Solar panels and tax deductions for Perth small businesses and home offices

If you run a business from your Perth home or operate commercial premises, your solar system may be partially or fully tax-deductible. The rules differ depending on whether you're a sole trader, a company, and how much of your property is used for business purposes.

This article provides general information. Consult a registered tax agent for advice specific to your situation.

Residential solar: when it's a business deduction

A residential solar system is generally not deductible for personal use. You can't claim a deduction just because solar reduces your household electricity bill.

However, if you run a business from home, you may be able to claim a proportion of the solar system as a business asset:

Condition 1 — Your home office must be a genuine business space. The ATO distinguishes between a dedicated business-use room (eligible) and a kitchen table or shared living space used incidentally for work (not eligible for asset depreciation). A dedicated room used primarily and regularly for business — with a separate desk, equipment, and ideally a lockable door — qualifies.

Condition 2 — You use the electricity for income-producing purposes. If your business activities consume electricity from your solar system, that's a deductible expense.

Condition 3 — You can calculate the business proportion. You'll need to apportion the solar system value between business and personal use. A common method is to use the floor area of your business space as a proportion of total home floor area.

Example: Your home is 200m². Your dedicated home office is 15m² (7.5%). If you install a $12,000 solar system, the business-use proportion is $12,000 × 7.5% = $900. This $900 is deductible as a depreciating asset, not as an immediate deduction (unless Temporary Full Expensing applies — see below).

How solar is depreciated for tax

Solar panels are a depreciating asset. The ATO assigns an effective life to different asset types for tax depreciation purposes.

Solar panels: ATO effective life — 20 years.

• Diminishing value method: 10% per year (faster in early years)
• Prime cost method: 5% per year (uniform deduction over 20 years)

Inverters: ATO effective life — 10 years.

• Diminishing value method: 20% per year
• Prime cost method: 10% per year

Batteries: ATO effective life — 5 years.

• Diminishing value method: 40% per year
• Prime cost method: 20% per year

If you're a small business (aggregated turnover under $10M), the simplified depreciation rules apply — you can pool depreciating assets and write off the business portion faster.

Instant asset write-off and temporary full expensing

The ATO periodically introduces accelerated deduction measures for small businesses.

Instant asset write-off: If your business turnover qualifies and the asset is under the threshold, you can immediately deduct the full cost in the year of purchase rather than depreciating it over its effective life.

Temporary Full Expensing (TFE): This was available for assets first held or ready for use from October 2020 to June 2023. If this or similar measures are in effect when you purchase solar, the full business-apportioned cost may be immediately deductible.

Check current ATO guidance at ato.gov.au for the most current instant asset write-off threshold and eligibility for the tax year you're claiming.

GST and solar installations

If you are GST-registered, you may also be able to claim a GST input tax credit for the business proportion of your solar system purchase. The installers will issue a tax invoice with GST included — you claim the GST credit for the business-use percentage.

Example: $12,000 solar system including GST of $1,090. Business use: 7.5%. GST input tax credit: $1,090 × 7.5% = $82.

Commercial solar: different rules

If you install solar on commercial premises (a shop, warehouse, factory, office), the rules are simpler:

• The entire cost of the solar system is a business asset (no personal-use apportionment)
• The full cost is depreciable at the applicable ATO rates
• GST credits apply for the full GST amount if you're registered
• Small business instant asset write-off applies to the full purchase price (subject to threshold)

Perth commercial buildings with significant daytime power loads (retail refrigeration, manufacturing equipment, HVAC) see faster payback on commercial solar because the self-consumption rate is higher — most generation is consumed on-site at avoided retail rates rather than exported at lower feed-in rates.

Ongoing electricity savings and tax

Note that electricity savings from solar — reduced power bills — are not treated as income for tax purposes for residential property owners. However, for commercial solar, if the solar system generates excess power that you sell (via a smart meter and feed-in arrangement), that income may be assessable.

For residential home office users, the electricity saving attributable to the business portion could arguably reduce the deductible electricity cost you'd otherwise claim — your registered tax agent can advise on the correct treatment.

Record keeping

Keep records of:

• The solar installer's tax invoice (showing GST)
• The date of installation (establishes when the asset was first held for use)
• Proof of business use (home office floor area measurements, schedule of business activities)
• Your depreciation schedule if depreciating over time

The ATO's myDeductions app allows you to photograph and store receipts throughout the year.

Solar panels for Perth residential homes with a genuine business use are partially deductible. Commercial premises get the full deduction. Key steps: establish the business-use proportion, apply the correct depreciation method, and claim GST credits if registered. A registered tax agent familiar with rental/business property deductions can confirm the right treatment for your specific situation.