Solar systems can lower power bills for homes, businesses , farms and commercial properties. They can also reduce your tax with smart record keeping. However, the tax result depends on three questions: What equipment was bought? Who owns it? How much of the electricity is used to earn income?
What makes up a solar system?
Broadly, a solar system may contain several connected parts:
Solar panels capture sunlight and produce direct-current electricity, generally these are located on a roof or in an array.
A battery stores electricity for later use, such as at night or during peak milking.
An inverter changes direct-current electricity into alternating current that normal equipment can use.
Monitoring software records electricity generation, household or site use, battery charging and discharging, grid purchases, and power exported to the retailer.
Switchboard protection includes isolators, circuit breakers and other safety equipment needed to connect and protect the system.
The invoice should separate these items where possible. Their tax treatment depends on whether they are identifiable as separate assets or parts of one overall asset.
How depreciation works
Buying and installing a new system is normally capital expenditure, so the full cost is not usually claimed immediately. Instead, the owner may claim depreciation on the income-earning portion. The current rates for key components are solar power harnessing equipment at 16% diminishing value or 10.5% straight line, and an independently identified ordinary battery at 40% diminishing value or 30% straight line. A modular battery energy storage system used by the power-generation industry or national grid has a different rate (13% DV & 8.5% SL) and is not the usual home or farm battery.
The correct rate for the inverter, software, switchboard work and related installation costs depends on proper asset identification. Some costs may form part of the solar equipment; others may belong to a separate electrical or software asset. We recommend checking the invoice and system design rather than guessing and ask the supplier to break it down in their documents.
Also consider that Investment Boost is likely to apply which will allow an accelerated depreciation claim of 20% in the first year of installation from 22nd May 2025 onwards.
Home office expenses: using actual costs
If using the actual-cost method for calculating a home office claim, rather than IRD published rate formula, the owner may claim depreciation and relevant running costs to the extent that the solar electricity supports the business. However, the office floor-area percentage is not automatically the right electricity percentage.
For example, monitoring software might provide a monthly report showing:
1,000 kWh generated by the panels;
700 kWh used at the property;
300 kWh exported to the grid;
250 kWh charged into the battery; and
180 kWh measured through the home-office circuit.
If reliable sub-metering shows that the office used 180 kWh out of 700 kWh used at the property, this indicates a business-use share of about 25.7%. That percentage may help allocate depreciation and shared solar costs. The calculation must still reflect how battery power, grid power and any other business equipment were used. We recommend keeping full reports to establish business usage, rather than screenshots.
Commercial use
If a system supplies only an income-earning commercial site or dairy shed, the owning business can generally claim depreciation for full business use. If it also supplies a farmhouse, private area or another user, divide the claim using meter data or another reasonable measure. For leased premises, confirm whether the landlord or tenant owns the system and whether any work is a lessee improvement, or there is a component of the lease which relates to supplied electricity.
Records that support the claim
We recommend keeping:
Pre-installation electricity bills—ideally at least 12 months, and longer where use changes by season—to show historical kWh used, peak periods, prices.
Post-installation, retain meter downloads and notes explaining major changes such as new machinery, electric vehicles, more staff or longer working hours. Power generation and usage information will be available in your monitoring software. Also provide your post-installation power bills.
To identify the depreciation claim on your solar system, keep all costs of the system and installation including - supplier quotes, signed contracts, tax invoices, proof of payment, finance or lease agreements, warranties, commissioning documents, equipment model numbers, a wiring or circuit diagram, and any breakdown of panels, battery, inverter, monitoring software, switchboard protection, labour and consent costs. Keep ongoing monitoring reports and retailer statements after installation.
Before filing your return, talk to us. We can help identify the assets, confirm ownership, select the depreciation method and support a fair business-use calculation. See the detailed analysis above for the technical rules and examples behind this summary.
