Edited version of private ruling

Authorisation Number: 1011818858508

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Ruling

Subject: GST and installation of solar panel system - electricity fed back into the grid

Question

Can you claim the Input Tax Credit (ITC) for the purchase and installation of a solar panel system which was installed with the intention of generating income for you?

Answer

No, you cannot claim the Input Tax Credit on the purchase and installation of the solar panel system.

Relevant facts and circumstances

· You operate an enterprise.

· You are registered for GST.

· You purchased a solar grid system in your name.

· The system was installed at a location which is a commercial property.

· The system was purchased with the intention of generating income for you and the credits are not used to offset electricity costs at the location where it is installed.

· The electricity provider requires that the system be connected in the name of an account holder.

· The account holder is not you. The account holder passes the full amount of the credit to you. The reason that the system was installed this way was because you already have a solar system installed at your place of residence.

· The feed in tariff is based on total kilowatt hours produced by the solar panels. 100% of the electricity produced is sold back to the electricity supplier.

· There is not a contract between you and the account holder concerning the purchase, installation and operation of the system, nor did you purchase and install the system on behalf of the account holder.

Reasons for decision

Section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you are entitled to the input tax credit for any creditable acquisition that you make.

We must now consider whether your purchase of the solar panel system (the system) is a creditable acquisition.

Section 11-5 of the GST Act provides that you have made a creditable acquisition if:

(a) you acquire anything solely or partly for a creditable purpose; and

(b) the supply of the thing to you is a taxable supply; and

(c) you provide, or are liable to provide, consideration for the supply; and

(d) you are registered, or required to be registered.

That is, in order to make a creditable acquisition you must satisfy paragraphs (a), (b), (c) and (d) of section 11-5 of the GST Act.

In your case you have advised us that you have made a purchase of a solar panel system, that Goods and Services Tax (GST) was paid as part of the purchase and installation price and that you are registered for GST. You have therefore satisfied paragraphs 11-5(b), (c) and (d). However, we must now consider whether your acquisition was for a creditable purpose under paragraph 11-5(a).

For the meaning of creditable purpose we must consider section 11-15 of the GST Act which states that:

(1) You acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise.

(2) However, you do not acquire the thing for a creditable purpose to the extent that:

(a) the acquisition relates to making supplies that would be input taxed; or

(b) the acquisition is of a private or domestic nature.

Your acquisition of the system is not input taxed and you have advised that it has been installed on a commercial property with the intention of generating income. Therefore, paragraphs 11-15(2)(a) and (b) do not apply.

However, it still must be determined whether the acquisition was made in the carrying on of your enterprise under section 11-15(1).

Section 9-20(1) of the GST Act provides that an enterprise is an activity, or series of activities, done in the form of a business.

Paragraph 177 of Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number states:

177. To determine whether an activity, or series of activities, amounts to a business, the activity needs to be considered against the indicators of a business established by case law.

Paragraph 1 of Goods and Services Tax Determination GSTD 2006/6 Goods and services tax: does MT 2006/1 have equal application to the meaning of 'entity' and 'enterprise' for the purposes of the A New Tax System (Goods and Services Tax) Act 1999? provides that the principals in MT 2006/1 apply equally to the terms 'entity' and 'enterprise' and can be relied upon for GST purposes.

The question of whether a business is being carried on is a question of fact and degree. The courts have developed a series of indicators to determine the matter. These indicators are summarised in Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production. These indicators are applicable to business activity generally. Paragraph 13 of TR 97/11 lists these indicators as follows:

· whether the activity has a significant commercial purpose or character; this indicator comprises many aspects of the other indicators;

· whether the taxpayer has more than just an intention to engage in business;

· whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity;

· whether there is repetition and regularity of the activity;

· whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business;

· whether the activity is planned, organised and carried on in a businesslike manner such that it is directed at making a profit;

· the size, scale and permanency of the activity; and

· whether the activity is better described as a hobby, a form of recreation or a sporting activity.

In your case you purchased and installed a solar panel system with the intention of generating income for yourself, however, the system is not operated in your name and all monies generated by the system are paid to the account holder.

Further, there is no contract between you and the account holder concerning the operation of the system nor did you purchase the system on behalf of the account holder. Accordingly, you do not perform any activity in connection with the operation of the system.

Therefore, your purchase of the solar panel system cannot be considered to have been made in the carrying on of your enterprise under section 11-15(1) of the GST and is not a creditable acquisition for the purposes of paragraph 11-5(a) of the GST Act.

As you have not made a creditable acquisition your purchase and installation do not meet the requirements of section 11-20 of the GST Act and you cannot claim the Input Tax Credit in this instance.

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