How does generating solar power affect my taxes?

A MAJOR question for anybody thinking of installing solar panels will be how the Tax Office will treat householders who generate solar power and sell the excess back to the grid. 

You will be taxed on your profits if you are carrying on a "business" and the tests for carrying on a business described by the ATO include the prospect of profit, repetition and regularity, organisation in a businesslike manner and the size or scale of the activity.

If you are seen to be carrying on a business you will be required to declare the income from that business as taxable income but will also be allowed to deduct expenses such as depreciation, and even interest on funds borrowed to install the equipment. 

It could even open up a situation where a person could "negative gear" their solar panels. 

Factors taken into account by the ATO include "the solar panel system will be attached to your home rather than located at a dedicated business facility… although large for a home system it is designed for domestic rather than commercial use… there is no prospect of profit in the short or medium term and the likelihood of profit in the long term is also questionable as it is dependant both on the length of time the panels will remain effective before requiring replacement". 

They also point out that the moment you move house you will lose the benefit of the cheaper electricity. 

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email:

Topics:  australian tax office solar panels solar power

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