Background
In a letter dated October 29, 2021, the Federal Ministry of Finance introduced a revised simplification rule for small photovoltaic systems (“PV systems”). Under this regulation, the tax authorities will assume, without further review , that the operation is a hobby activity not subject to income tax if the operator declares within a specified period that they wish to take advantage of the simplified rules. The right to opt for this hobby activity classification applies only to the intent to make a profit as defined by the Income Tax Act. The new hobby activity option therefore does not apply to value-added tax.
The following section addresses selected points of uncertainty.
Exercise of Voting Rights by Operators
The capacity limit must be assessed on a per-applicant or per-facility basis.
In the case of married couples, each spouse may take advantage of the simplified rule if the total capacity of the photovoltaic system(s) they operate does not exceed 10.0 kW/kWp. In addition, married couples may also take advantage of the simplified rule for a jointly operated photovoltaic system with a capacity of up to 10.0 kW/kWp.
The tax authorities apply the simplification rule on a per-operator or per-group-of-operators basis; that is, they treat all photovoltaic systems ( and/or combined heat and power plants) owned by a taxpayer as a single business operation: The 10.0 kW/kWp limit refers to the total capacity of the photovoltaic systems owned by the respective operator.
Treating the PV systems as a single business operation opens up opportunities for structuring the business.
If the total installed capacity of the photovoltaic system(s) exceeds the 10.0 kW/kWp limit, it is possible to reduce the capacity or transfer portions of it to a spouse or partner.*
* Gift tax exemptions and other potential tax implications must be considered on a case-by-case basis.
Specific Questions About Safe Electricity Use
| Specific Questions | Does not affect the application of the simplification rule for small PV systems |
| Solar power systems whose generated electricity is used to charge a privately owned electric car [Note: If the electric car being charged is a company car or business vehicle, the simplified rule may also apply. Clarification from the tax authorities is needed.] | yes |
| If the electricity generated is fed exclusively into the public grid without any of it being used for personal consumption | yes |
| In the case of multi-family buildings where individual units are rented on a long-term basis and the electricity generated is fed into the public grid, it is used for personal residential purposes and for common areas (e.g., stairwells, basements, and heating systems). | no |
| What happens when a property is vacant? | It depends on how the generated electricity is planned to be used in the future. |
Date of Application
For existing facilities (put into operation after December 31, 2003, and after December 31, 2021), the application must be submitted by December 31, 2022 (cut-off date).
For new systems commissioned after December 31, 2021, the application must be submitted by the end of the assessment period following the year of commissioning (e.g., by the end of 2023, if the PV system was commissioned in 2022).
The application has retroactive effect on previous tax assessment years; these must be amended to the extent permitted by procedural law.
Simplification Rule and Tax Deduction for Expenses Related to Household-Related Services
By taking advantage of the simplification rule (hobby), labor costs may, in some cases, qualify for a tax reduction as household-related services under Section 35a(3) of the Income Tax Act. However, this requires that the services in question be those of a tradesperson performed in the household. If a photovoltaic system covered by the simplification rule is located on a rental property outside the taxpayer’s own household, §35a(3) of the Income Tax Act does not apply.
If you have any questions, the schütze & wirtz tax consulting team will be happy to assist you.
Source: NWB, Federal Ministry of Finance
Photo: Bill Mead, Unsplash
Disclaimer: We assume no liability for the accuracy and completeness of the information. The information provided here does not constitute recommendations for action.
