Private ruling: Small Business write-off deduction
Date of advice: 13 October 2017
Published: March 2018
Ruling period: 1 July 2016 to 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Is a portion of the costs and installation of a hybrid solar system allowed as small business write off deduction? | A1: Yes, but in working out the amount you can claim you must subtract any private use portion.

Relevant facts and circumstances: You are a sole trader electrical contractor with accreditation from the Clean Energy Council to design and install grid connected solar systems with battery storage. Your main business activities are related to solar panels. You conduct your sole trader business from your workshop at your primary residence and you have one casual employee. You have a small business turnover of less than $10 million. You installed a solar system (XY panels grid/hybrid connected) on the workshop located beside your primary residence at a cost greater than $10,000 in mid 201X You use the solar system for work purposes to show potential customers the size of system (batteries/inverter), how the system would fit customers premises, how customers can monitor the system through the internet. You provide 2 - 3 demonstrations a month that can last from 30 minutes to one hour depending on customer interest. You use the solar system as a diagnostic tool, repair/test invertors and to test new systems or technologies. The electricity account is held in your name. You and your family use the power generated by the solar system for private purposes. Your primary residence is home to you and your family (four occupants)

Relevant legislative provisions: Income Tax Assessment Act 1997 section 40-30 | Income Tax assessment Act 1997 subdivision 328-D | Income Tax Assessment Act 1997 section 328-180

Reasons for decision: Summary: As you carry on a business and your aggregated turnover is less than $10 million, you are entitled to apply the simplified depreciation rules by claiming an immediate deduction for a depreciating asset that cost less than $20,000. However, your depreciation deduction is limited to the percentage your asset is used for business. This means you must only claim a deduction for the portion of the asset used for business purposes, not for the portion for private use. You must make a reasonable estimate on business and private use. | Detailed Reasoning - Detailed reasoning: Under sub division 328-D Income Tax Assessment Act 1997 you can choose to use simplified depreciation rules if you have a small business with an aggregated turnover of less than $10 million. Under these simpler rules, you: ● claim an immediate deduction for most depreciating assets that cost less than $20,000 each that was acquired and installed ready for use from DDMMYY until the end of 30 June 201Y (section 328-180) The deduction is limited to the taxable purpose proportion of the asset’s cost. In your case, you are a small business entity and entitled to a deduction for the business use of the solar system. That is the deductable amount is the portion that relates to the use of the system for the purpose of producing assessable income. As there is a substantial private use purpose, the deduction is reduced accordingly. The solar system was purchased in June 201X and installed in July 201X. As the solar system was not installed and ready for used in the 201A – 201X financial year, no deduction is allowed for that year. The allowable taxable purpose portion is deductable in the 201X – 201B financial year.

ATO view documents: Guide to depreciating assets 2017 (NAT 1996)