On 26 August the government introduced what is referred to as the August tax bill. This contains a multitude of changes in the tax area however one of particular interest, and that serves as a useful reminder, is a proposed change where an individual sells electricity (presumably from solar) back to the grid.
There will be a significant number of taxpayers who do not use all the power generated from their solar and have an arrangement with their electricity provider to buy any excess and use it in the national grid. Most of these people have probably never considered income tax issues as part of that arrangement. However, the IRD have correctly identified that the sale of electricity is likely to give rise to taxable income and under current legislation should go into the tax return.
This is not as simple as it seems because in producing income from solar there is undoubtedly a number of costs such as the installation of the panels themselves, maybe borrowing cost relating to this, together with some costs of the house. If the solar is predominantly to generate electricity for the household apportionment of these costs becomes quite difficult (between private and income generating). The tax bill therefore takes a pragmatic approach and introduces a new section that will provide that where an individual supplies excess electricity generated at a dwelling that income will be exempt from tax. Given the exemption from tax the deductibility of expenditure does not need to be considered.
The exemption while useful is not all-encompassing. Where a non-individual (maybe a company or trust) generates excess electricity or where excess electricity is generated from something that is not a dwelling (e.g. a farm building or a warehouse) then there is a clear expectation that this income will be included in a tax return.
The proposed law change would be effective from the 2026-27 income year leaving some uncertainty for taxpayers on their past treatments.