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ATO Interpretative Decision

ATO ID 2002/751 (Withdrawn)

Income Tax
Depreciating asset - photovoltaic solar system

Attention This ATO ID is withdrawn and has been replaced by Draft Taxation Ruling TR 2017/D1 Income tax: composite items and identifying the depreciating asset for the purposes of working out capital allowances.
Attention This document has changed over time. View its history.
FOI status: may be released
Status of this decision: Decision withdrawn 18 January 2017.

CautionCAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.


Issue

Is an entire photovoltaic solar system a single depreciating asset or are each of its component parts a separate depreciating asset pursuant to the definition of that term in section 40-30 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

The entire photovoltaic solar system is a depreciating asset pursuant to the definition of that term in section 40-30 of the ITAA 1997.

Facts

A photovoltaic solar system (the system) comprises modules of photovoltaic cells, a roof mounting frame, various fixings, electrical wiring and conduits and inverters.

The photovoltaic cells absorb solar energy and convert it to 'direct current' (DC) which is then conveyed to the inverters to change the DC power into useable 'alternating current' (AC) power.

The photovoltaic cell modules are generally affixed to the roof of a property with a mounting frame, while the inverters may be installed at some other points within the property. All the components are connected and interface by means of electrical wiring.

Reasons for Decision

A depreciating asset is, broadly defined, an asset that has a limited effective life and can reasonably be expected to decline in value over the time it is used (subsection 40-30(1) of the ITAA 1997).

There seems little doubt that, as a tangible operating mechanism, the system has both a limited effective life and can reasonably be expected to decline in value over the time it is used.

For composite items, however, it is necessary to determine whether the system itself is a depreciating asset or whether its components are separate depreciating assets (subsection 40-30(4) of the ITAA 1997). In doing this, the 'functionality test' that was used as a basis of identifying a 'unit of plant ' in the former plant depreciation rules can be used. Specific reference to a 'unit' or an 'item' is not necessary to attract the test because the definition of depreciating asset is based on a life in effective use and the depreciating asset must be identifiable as having it own life in such use. Taxation Ruling TR 94/11 contains some guidelines about the functionality test and explains how it must be applied to the particular factual circumstances of each case. Of particular importance is that the function of the thing being considered need only be separately definable or identifiable rather than be self contained or isolated.

A photovoltaic solar power system is formed by combining or linking a number of constituent components in a particular integrated or interdependent way. While each component contributes to the system, the relevant function is that of the system to deliver useable power. The function can only derived from the integration of all the components in a particular way. Based on this functionality, the system, rather than each of its components, is considered to be the depreciating asset in these circumstances.

Date of decision: 24 April 2002

Year of income:Year ending 30 June 2002

Legislative References:
Income Tax Assessment Act 1997
   section 40-30
   subsection 40-30(1)
   subsection 40-30(4)

Related Public Rulings (including Determinations)
Taxation Ruling TR 94/11

Related ATO Interpretative Decisions
ATO ID 2002/752

Keywords
Uniform capital allowances system
Depreciating assets

Siebel/TDMS Reference Number: DW363285

Business Line: Private Groups and High Wealth Individuals

Date of publication: 31 July 2002

ISSN: 1445-2782

ATO Interpretative Decisions history   Top  
   Date   Version 
   24 April 2002   Original statement   
 You are here ®  18 January 2017   Withdrawn   


 


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