Private ruling: Assessable income
Published: August 2014
Ruling period: Income year ended 30 June 2013 | Income year ended 30 June 2014
Date scheme commenced: On or after 1 October 2012

Ruling: Q1: Are credits/payments received from your electricity retailer for the generation of electricity from a photovoltaic solar system assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No | Q2: Are the costs associated with the solar system, such as interest and depreciation, deductible under section 8-1 of the ITAA 1997? | A2: No

Relevant facts and circumstances: You acquired and installed a 5kw solar system on the roof of your private residence. Your state government provides for a net feed-in tariff solar scheme (the 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 house consumption at the time of generation as recorded by the meter. The reason you purchased the solar system was to produce non-polluting electricity for your own home and to export energy back into the grid to help recover the costs of the solar system. You have started to receive credit payments from your energy retailer.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 8-1

Reasons for decision: Summary: 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. Based on the configuration of the system you installed, the arrangement with your energy supplier/retailer, your estimated feed-in tariff payment and the fact that the property in question is your private residence it is considered that the arrangement is private or domestic in nature. That being so: • the payment you would receive for the generation of electricity from solar systems are not assessable income under section 6-5 of the ITAA 1997, and as a result • the costs you would incur in relation to the generation of electricity from the solar system such as decline in value, borrowing and interest expenses are not deductible under section 8-1 of the ITAA 1997 as they are not incurred in producing assessable income and they relate to expenses that are private and domestic in nature.