Solar Panels on Common Property

The simple ans is yes they can

BUT if individual owners do it to reduce their power bills it’s ok but if the strata do it it’s considered income and subject to tax and I have read one opinion that not only is the Strata liable to be taxed but individual lot owners could have to declare this as income on their tax returns. This to me seems crazy but then we are talking tax.

Our OC in the ACT has a communally owned PV system on common property (a shared carport roof) which connects to a meter box which supplies lighting to the common property. IE an account paid by the OC. We got a tax ruling on gross feed-in-tariff income.

Key points:

1) If the feed-in-tariff is gross then it is unrelated to consumption and all is taxable. 

2) If the FIT is net, then only the excess you produced, exported and have been paid for is taxable. The rest is just making power you have used yourself and it is not taxable. A block of flats with lots of lights running constantly during the day in an underground carpark and corridors could easily offset a lot of electricity without ever exporting. In such a case it would be simple. No tax, no FIT, just a lower apparent consumption and electricity bill. 

3) If you resolve that the OC will hold the PV system ‘in trust’ for the owners, then the income is assessed simply and once as non-mutual income of the OC at the business tax rate of 30%, just the same as non-mutual income you probably have from bank interest.

4) If the OC does not use the ‘in trust’ resolution, then the PV system is just a part of the common property that is held in most states by the OC as ‘agent’ for the owners. It is the ‘agent’ relationship that results in the nuisance requirement to divide up the income according to unit entitlements and then each owner has to declare their little bit on their tax return. As different owners have different marginal rates this results in a different benefit to different owners and the whole idea becomes difficult. Better to use the ‘in trust’ resolution!

5) If the OC is receiving income from the PV system, the OC can claim depreciation, linear over 20 years. 

Note, Whale has it the wrong way around. ‘in trust’ lets income be done simply, once on the OC tax return equitably with benefit to all owners through lower levies in proportion to unit entitlements. Having each owner required to declare their little bit is what you want to avoid.

@PeterC said:
Note, Whale has it the wrong way around. ‘in trust’ lets income be done simply, once on the OC tax return equitably with benefit to all owners through lower levies in proportion to unit entitlements. Having each owner required to declare their little bit is what you want to avoid.

Peter, you’re back!  We were about to send out search parties.

Re Whale’s position on taxable income, I believe there is a quirk in the NSW strata laws that means that income to the building has to be notionally distributed to owners as a pro-rata individual benefit (although it requires a unanimous vote of the owners to actually put the money in their accounts).

I hadn’t heard of the “in trust” angle – and I would love to know more if it means the Owners Corp can be taxed as a body for benefits it receives, rather than individuals being taxed for money they never see.  Anyone else know anything about this?

A bit more on the tax front, uniquely in NSW, the Owners Corp is regarded as an “agent” for the owners when it comes to common property whereas in other states and territories, common property is “vested” in the owners.

Have a look below to see what the ATO says about income derived from common property.  And here are links to three interesting documents related to the subject:

Taxation ruling IT 2505

An article for Strata Community Australia by Wally Paterson of Dynamic Strata Management.

And a Tax Office fact sheet on GST issues related to strata schemes

From IT 2505

INCOME TAX : BODIES CORPORATE CONSTITUTED UNDER STRATA TITLE LEGISLATION

17. The assessability of moneys received in respect of the common property, for example, fees derived from the letting of shops situated on the ground floor of a block of apartments where the ground floor forms part of the common property, varies according to the relevant State strata title legislation.

In those States where the common property is vested in the proprietors, viz. Queensland, Victoria, Tasmania, Western Australia, or vested in the body corporate as agent for the proprietors, viz. New South Wales, the income derived from the use of the property constitutes assessable income of the individual proprietors.

This is considered to be so even in those States where the strata title legislation prevents a proprietor from ever taking physical receipt (other than on winding-up) of the moneys, and where the moneys are paid directly into one of the body corporate’s funds.

In these cases, proprietors receive a benefit in that the amount needed to be levied on the proprietors by the body corporate as contributions to the administrative or other fund would be reduced by the rental income applied directly to the fund.

Accordingly, section 19 of the Act would apply to include these amounts as assessable income of the proprietors. Expenses attributable to the derivation of the income from the common property, including depreciation, would be allowable to the proprietors in proportion to their lot entitlement and to the extent of the revenue producing use of the individual lots (Taxation Ruling No. IT 2398 deals with depreciation of co-owned property).