Disclaimer
This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your private ruling

Authorisation Number: 1012262291814

Ruling

Subject: GST and renewable energy certificates

Questions:

Does Scenario C in Table 1 correctly show the outcome of the accounting method suggested in the letter sent to you by the ATO (ATO letter)?

If yes, is the GST payable for the solar installer under Scenario C significantly higher than 10% of the value added through his business activities expressed as the gross margin he has realised (see line [13])?

Does this then reflect a correct and desirable result within the spirit of the GST legislation? If you cannot answer this question, please let me know who would be the right person or Government agency to ask.

Do you agree that the paragraph below, with the numeric example given in Scenario B in Table 1, correctly accounts for GST in this context? If you agree, no need to read further.

The physical PV system and the STCs [small scale technology certificates] are two separate items. Together they make up everything that is supplied to the different parties that are involved during all steps of installing a PV system, including dealing with subsidies. The customer receives only the physical PV system. Solar Designs creates the STCs and later sells them to an 'STC buyer'. The customer only pays for the physical PV system (without STCs). The buyer of the STCs pays for the STCs. All up the correct total amount of payments is received by Solar Designs and the correct amount of GST is reported to fully reflect the value of all goods and services supplied.

Can the right to create the STCs that are assigned to you be considered goods acquired for re-sale thus allowing you to claim GST credits under Division 66 of the A New Tax System (Goods and services Tax) Act 1999 (GST Act)?

A very large number of PV installers have accounted for GST in the context of STCs similar to Solar Designs. If nothing else that would indicate that the legal situation was far from clear in the past. As a result, even if the accounting method outlined in the recent letter by the ATO was found to be mandatory for the future, it should not be enforced retrospectively for any systems sold prior to the mail-out. If such a decision is outside the scope of a private ruling, please let me know who else I should contact.

Answers:

No.

Refer to reasons for decision.

Refer to reasons for decision.

Refer to reasons for decision.

No.

Refer to reasons for decision.

Relevant facts and circumstances

You are registered for GST.

You operate on a cash basis of accounting for GST purposes.

You are a registered with the Office of the Renewable Energy Regulator (a GST registered organisation).

You sell and install solar power equipment and allow the purchaser to pay for their equipment by cash and by them assigning to you their right to create renewable energy certificates (also known as small scale technology certificates or STCs).

You have included a table (Table 1) with footnotes for a recent sale of solar equipment. Table 1 shows various methods you have applied in accounting for the sale and future sale of the STCs:

The assignment form you have included with your ruling application shows that for the above sale and installation you were assigned the right to create a certain number of STCs.

You have made an assumption that the STCs ultimately are sold for exactly the value assigned to them in the tax invoice and STC assignment form.

You have received a letter from the ATO (dated 27 April 2012) informing you how to account for GST on the STCs. The letter contains the following example:

ABC Solar Panels enters into a contract with a homeowner to supply and install a 1.5kw solar panel for $8,800 including GST.

The homeowner agrees to the following terms:

ABC Solar panels has made a taxable supply of $8,800 including GST and has a GST liability of $800 or 1/11th of $8,800.

When ABC Solar panels subsequently sells or transfers the STCs that are also required to account for GST on the value of the supply.

You state in your ruling application that there is no transfer of the right to create the STCs between the purchaser and the installer, that is, the purchaser makes the decision they do not want the STCs so they are left with the installer.

The STC Clearing House will pay no more than $40 per STC (GST exclusive).

You have provided a copy of a recipient created tax invoice from the STC Clearing House showing a sale you have made to them. They paid you $40 per STC and GST of $4.

Several assignment forms downloadable from the internet use the term discount in relation to the assignment of STCs.

Relevant legislative provisions

All references are to the A New Tax System (Goods and Services Tax) Act 1999:

Section 9-5

Section 9-10

Section 11-20

Subsection 9-15(2).

Reasons for decision

Does scenario C in Table 1 correctly show the outcome of the accounting method suggested in the ATO letter?

In answering this question and the remaining questions, it would be helpful to identify the supplies and acquisitions made in relation to the solar equipment and the STCs and to comment on any GST consequences.

Your supply of the solar equipment

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you make a taxable supply if:

Note that the supply is not taxable supply to the extent that it is GST-free or input taxed.

In your case, you are registered for GST and as part of your enterprise are making a supply of solar equipment in Australia for consideration. There are no legislative provisions in the GST Act or any other Act that would allow this supply to be GST-free or input taxed so consequently, your supply is taxable under section 9-5 of the GST Act.

Under section 9-15 of the GST Act, consideration for a supply includes any payment made in relation to the supply. The ATO view on what is meant by payment is provided by the GST public ruling GSTR 2001/6 (available from the ATO website www.ato.gov.au). Paragraph 12 of GSTR 2001/6 states:

A 'payment' is not limited to a payment of money. It includes a payment in a non-monetary or in an 'in kind' form, such as:

In your example from Table 1, you sold solar equipment for a certain price. The consideration you received was in the form of a cash payment and a non-monetary payment, this being the agreed value of the right to create the STCs.

Note that the assignment of STCs at an agreed value is commonly mistaken as the "discount" and is called as such on several assignment forms downloadable from the internet. Under the GST legislation, it is confirmed that there is no discount, only two separate payments for the solar equipment, one in cash and the other in kind, this being the right to create the STCs. The ATO has no authority or jurisdiction over the accuracy or otherwise of information stated on other organisations' publications.

Consequently, following the example you have given in Table 1 you would be required to remit GST on the total amount received (cash and the right to create STCs) in the tax period when you receive the cash payment and the right to create the STCs in return for your supply of the solar equipment.

The purchaser's supply of the right to create STCs

The purchaser assigns to you the right to create STCs. As seen above this is consideration for your supply of the solar equipment. It is also a supply to you under section 9-10 of the GST Act. Section 9-10 of the GST Act includes as a supply for GST purposes a transfer of any right. Paragraph 16 of GSTR 2001/6 also confirms this view and states:

Generally, a home owner or client is not registered for GST so there are no GST consequences when they assign to you the right to create the STCs. Note that where the purchaser is registered for GST, their supply to you of the right to create the STCs would be taxable under section 9-5 of the GST Act. In this case (as stated in paragraph 16 of GSTR 2001/6) you would be entitled to claim a GST credit once the purchaser issues you with a tax invoice for their supply of the right to create the STCs.

You state in your ruling application that there is no transfer of the right to create the STCs between the purchaser and the installer, that is, the purchaser makes the decision they do not want the STCs so they are left with the installer.

We consider this view to be incorrect as the right to create the STCs exists and rests with the purchaser. The STCs have value which is agreed upon between you and the purchaser. The purchaser could in effect register with the Office of the Renewable Energy Regulator then create and trade these STCs in their own name. They have chosen however to assign this right to you.

Sale of the STCs

You would be making a taxable supply under section 9-5 of the GST Act when you trade the STCs and hence, you would be liable to remit GST on the consideration received. You operate on a cash basis of accounting for GST so you would remit this GST in the tax period you receive payment.

Scenario C in Table 1

The example given in the ATO letter is illustrating correctly the GST treatment of the supplies identified above, that is, you must remit GST on the full price of your supply of the solar equipment and remit GST on the consideration you receive when you sell your STCs.

The example uses an agreed value of $40 per STC, however, this does not mean this is the amount you must use. You and the purchaser are entitled to come to any agreed price for the right to create the STCs. The example also makes no comment on the price you set when you sell your STCs. If you decide to sell at the market rate then this would be the price offered by a trader or $40 (GST exclusive) if sold through the STC Clearing House.

The agreed price you pay for the right to create the STCs and the price you receive when you sell your STCs can obviously affect Scenario C and is discussed below.

In Table 1, you state the agreed value of the STCs was a certain amount with Table 1 indicating that the STCs could be sold either to a trader or to the STC Clearing House. The assignment form you have included with your private ruling application shows you were assigned the right to create a certain number of STCs. You have also made an assumption in your private ruling application that the STCs ultimately are sold for exactly the value assigned to them in the tax invoice and STC assignment form.

Sale to the STC Clearing House

In the case where you sell to the STC Clearing House, a recipient created tax invoice included with your ruling application shows that the STC Clearing House will uplift the payment to you to take into account the GST payable. They do this as they are entitled to claim a corresponding GST credit thus making it GST cost neutral to them.

Following the recipient created tax invoice, the sale of the STCs to the STC Clearing House would imply you would be paid $40 plus GST of $4 per STC.

You and the purchaser agreed that the price for the right to create a STC was a certain price. As per the previous discussion, GST is payable on your sale of the STCs to the STC Clearing House. You are therefore an amount short of your net asking price on your supply of your solar equipment because you have agreed to a price for the right to create the STCs which cannot be obtained from their eventual sale.

Given this, we cannot accept your accounting treatment in Scenario C as being an outcome of the accounting method suggested in the ATO letter where you sell to the STC Clearing House as:

Note that had the purchaser been registered for GST, you would have been entitled to claim a GST credit on their supply to you of the right to create the STCs.

Sale to a trader

Currently, the market value of an STC is under $40 (say $23 GST exclusive).

In your scenario, it is clear you would be substantially out of pocket for this sale even if you uplift your price by the GST payable (given the trader is entitled to claim a corresponding GST credit as was the case in the STC Clearing House example).

For much the same reasons given in the STC Clearing House scenario, we cannot accept your accounting treatment in Scenario C as being an outcome of the accounting method suggested in the ATO letter when you sell to a trader.

If yes to question 1, is the GST payable for the solar installer under Scenario C significantly higher than 10% of the value added through his business activities expressed as the gross margin he has realised (see line [13])?

As discussed in question 1, when an installer agrees to a price for the right to create STCs higher than the market value, this will distort the supplier's profit and the GST payable, with the installer being required to pay more GST than other wise would be the case.

Does this then reflect a correct and desirable result within the spirit of the GST legislation? If you cannot answer this question, please let me know who would be the right person or Government agency to ask.

The Explanatory Memoranda to the GST Act (available from The Treasury's website www.treasury.gov.au) provides that GST is a tax on final private consumption in Australia.

Implicit in this is that a supplier will uplift their asking price for their supply by 10% to ensure the GST is paid by the recipient of the supply. Also, where the recipient is registered for GST and their acquisition is made in relation to carrying on their enterprise, they would be entitled to claim a corresponding GST credit.

In your case, you would not meet your net asking price on your supply of your solar equipment because as stated, you have agreed to a price for the right to create the STCs which cannot be obtained from their eventual sale. This is your choice and not as a result of any legislative provision.

The Treasury is responsible for making amendments to the GST legislation. If you consider the GST treatment as outlined above is not producing the outcome as given by the Explanatory Memoranda then you would need to contact this Department through their website.

Do you agree that the paragraph below, with the numeric example given in Scenario B in Table 1, correctly accounts for GST in this context? If you agree, no need to read further.

Refer to paragraph as stated in the questions.

For the reasons previously stated we do not agree with the statement that the purchaser only pays for the physical PV system (without STCs). We do agree that your accounting treatment for the GST payable given in Scenario B would be correct provided you pay no more than the market vale for the right to create the STCs and you uplift your asking price for the STCs by the GST amount payable (automatically done by the STC Clearing House).

Following the example given in the answer to question 1; if you agree to an asking price of $40 per STC and sold the 157 STCs to the STC Clearing House, you would obtain your net asking price.

Can the right to create the STCs that are assigned to you be considered goods acquired for re-sale thus allowing you to claim GST credits under Division 66 of the GST Act?

Under section 195-1 of the GST Act the term good means any form of tangible personal property.

In your case, you are receiving a right to create STCs. A right is not a good under the definition provided by section 199-1 of the GST Act. Consequently, Division 66 of the GST Act can not be applied to your acquisition of the right to create the STCs.

A very large number of PV installers have accounted for GST in the context of STCs similar to Solar Designs. If nothing else that would indicate that the legal situation was far from clear in the past. As a result, even if the accounting method outlined in the recent letter by the ATO was found to be mandatory for the future, it should not be enforced retrospectively for any systems sold prior to the mail-out. If such a decision is outside the scope of a private ruling, please let me know who else I should contact.

As previously stated, the example given in the ATO letter illustrating how to account for GST is correct with you and the purchaser being entitled to come to any agreed price for the right to create the STCs.

A supplier of solar equipment (as with any other type of supplier) can be subject to an ATO audit or review, with the outcome of that audit or review depending on the supplier's circumstances. The ATO also recognises that there is some misunderstanding as to the correct GST treatment when STCs are involved in the transaction. The ATO letter is not an audit but a means of providing information to suppliers to overcome and correct this misunderstanding that presently exists.

The example given in the ATO letter reflects the intention of the GST law when it was created and introduced on 1 July 2000. The application of the GST law to the purchase of the right to create STCs and to their sale is not new legislation but is based on the principles of the GST legislation introduced in 2000 and applied since.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).