Payments for electricity generated from solar panels

Will you be taxed for selling solar-panel generated electricity back to the grid?

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.

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

The ATO has basically confirmed that, in typical situations where payments are received from electricity retailers by homeowners for the power generated by their solar panels that is exported to the grid, the payments would generally not be classed as assessable income, as they would be private or domestic in nature.  This conclusion takes 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.

In addition, 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.

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 assessable income.

Trust resettlements and CGT

Capital Gains Tax and resettling trusts deeds

The ATO has effectively confirmed that a trust deed can be varied without the trust being ‘resettled’ and causing Capital Gains Tax (CGT) problems.

More specifically, they state that there should be no CGT consequences if the trustee validly exercises a power contained within the trust deed to change the terms of the trust (or the deed is varied with the approval of a relevant court), unless:

  • the change causes the existing trust to terminate and a new trust to arise for trust law purposes; or
  • the effect of the change leads to a particular trust asset being subject to separate rights and obligations, giving rise to the conclusion that the relevant asset has been settled on terms of a different trust.