Solar on investment properties in Perth: tax, tenants, and returns

Perth investment property owners often ask whether solar makes sense when the electricity savings go to the tenant, not the landlord. The answer involves tax deductions, rental premiums, and vacancy rates — not just electricity bills.

Who gets the electricity savings

In a standard tenancy, the tenant pays the electricity bills. If you install solar:

• The solar generation reduces the tenant's electricity import
• The tenant pays less to Synergy
• The landlord receives no direct electricity saving

This is the fundamental difference between solar on your own home (you get the savings) and solar on an investment property (the tenant gets the savings).

But there are three ways the landlord benefits.

Benefit 1: rental premium

A Perth property with a solar system can command a rent premium. Research on WA rental markets suggests solar-equipped properties can achieve approximately $10–$30/week higher rent than comparable properties without solar, depending on suburb, system size, and season.

At $20/week rent premium:
52 × $20 = $1,040/year additional rental income

This is not guaranteed — the premium depends on the rental market, tenant demand, and property characteristics. Discuss with your property manager whether a solar premium is achievable in the specific suburb.

Benefit 2: tax deductions and depreciation

For a property held as an investment (i.e. generating assessable rental income), the ATO allows deductions for expenses related to the property, including capital allowances on depreciating assets.

Solar panels and inverter as depreciating assets: Solar panels and inverters qualify as depreciating assets under Division 40 of the Income Tax Assessment Act 1997. The ATO assigns an effective life to each asset:

• Solar panels: ATO effective life typically 20 years
• Inverters: ATO effective life typically 10 years

Depreciation methods:

• Diminishing value (DV): gives larger deductions in early years
• Prime cost: equal annual deductions over the effective life

Low value pool and instant write-off: If the total cost of all depreciating assets added to the property in a year exceeds the immediate write-off threshold, they're pooled and depreciated at the pool rate. For individual investors (not companies), immediate write-off provisions apply for assets under certain cost thresholds — confirm current rules with your accountant as these change with Federal Budgets.

Example deduction (diminishing value): $8,000 system, DV rate for 20yr life = 10% (200% DV method)

• Year 1: $8,000 × 10% = $800 deduction
• Year 2: $7,200 × 10% = $720 deduction
• etc.

At a 32.5% tax rate: $800 × 32.5% = $260 tax saved in year 1

Important: always engage a tax accountant to determine the correct depreciation claim for your specific situation. The ATO's rules on effective life and write-off provisions change, and a quantity surveyor report is often required for depreciation schedules on investment properties.

Benefit 3: rental demand and vacancy reduction

Rental properties with solar in Perth's competitive market are increasingly preferred by tenants. Lower electricity bills are a practical financial benefit that tenants factor into rental decisions, particularly:

• Households with higher electricity usage (families, WFH tenants)
• Tenants aware of rising electricity prices

A property that rents faster or maintains lower vacancy rates saves the landlord vacancy loss (typically calculated as weekly rent × weeks vacant). Even half a week less vacancy per year on a $600/week property saves $300.

The landlord's return calculation

| Year | Gross rental premium ($20/wk) | Depreciation tax saving (year 1, 32.5%) | Total annual benefit | |---|---|---|---| | 1 | $1,040 | $260 | $1,300 | | 2 | $1,040 | $234 | $1,274 | | 5 | $1,040 | $170 | $1,210 |

On an $8,000 system with $1,300/year combined benefit: Simple payback: approximately 6 years

This is longer than an owner-occupier's payback (which includes the electricity saving), but still financially positive over a 10–15 year hold.

Special considerations for investment properties

REBS/DEBS transfers: REBS does not transfer to a new owner on property sale. If an existing property has REBS, a new purchaser gets DEBS instead. This affects export credits — relevant if the tenant is on a tariff where exports are visible to them (unusual in standard tenancy arrangements where the bill is in the tenant's name).

Lease agreement provisions: The solar system is a fixture. Consider including a clause in the lease about the tenant's obligation to maintain solar monitoring access and report performance issues.

DEBS in tenant's name: When the electricity account is in the tenant's name, DEBS credits go to the tenant. The landlord doesn't collect export credits. This is standard and expected.

Solar system insurance: As a fixture of the investment property, solar panels should be covered under the property's landlord insurance policy. Confirm with your insurer.

Tax deduction amounts depend on your specific marginal tax rate and the ATO's current effective life assessments. Always confirm investment property tax treatment with a qualified tax accountant.