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Ruling

Subject: GST and supply of electricity

Questions

Is your supply of electricity a taxable supply?

If your supply of electricity is a taxable supply, should the energy retailer pay you GST?

Answers

Yes, your supply of electricity is a taxable supply?

The Australian Taxation Office (ATO) cannot advise on whether the electricity retailer should pay you GST as this is a pricing issue that is governed by your agreement with the electricity retailer.

Relevant facts and circumstances

You are registered for goods and services tax (GST).

You are carrying on an enterprise of supplying electricity generated by solar panels.

You installed solar panels in your premises. You took out a loan to partially cover the costs of purchasing and installing the solar panels.

You claimed input tax credits for the GST that you paid in purchasing and installing the solar panels.

You recorded the solar panels in the books as assets of the business.

You participated in the Solar Bonus Scheme (scheme).

The scheme pays eligible customers for the surplus electricity generated from the solar panels which is exported to the grid.

Under the scheme, you receive payments in the forms of credits indicated in your electricity bill or in cash.

You supply the electricity to an electricity retailer.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5,

A New Tax System (Goods and Services Tax) Act 1999 section 9-10,

A New Tax System (Goods and Services Tax) Act 1999 section 9-15,

A New Tax System (Goods and Services Tax) Act 1999 section 9-20 and

A New Tax System (Goods and Services Tax) Act 1999 section 9-25.

Reasons for decision

1. GST is payable on a taxable supply.

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states:

You make a taxable supply if:

· you make the supply for *consideration; and

· the supply is made in the course or furtherance of an *enterprise that you *carry on; and

· the supply is *connected with Australia; and

· you are *registered, or *required to be registered.

However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.

(*denotes a term defined in section 195-1 of the GST Act).

Supply for consideration

'Supply' is defined in subsection 9-10(1) of the GST Act as any form of supply whatsoever.

'Consideration' is defined in subsection 9-15(1) of the GST Act to include any payment, or any act or forbearance, in connection with a supply of anything; and any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.

It does not matter whether the payment, act or forbearance was voluntary, or whether it was by the recipient of the supply.

For the purpose of paragraph 9-5(a) of the GST Act, there must be a supply, a consideration, and a sufficient nexus between the two.

The supply of solar generated electricity is a supply for GST purposes. Under the scheme, you receive payments for the surplus electricity that you generate which is exported to the grid. We understand that, under the scheme, the payments are calculated based on the amount of electricity exported to the grid. Thus, you only receive the payments if there is electricity exported to the grid. As such, there is sufficient nexus between your supply of electricity and the payments that you receive under the scheme. The requirement in paragraph 9-5(a) of the GST Act is satisfied.

Supply made in the course of carrying on your enterprise

Whether an entity is carrying on an enterprise is a question of fact and degree. However, you advised that you are carrying on an enterprise of generating electricity and selling them to the electricity retailer through the grid. Therefore, your sale of electricity is a supply made in the course of an enterprise that you carry on. The requirement in paragraph 9-5(b) of the GST Act is satisfied.

The supply is connected with Australia

According to subsection 9-25(1) of the GST Act, a supply of goods is connected with Australia if the goods are delivered, or made available, in Australia to the recipient of the supply.

For supplies of anything else, the supply is connected with Australia under paragraph 9-25(5)(b) of the GST Act if the supplier makes the supply through an enterprise that it carries on in Australia.

Whether your supply of electricity is characterised as a supply of goods or a supply of something else, the supply is connected with Australia. The requirement in 9-5(c) of the GST Act is satisfied.

Registered or required to be registered

You advised that you are registered for GST. Therefore, the requirement in paragraph 9-5(d) of the GST Act is satisfied.

Conclusion

There is no provision in the GST Act under which your supply of electricity would be GST-free or input taxed. All the requirements of section 9-5 of the GST Act are met. Therefore, your supply of electricity is a taxable supply.

2. Section 9-40 of the GST Act states:

'You must pay the GST payable on any *taxable supply that you make.'

Accordingly, it is the supplier who is liable to pay the GST on the taxable supplies that it makes. There is no provision in the GST Act that requires the recipient to pay the GST payable on a taxable supply that it acquires.

It is common practice for a supplier to recover from the recipient the amount of GST that the supplier is liable to pay by increasing the price for the supply. This is a pricing issue which is not governed by the GST Act

Determining the price for a supply is a contractual matter between the supplier and the recipient of a supply and the ATO cannot get involved in such matters.

Whether or not the electricity retailer should pay you an additional amount to cover your GST liability depends on your agreement with the electricity retailer in relation to your supply of electricity under the scheme.

If the electricity retailer does not pay an additional amount to cover your GST liability for any reason, this does not stop your supply of electricity from being a taxable supply. Accordingly, you are liable to pay GST calculated on the payments (whether in cash or in the form of credits to your electricity bill) that you receive for your supply of electricity.

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