ATO ID 2002/752: Plant - photovoltaic solar system
Date of decision: 24 April 2002
Year of income: Year ending 30 June 2002
Business line: Private Groups and High Wealth Individuals

Issue
Is a photovoltaic solar system (the system) plant within the meaning of that term in section 45-40 of the Income Tax Assessment Act 1997 (ITAA 1997) with the result that capital expenditure on the system is excluded, by paragraph 43-70(2)(e) of the ITAA 1997, from the meaning of construction expenditure for the purposes of Division 43 of the ITAA 1997?

Decision
Yes. A photovoltaic solar system is plant within the meaning of that term in section 45-40 of the ITAA 1997 and is, therefore, excluded from construction expenditure by paragraph 43-70(2)(e) of the ITAA 1997.

Facts
A photovoltaic solar system comprises modules of photovoltaic cells, a roof mounting frame, various fixings, electrical wiring and conduits and inverters. The photovoltaic cells absorb solar energy and convert it to 'direct current' (DC) which is then conveyed to the inverters to change the DC power into useable 'alternating current' (AC) power. The photovoltaic cell modules are generally affixed to the roof of a property with a mounting frame, while the inverters may be installed at some other points within the property. All of the components are connected and interface by means of electrical wiring.

Reasons for decision
Summary: Division 43 of the ITAA 1997 allows a deduction for certain capital expenditure on capital works that are buildings, structural improvements or improvements to a building or structural improvements that are owned and used by the taxpayer for the purpose of producing assessable income (section 43-140 of the ITAA 1997). Expenditure on plant, however, is specifically excluded from construction expenditure that might otherwise qualify for deduction (paragraph 43-70(2)(e) of the ITAA 1997). The meaning of plant is contained in section 45-40 of the ITAA 1997 and includes machinery. Extending the ordinary meaning of plant to include machinery essentially means that machinery will always be plant for income tax purposes, irrespective of whether or not it is annexed or affixed to land or buildings (see Carpentaria Transport Pty Ltd v. FC of T 20 ALD 769; 90 ATC 4590; 21 ATR 513). A photovoltaic solar system is considered to be machinery because of the multiple mechanical functions it performs, including receiving, conveying and converting the solar energy into useable power. It is also considered that the integrated and interdependent components and functions of the system collectively form the machine which is, therefore, plant.

Legislative references: Income Tax Assessment Act 1997 Division 43 section 43-10 paragraph 43-70(2)(e) section 45-40
Case references: Carpentaria Transport Pty Ltd v. Federal Commissioner of Taxation (1990) 20 ALD 769 (1990) 21 ATR 513 90 ATC 4590
Related ATO interpretative decisions: ATO ID 2002/751
Subject references: Depreciable Plant Plant attached to land Unit of depreciable plant