Solar Panel Depreciation Rate (ATO): How to Claim for Your Business

When your business buys a solar system, the ATO does not let you claim the entire cost as a deduction in year one (unless it falls under the instant asset write-off threshold). Instead, you spread the deduction over the asset's effective life. This annual deduction is called depreciation.

For a commercial solar system costing $30,000–$100,000 or more, the depreciation deductions add up to a significant tax saving over the life of the system. Getting the rates right matters.

Under TR 2022/1, the ATO publishes effective life determinations for different types of assets. A solar power system, including panels, inverters, and mounting, falls under the "Photovoltaic electricity generating system" asset class with a default effective life of 20 years. The ATO does not publish separate effective lives for individual solar components like inverters or batteries when they form part of an integrated system.

However, under TR 2024/1 (which deals with composite items), some tax practitioners argue that certain components can be treated as separate depreciating assets with their own self-assessed effective lives. This is where things get nuanced.

The ATO gives you two ways to calculate depreciation. Once you choose a method for an asset, you are locked in for its entire life.

The prime cost method spreads the deduction evenly across the effective life. You claim the same dollar amount every year. It is simple and predictable.

The diminishing value method front-loads the deductions. You claim a higher amount in the early years and progressively less over time. The rate is calculated as 200% divided by the effective life (so 200/20 = 10% for solar panels). Each year, you apply that rate to the remaining written-down value, not the original cost.

For most businesses, diminishing value is the better choice. You get larger deductions when they matter most, in the first few years after purchase. However, if you value consistency in your tax planning, prime cost keeps things simple.

Let's say your business installs a commercial solar system quoted at $50,000 gross. After the STC rebate of $3,500, the depreciable cost base is $46,500. Here is how the two methods compare for the solar panel component over the first 10 years (assuming panels make up $35,000 of the net cost).

If your business has aggregated annual turnover under $10 million, you are classified as a small business entity and can use the simplified depreciation rules. Instead of tracking each asset's individual effective life, you add it to a general small business pool.

Assets in the pool are depreciated at 15% in the first income year and 30% in each subsequent year. For many small businesses, this is the simplest approach. You do not need to worry about individual asset effective lives or whether components should be separated. Everything goes into the one pool.

The pool rate of 30% from year two is significantly faster than the prime cost rate for panels (5%) and reasonably close to the diminishing value rate. For a $46,500 net system, the pool would give you a $6,975 deduction in year one (15%) and $11,858 in year two (30% of the remaining pool balance). That is $18,833 in deductions over just two years, compared to $3,500 under prime cost.

The instant asset write-off lets eligible small businesses deduct the full cost of an asset immediately, rather than depreciating it over time. For the 2025–26 financial year, the threshold is $20,000 per asset.

Most commercial solar systems cost well above $20,000, so the instant write-off will not cover the full system. However, if your installer invoices the components separately, individual items under $20,000 can potentially qualify. A $12,000 battery or a $4,000 inverter, for instance, might each fall under the threshold. Discuss this with your tax agent before committing to an invoicing structure.

Businesses can also take advantage of state-level commercial solar rebates that stack on top of both the instant write-off and depreciation. Several states run certificate schemes that further reduce the upfront cost.

For systems above the threshold, depreciation through the general rules or the small business pool is your path to claiming the deduction.

This trips up a lot of business owners. When you receive the STC rebate as a point-of-sale discount (which is how most installers handle it), the depreciable cost of the asset is the amount you actually paid, not the pre-discount price.

If your system has a gross price of $50,000 and you receive $3,500 in STCs applied as a discount, your cost base for depreciation purposes is $46,500. Claiming depreciation on the full $50,000 overstates your deduction and is one of the things the ATO specifically looks for.

Make sure your installer's invoice clearly shows the STC discount as a separate line item. This makes it straightforward for your accountant and provides a clear audit trail.

If you run a business from home and install solar on your residence, you can claim depreciation, but only for the business-use portion. The ATO requires a reasonable method of apportionment.

Common approaches include calculating the percentage of floor area used for business, or the percentage of electricity consumed by business activities. If your home office uses 25% of the household's electricity, you can claim 25% of the solar system's depreciation.

Keep records that support your apportionment method. A solar monitoring app that shows generation and consumption data is useful evidence. The ATO is more likely to accept your claim if you can demonstrate a logical, documented basis for the percentage you have chosen.

For farming businesses, depreciation works the same way, but there are additional primary producer concessions that may apply. Our farm solar guide covers how farm management deposits and primary producer tax concessions interact with solar depreciation.

The ATO uses data matching to identify solar installations (they receive data from the Clean Energy Regulator) and can cross-reference this against your tax return. Here are the things that raise flags.