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Are solar panel payments you receive from your electricity company assessable income?

More and more homeowners are installing solar panel systems in their homes. In some cases, the solar panel system may produce more electricity than they consume. If this is the case, the
homeowner can often "sell" the excess electricity back to their electricity company, which will be released into the electricity grid. In effect, the homeowner has become an electricity retailer!

This obviously begs the question: will the payments they receive from the electricity company be included in their assessable income?

The ATO has confirmed in a number of private binding rulings that there are no specific legislative provisions relating to payments received from electricity suppliers, so it is not statutory income.  In addition, in the opinion of the ATO, payments received in typical situations by homeowners (taking into account the amount of equipment used to generate the electricity, the current pricing structure, and the fact the homeowner produces the electricity for a domestic purpose only) would generally not be classed as income according to ordinary concepts, as it is private or domestic in nature.

Therefore, the payments received from the electricity retailer for the power generated by the solar panels and exported to the grid are not included in assessable income.

Note, however, that if the characteristics of the activity change (including the motivation for undertaking that activity, how the activity is undertaken and whether there is a real prospect of
profit from the activity), the receipts or credits from the activity may become (or cease to be) income according to ordinary concepts as a result of those changes.  In addition, the ATO makes it clear that taxpayers cannot rely on the rulings in the register of private binding rulings for their tax affairs; they can only rely on a private ruling that the ATO has given them directly (or to someone acting on that taxpayer's behalf).

Note: Since the payments are not assessable income and are private or domestic in nature, a homeowner in the above situation would not be able to claim a deduction for the costs associated with the solar system, such as interest and depreciation.

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