The Australian Tax Office [ATO] has released its findings regarding the treatment of income generated from selling electricity back to the grid.
In short, the finding was very favorable for projects installed on a principal residence as the credits or payments will not be classified as assessable income for tax purposes. This ruling makes going solar all the more attractive, especially for the larger solar installations. Below are the three key rulings taken from the ATO website.
1. Are the credits or payments you receive for power generated by solar panels on your residence, assessable for income tax?
2. Are you entitled to either an outright deduction or a decline in value deduction for the cost of the solar panels?
3. Are you entitled to any deductions in relation to funds borrowed in order to purchase the solar panels?
The residential bill above shows an almost 50% reduction in daily kW used, thanks to the recently installed solar system. Furthermore, the additional power produced by the solar system which is not consumed by the household, is then exported (sold) back to the grid, in this case for a rate of $0.111 per kW. This, combined with the reduction in daily power usage results in the household power bill now in credit for $100.88 for a 31 day billing period.
Whilst you cannot depreciate the asset nor claim a tax deduction for the interest on any borrowed money, the solar installation will add value to your home and becomes a great selling point upon the resale of the property.
The above ruling will not apply for non-primary residences such as investment properties or businesses. Furthermore, if you are registered for GST purposes and make the installation with the intention of furthering business enterprise, then GST will be applied to any income generated.