expenditure and paid to them for that purpose are likely to be ordinary income. In addition, receipts that indicate the arrangement is other than private or domestic in nature, or an intention to make a profit from the activity, are also likely to be ordinary income.
The state Solar Bonus Scheme (SBS), which involves a government-mandated solar feed-in tariff, pays eligible customers for the electricity generated from eligible solar photovoltaic (PV) systems and exported to the state electricity grid. Consequently a determination of whether payment under the SBS will be ordinary income will have regard to the factual circumstance, and in particular whether the receipts represent an activity more than private or domestic in nature.
Based on the fact that the properties in question are commercial rental properties it is considered that the arrangement is not private or domestic and nature. That being so:
• the payment you would receive for the generation of electricity from solar systems are ordinary assessable income under section 6-5 of the ITAA 1997
• the costs you would incur in relation to the generation of electricity from the solar system are deductible under section 8-1 of the ITAA 1997 to the extent they are not capital or private or domestic in nature.