Private ruling: Income - assessable
Published: December 2013
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Would payments received from your electricity retailer for the generation of electricity from a photovoltaic solar system be assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No.

Relevant facts and circumstances: You acquired and installed a photovoltaic system ('solar system'), on the roof of your private residence. The Government provides for a net solar feed-in tariff scheme. Under the scheme, owners of eligible renewable energy systems are paid x cents per kilowatt hour for energy exported to the grid that is in excess of the household consumption at the time of generation as recorded by the meter. 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. Upon ownership and installation of a SGU a statutory right arises under the REE Act entitling you to create Renewable Energy Certificates (RECs). As provided for under the RET scheme, you created and then signed the RECs to the supplier. You will receive income at a later date.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5. | Income Tax Assessment Act 1997 Section 6-10. | Income Tax Assessment Act 1997 Section 995-1.

Reasons for decision: Summary: Income, or more specifically assessable income, is divided into two categories: (i) ordinary income (being income according to ordinary concepts) which is made assessable by section 6-5 of the ITAA 1997; and (ii) statutory income which is made assessable by section 6-10 of the ITAA 1997 (being amounts made assessable under specific provisions of the ITAA 1997 or the Income Tax Assessment Act 1936). If an amount is not ordinary income, and is not statutory income, it is not assessable income. As there are no specific provisions within the legislation regarding credits received from energy suppliers it is not 'statutory income'. Therefore, it is only necessary to consider if amounts received from the energy company should be included as `ordinary income'. If the amounts were received as the result of carrying on a business they would be ordinary income. Business is defined in section 995-1 of the ITAA 1997 as 'any profession, trade, employment, vocation or calling, but does not include occupation as an employee.' This definition simply states what activities may be included in a business. It does not provide any guidance for determining whether the nature, extent, and manner of undertaking those activities amount to the carrying on of a business. Whilst the existence of a business or otherwise is a question of fact, a number of factors have emerged from case law which are considered relevant in considering this question. These factors were brought together in Taxation Ruling TR 97/11. Although TR 97/11 dealt with whether a business of primary production can be considered to exist, paragraph 11 of TR 97/11 states that the indicators are no different, in principle, from the indicators as to whether activities in any other area constitute the carrying on of a business. The indicators outlined in TR 97/11 which suggest a business is being carried on are · significant commercial activity; · purpose and intention of the taxpayer in engaging in the activity; · an intention to make a profit from the activity; · the activity is or will be profitable; · repetition and regularity of activity; · activity is carried on in a similar manner to that of the ordinary trade; · activity organised and carried on in a businesslike manner and systematically - records are kept; · size and scale of the activity; · not a hobby, recreation or sporting activity. Paragraph 16 of TR 97/11 states that indicators must be considered in combination and as a whole. Whether a business is being carried on depends on the 'large or general impression from looking at all the indicators, and whether these factors provide the operations with a 'commercial flavour'. The photovoltaic system is used principally to generate energy for your own domestic use as a householder. The information you have provided indicates that the activity will be of a small scale with very little excess energy being generated. The facts of your case indicate that your activity would not have a significant commercial purpose or character and that you are not in the business of producing or selling of energy. In conclusion, payments from your energy company in relation to the provision of energy are made for the purposes of a non-commercial or domestic transaction and are therefore not assessable income under section 6-5 of the ITAA 1997. Similarly the energy consumed by your household is not considered to be assessable income.