Home office & small business solar: tax and interest splits

Key Takeaway

Australian homeowners using solar to power a home office or small business can claim deductions by correctly apportioning running and finance costs based on business-use percentage, not property security. Typically, only 10–40% of solar electricity and interest is deductible where there is mixed personal and business use. Clear loan splits, usage estimates and records help maximise legitimate claims, minimise ATO audit risk, and protect the family home from being overexposed to business borrowing.

If you use your home for business, you can usually claim a portion of solar running costs and sometimes interest, but only to the extent the power and borrowing relate to income‑producing use. The key is to apportion correctly (often 10–40%), separate loan purposes, and keep records so your accountant can safely support the deduction.

Calculating business use of home solar costs at kitchen table Work out a clear business-use percentage before claiming solar deductions.

Step 1: Work out your business‑use percentage

The ATO expects a reasonable method, not perfection. For solar used in a home business or home office, you generally look at:

Floor area — office or business space ÷ total internal area
Time — hours the area is used for work vs private
Energy‑intensive gear — servers, fridges, tools, EV chargers for the business

In practice, accountants often use a blend of space and time.

Example

Home: 180 m²
Dedicated office: 18 m² (10%)
You work from home 5 days out of 7 (≈71%) during the day when solar is generating.

Rough business‑use percentage: 10% × 71% ≈ 7%.
If you also run a side business using power‑hungry equipment in the garage, that percentage might reasonably lift into the 15–30% range.

Document your logic (one page is enough) and keep it with your tax records.

Step 2: Split solar costs into running vs capital

Solar has three main cost buckets:

Running costs – electricity bills, monitoring subscriptions, small repairs.
Capital costs – the panels, inverter, battery, installation.
Finance costs – interest and fees on any loan used to fund the system.

Running costs

Running costs are normally deducted each year to the extent of business use.

If your energy bills net of feed‑in are $2,000 a year and you calculate 25% business use, your deduction is:

$2,000 × 25% = $500 deductible

The same percentage usually applies to small repairs, monitoring software and maintenance.

Capital costs

For most home‑based businesses, solar sits under depreciating assets rules, but in practice the claim is often minimal unless you have a proper business structure and income.

Your accountant may:

Add your business‑use share of the solar to a depreciation pool, or
Treat it more like a home‑office fit‑out where only a modest portion is deductible over time.

Because capital treatment can change with Budget rules and thresholds (e.g. instant asset write‑off limits), you really want your tax adviser in the loop.

For more advanced setups – like your SMSF or business owning the premises – see /insights/smsf-business-premises-solar-deductible-asset.

Step 3: Allocating interest correctly (where most people go wrong)

For tax, loan purpose – not the security – drives deductibility. Whether the loan is secured by your home, business premises or unsecured doesn’t change that (see also fact 20 in the hub). So you need to answer two questions: 1. What exactly did this borrowing pay for? 2. What percentage of that spend is for business use? ### Better: use clear, separate splits If you add $20,000 of solar to an existing home loan, ask the lender to create a separate split labelled “solar + business use”. Example structure:…

Frequently asked questions

Start by working out the floor area used for your business compared to the whole home, then adjust for the time it’s actually used for work and any power-hungry business equipment. Document your method and use that percentage consistently across electricity bills, repairs and the business-use share of any solar finance interest. Your accountant can help refine the figure and ensure it’s ATO‑defensible.

You can usually only claim interest where the borrowing funded an income‑producing asset and then only to the extent of business use. The cleanest approach is a separate loan split that clearly paid for the solar. If, say, 30% of the system’s use is for business, then around 30% of the interest on that split may be deductible, assuming you can trace the funds clearly.

Keep your solar and grid electricity bills, the installer contract and invoice, and loan statements showing how you funded the system. Add a brief note explaining your business-use percentage, including floor area, hours of use and any major business equipment powered by solar. Store these with your tax workpapers so your accountant can support the deduction if the ATO asks questions later.

Using Solar For Home Office Or Business: Getting Tax Splits Right