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Ruling

Subject: Carbon Adjustments

Question 1

Is Goods and Services Tax (GST) payable on the carbon adjustment reflected on the invoice received from an electricity provider?

Answer

Yes

Question 2

Is the carbon adjustment, included in the on-charge of electricity to tenants, subject to GST?

Answer

Yes

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are registered for Goods and Services Tax (GST).

Electricity is supplied to you.

The electricity provider charges GST on the emissions and renewable energy charges billed to you.

You have referred to the emissions and renewable energy charges as a 'carbon adjustment'.

You supply electricity through your internal network to tenants and bill them accordingly.

Some tenants' invoices are bundled up and hence there is no need to show the carbon adjustment as a separate line item. GST is applied to the total bill.

However, for other tenants (due to different tariffs etc) the carbon adjustment breakdown needs to be shown separately.

To date you have not charged GST to any tenants for the carbon adjustment.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 Section 9-10.

Reasons for decision

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.

Section 9-10 of the GST Act provides that supply includes a supply of services.

Goods and Services Tax Determination GSTD 2000/10, Goods and Services Tax: are outgoings payable by a tenant under a commercial property lease part of the consideration for the supply of the premises?, considers the GST consequences arising from the reimbursement or payment of the landlord's outgoings for the supply of the premises.

Paragraph 1 of GSTD 2000/10 states:

A supply of premises under a commercial property lease together with the services required by the tenant to use the premises will, subject to paragraph 5 of this Determination, be a single supply of real property for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 ('GST Act') and the A New Tax System (Goods and Services Tax Transition) Act 1999 ('Transition Act'). Where a single supply is made the reimbursement or payment of the landlord's outgoings is consideration for the supply of the premises.

Paragraph 7 of GSTD 2000/10 provides further:

If a single supply is made under the lease we do not consider that the payment of outgoings by the tenant is a payment for a supply that has the same character as the supply made by a third party to the landlord. The payment is made by the tenant for the supply by the landlord of the premises and not for the particular supply made to the landlord to which the outgoings relates. Therefore, if the landlord is making a taxable supply, it will not matter whether the outgoing, when incurred by the landlord, was a taxable supply to the landlord. For example, the landlord's cost of acquiring a GST-free supply in order to supply the premises becomes a business cost of the landlord……….

Paragraph 10 considers the position where a supply to a landlord is GST-free. The example used is the supply of water and sewerage services to the landlord which may be GST-free. Where the supply under the lease to the tenant involves an incidental provision of water this will not be a supply of water for the purposes of the GST Act. Unless the lease agreement specifies that the landlord will make a separate supply of water to the tenant, any contribution by the tenant to the landlord's expenditure on water will not be consideration for a GST-free supply of water. Where a single supply is made by the landlord, the amount payable by the tenant in respect of water or sewerage will be subject to GST if the supply of the premises is a taxable supply.

In your case, you are supplied with electricity by the electricity provider. As a result of the clean energy measures introduced on 1 July 2012, the electricity provider has included an amount in respect of emissions and renewable energy charges on your account.

The ato.gov.au website provides information on the GST implications of the clean energy measures and eligible emission units. While the eligible emissions units are GST free to the purchaser, in this case the electricity provider, this amount is an input cost to the electricity provider for their supply of electricity. As the electricity provider provides taxable supplies of electricity, the GST is calculated based on the final price of their taxable goods or service.

Consequently, when you supply electricity though your internal network to tenants and bill them accordingly, your charge will be based on the increased costs to you (including emissions and renewable energy charges). The total charge will be subject to GST in accordance with the guidance contained in GSTD 2000/10. This will be irrespective of whether the charges are itemised or 'bundled' on the invoice.

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