Edited version of your private ruling

Authorisation Number: 1012462053050

Ruling

Subject: GST and assignment of the right to create small-scale technology certificates

Question 1

Are the assignment of the right to create small-scale technology certificates (STCs) by the owner of a small generation unit (SGU) to an installer and the subsequent on-assignment of the right to create STCs by the installer to you two separate supplies for goods and services tax (GST) purposes?

Advice question 1

No. Pursuant to the Renewable Energy (Electricity) Act 2000 (Cth) (REE Act) the owner of a SGU at the time that a right to create STCs arises may either:

· create STCs (subsection 23C(1) REE Act); or

· assign the right to create STCs to another person by written notice (in which case the owner is not entitled to create STCs but the assignee is entitled to create STCs) (subsection 23C(2) REE Act).

In the present case the owner of the SGU assigns the right to create STCs to the installer by signing the mandatory declaration on the STC Assignment Form. That assignment is permitted by subsection 23C(2) of the REE Act and is a 'supply' within the meaning of paragraph 9-10(2)(e) of the A New Tax System (Goods and Services Tax) Act (GST Act).

Pursuant to a clause in the STC Assignment Agreement the installer and you agree that if a client of the installer assigns the right to create STCs to the installer, the installer may on-assign that right to you. However the REE Act does not permit the installer to make such an on-assignment to you. Subsection 23C(2) of the REE Act only permits the owner of a SGU to assign the right to create STCs and the installer is not the owner of a SGU. Consequently the purported on-assignment of the right to create STCs by the installer to you is not a supply for GST purposes.

Question 2

Is the on-assignment of the right to create STCs from installers to you a taxable supply for GST purposes and a creditable acquisition by you?

Advice question 2

No, the purported on-assignment of the right to create STCs by the installer to you is not a taxable supply for GST purposes and is not a creditable acquisition by you.

Relevant facts

The parties:

Company A ('You') are a wholesaler of solar PV equipment including solar panels, inverters and framing and are registered for GST.

You sell solar PV equipment to third parties who, in turn on-sell and install the solar PV equipment in customers' homes by either employing or engaging with installers for the installation (together called installers for the purposes of this ruling). The third parties acquiring your solar PV equipment determine the price at which they will on-sell the equipment to customers. The installation price charged by third parties is also commonly included in the sale price of the equipment (that is customers pay a single price for the purchase and installation of the solar PV equipment in their homes).

The equipment:

The solar PV equipment you supply comprises small generation units (SGUs) which satisfy the criteria of 'small-scale renewable energy system' under the Renewable Energy (Electricity) Act 2000 (Cth) (REE Act).

Pursuant to section 23C of the REE Act, the owner of a SGU, that is the customer who has had solar PV equipment installed in their home, may qualify to create or assign the right to create STCs.

A customer who has a SGU installed in their home is usually not registered for GST and is not carrying on an enterprise of trading in STCs.

You expect that all installers are registered for GST.

The installer contracts with the customer for the installation of the solar PV equipment. The installer and the customer agree on a price which comprises:

· cost of supplying the Solar PV equipment plus the installation cost (which is either included in the overall cost or charged separately); less

· a credit allowed to the customer based on the number of STCs that the installation will give rise to and whatever rate the installer is able to offer and agree with the customer. Commonly this will be less than the price at which the installer can on-assign the STCs to you and will be at whatever price the installer can negotiate.

STC Assignment Form:

When installing a SGU in a customer's home, the installer and the customer enter into an agreement embodied in a STC Assignment Form. You provided us with a copy of an unexecuted STC Assignment Form which includes the following Mandatory Declaration:

I (insert name of owner) am the legal owner of the above small generation unit (SGU) and assign the right to create STCs to XX installer who has the ability to on-assign to Company A for the period stated above, commencing at the date of installation.

I recognise, that for the purposes of the Renewable Energy (Electricity) Act 2000, Company A is the person to whom the right to create STCs is assigned.

I understand I am under no obligation to assign STCs to XX Installer or to Company A.

I agree to repay the STC payment to Company A should my assignment be invalid.

I understand that this system is eligible for (insert no) STCs and in exchange for assigning my right to create these STCs:

· Consideration in the form of monetary payment of $....

· I agree that the XX Installer may offset the amount due to me of $... against the price payable by me for the system.

I, XX Installer declare that I have been assigned by owner and now on-assign to Company A the right to create STCs and I recognise and acknowledge that by this on-assignment, Company A is the person to whom the right to create STCs is assigned for the purposes of the Renewable Energy (Electricity) Act 2000.

STC Assignment Agreement:

The installer collects and holds a number of STC Assignment Forms which the installer may on-assign to you at the available market price. As STCs are a tradeable commodity, the market price may fluctuate. The installer can choose to on-assign at a price which the installer considers appropriate provided a buyer is willing to purchase at that price.

You provided a copy of an unexecuted STC Assignment Agreement between you and an installer which states:

Parties:

Company A, a wholesaler of solar PV equipment including solar panels, inverters and framing.

Installer who is an authorised installer of solar PV systems to the commercial and residential markets in Australia.

Purpose of the Agreement:

Company A and installer have agreed to enter into an arrangement whereby customer assigned rights to create STCs to installer and these may be on-assigned by installer to Company A for Company A to create the STCs and to deal with Clean Energy Regulator (CER) in respect of these. Payment for the assignment of the STCs will be made by Company A either by way of cash payment or credit available to installer to be offset against amounts due for the purchase of solar PV equipment.

Terms

Company A has agreed to provide solar PV equipment, including solar panels, inverters and framing to installer in accordance with the terms of this Agreement.

Assignment by installer:

· The parties acknowledge that the customer may, in accordance with the Act, assign its right to create STCs to another person.

· If the customer assigns the right to create the STCs to installer then installer may on-assign that right to Company A from the purchase price pursuant to these terms. Installer acknowledges that Company A is the person to whom the right was assigned for the purposes of the Act.

Installer's and Company's obligations

If installer on-assigns the right to create the STCs to Company A:

Company A will:

· pay the purchase price (including by way of providing a credit if requested) to installer provided the STCs are successfully submitted to CER for registration.

· provide daily prices to installer and make available daily reports containing details of the STCs that have been cleared for payment and the number of STCs on-assigned to Company a by installer and awaiting clearance for payment. The purchase price for STCs will be determined on the date the STCs are on-assigned by installer to Company A.

· maintain an account of purchases made by installer of panel kits and STCs available as credit to installer's account with Company A; and

· provide periodic account statements stipulating the balance of installer's account.

In the ruling request you advised that as each installer sets its own price for the on-assignment to you of the right to create STCs (and will sell when the market reaches that price), the consideration received by an installer from you for that on-assignment is likely to differ from the consideration payable by the installer to the customer for the assignment.

You noted that an installer may also engage with wholesalers other than you. However, all on-assignment from installers to you are in relation to any rights to create STCs arising from the sale and installation of your solar PV equipment in customers' homes.

Clean Energy Regulator Guide 'how to assign STCs'

The Clean Energy Regulator (CER) has published a guide on 'How to assign STCs' on its website (www.cleanenergyregulator.gov.au) for householders and businesses. The guide explains how to assign STCs to a Registered Agent, in exchange for financial benefit such as a discount off the invoiced price of a system's purchase and/or installation. The guide provides the following:

How does it work?

1. A renewable energy system is entitled to a set number of STCs.

2. Assuming the criteria is met, the owner of the system is entitled to the set number of STCs.

3. This means the owner has the right to create STCs in the REC Registry, and dispose of them as they will.

4. However, the owner can sell the creation rights to a third party, such as a retailer, supplier, or installer of a renewable energy hot water system.

5. These third parties are known as 'Agents', and they must be registered with the Clean Energy Regulator to manage STCs.

6. The sale gives the third party the right to create STCs in the REC Registry, and to dispose of those STCs as they will.

7. The sale price of the STCs, and the form of the sale, depends entirely on the Agent.

Why assign my STCs to an Agent?

Agents make the whole process more simple and, generally, cheaper.

Registered Retailers/Agents will:

· Ensure the system, its installation, and its installers, are all eligible under the Small-scale Renewable Energy Scheme (SRES);

· Determine how many STCs your system is eligible for;

· Offer you a financial benefit for your STCs (such as a discount off the invoiced cost of supply and installation of the system, or a cash benefit, or some other appropriate benefit);

· Ensure that your installer has the correct accreditation; and

· Manage all the required compliance paperwork.

How do I find an Agent?

· Many retailers and some installers of systems are registered to act as Agents

· Some Agents list themselves in the List of Registered Agents. Note that this listing is voluntary and not all Agents are listed here.

Small-scale solar panel, wind or hydro system

STCs are calculated by determining the amount of electricity the system produces over a determined period (the deeming period). Systems are usually deemed for the maximum period of 15 years to receive the maximum amount of STCs up-front.

You may use different businesses for the supply, installation and/or connection of the system, but you can't accept STC-based discounts from all the different businesses. STCs can only be assigned once, to one Agent. After accepting one discount, you will need to pay full price for any other separate business services relating to the supply, installation, and/or connection of your system.

The CER has also an example of a STC Assignment Form on its website which includes the following form of mandatory declaration:

I am the owner of the small generation unit mentioned in this STC Assignment form and I agree to assign my right to create STCs to [Insert Legal entity Name Here] for a period of [ ] year(s) commencing [date]. I have not previously assigned or created any STCs for this system within this period.

I understand that this system is eligible for [ ] STCs and in exchange for assigning my right to create these STCs I will received from the Agent:

Point of sale discount of $[ ]

Monetary payment of $[ ]

Other (please specify)

I am aware that penalties can be applied for providing misleading information in this form under the renewable Energy (Electricity) Act 2000.

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 11-5

Renewable Energy (Electricity) Act 2000 section 23C

Reasons for decisions

Question 1

Summary:

Where an owner of a SGU and an installer both sign the mandatory declaration on the STC Assignment Form the owner assigns to the installer the right to create STCs for the period specified in the STC Assignment Form. We consider that an assignment by the owner of the SGU to the installer is permitted by subsection 23C(2) of the Renewable Energy (Electricity) Act 2000 (REE Act) and is a supply for GST purposes.

We do not consider that section 23C of the REE Act permits the right to create STCs to pass from the installer to you. Consequently we do not consider that the purported on-assignment by the installer to you pursuant to the STC Assignment Agreement is a supply for GST purposes.

Detailed reasoning:

Supply

'Supply' is defined in subsection 9-10(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) as any form of supply whatsoever and paragraph 9-10(2)(e) of the GST Act states that, without limiting subsection 9-10(1) of the GST Act, supply includes a creation, grant, transfer, assignment or surrender of any right.

Goods and Services Tax Ruling GSTR 2003/8 states (Para 25):

The word 'right' is not defined for GST purposes and has a very broad meaning under the general law. A 'right' has been defined as 'Generally, a benefit or claim entitling a person to be treated in a certain way'

and, after defining the supplies referred to in paragraph 9-10(2)(e) of the GST Act as 'Category 1', states (Para 27C):

…a supply will only fit within Category 1 if the essential character or substance of the supply, or of a separately identifiable part of the supply, is one of rights. Category 1 does not cover a supply if the supply of rights is merely integral, ancillary or incidental to another dominant part of the supply where the supply is characterised by the dominant part.

Renewable Energy (Electricity) Act 2000:

Pursuant to subsection 23C(1) of the Renewable Energy (Electricity) Act 2000 (REE Act), the owner of a small generation unit (SGU) at the time that a right to create small-scale technology certificates (STCs) arises is entitled to create STCs.

Pursuant to subsection 23C(2) of the REE Act, the owner of the SGU may, by written notice and in accordance with the relevant regulations, assign the right to create STCs to another person. If the owner of the SGU assigns the right to create STCs, the owner is not entitled to create the STCs but the person to whom the right was assigned is entitled to create the STCs.

Assignment by SGU owner to installer pursuant to STC Assignment Form:

Where an owner of a SGU and an installer both sign the mandatory declaration on the STC Assignment Form the owner assigns to the installer the right to create STCs for the period specified in the STC Assignment Form. We consider that such signed mandatory declaration is a 'written notice' within the meaning of subsection 23C(2) of the REE Act and that the assignment made by the owner of the SGU to the installer is permitted by subsection 23C(2) of the REE Act and is a supply for GST purposes. This view is set out in the ATO's Fact Sheet GST and the small-scale renewable energy scheme (which uses the term 'you' to refer to a RET registered agent and refers to 'a sale for GST purposes' rather than to a 'supply'):

Owners of installed eligible solar water heaters and small generation units can either:

· assign their right to create STCs to you (if you are a RET registered agent) in exchange for either a delayed cash payment or an upfront discount on the purchase of the eligible system.

· become registered in the online clearing house and create STCs (once registered, these STCs can then be sold and transferred to a RET registered agent at any time during the life of the scheme).

Assignment of the right to create STCs

Where the owner assigns you the right to create a STC on the installation of an eligible system, this is a sale for GST purposes. However, if the assignment of the right to create the STC is made by someone who is not registered or required to be registered for GST, then the assignment will not be subject to GST.

Assignment by installer to you pursuant to STC Assignment Agreement:

Subsections 23C(1) and (2) of the REE Act mandate that the only person who can assign the right to create STCs is the owner of the SGU at the time that a right to create STCs arises. As installer is not such an owner, installer is not permitted by section 23C of the REE Act to on-assign to you the right to create STCs.

This view is supported by the CER's guide entitled 'Assigning STCs' which, under the heading 'How does it work', states:

A renewable energy system is entitled to a set number of STCs.

Assuming the criteria are met, the owner of the system is entitled to the set number of STCs.

This means that the owner has the right to create the STCs in the RECF Registry, and dispose of them as they will.

However, the owner can sell the creation rights to a third party, such as a retailer, supplier or installer of a renewable energy/hot water system.

These third parties, are known as 'agents', and they must be registered with the Clean Energy Regulator to manage STCs.

The sale gives the third party the right to create STCs in the REC Registry, and to dispose of those STCs as they will.

The sale price of the STCs and the form of sale depends entirely on the Agent.

…

STCs can only be assigned once to one Agent.

…

Process for assigning STCs

…

7. Compete the STC Assignment Form and supply it to your Agent.

8. Request and retain a copy of all documentation for your own records.

9. Be satisfied that you have received, or are going to receive, the specified discount or payment for the STCs.

10. The STCs have now been assigned. They cannot be re-assigned.

Goods and Services Tax Ruling GSTR 2006/9 sets out a number of Propositions in relation to a 'supply', including Proposition 6:

'Supply' usually, but not necessarily, requires something to be passed from one entity to another (paragraphs 92 to 94)

and states (Para 92):

The fact that 'supply' requires something to be passed from one entity to another is largely self-evident in a transaction based tax. However, not all forms of supply have this characteristic. For instance, paragraph 9-10(2)(e) includes a creation of a right as a supply. The 'creation' of a right does not involve a passing of the right from one entity to another. In this case, the action of the supplier causes the recipient to make an acquisition but without anything passing between them.

The fact that, in relation to paragraph 9-10(2)(e) of the GST Act, GSTR 2006/9 refers only to 'creation' as not involving the passing of a right from one entity to another indicates that the references in paragraph 9-10(2)(e) of the GST Act to 'grant, transfer, assignment or surrender of any right' do require the passing of a right from one entity to another. For the reasons set out above we do not consider that section 23C of the REE Act permits the right to create STCs to pass from the installer to you. Consequently we do not consider that the purported on-assignment by the installer to you pursuant to the STC Assignment Agreement is a supply for GST purposes.

Question 2

Summary:

As the on-supply of the right to create STCs by the installer to you is not a supply it cannot be a taxable supply. Nor can that on-assignment give rise to a creditable acquisition for you.

Detailed reasoning:

Section 9-5 of the GST Act sets out the circumstances in which an entity (you) makes a taxable supply:

You make a taxable supply if:

(a) you make the supply for *consideration; and

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

(c) the supply is *connected with Australia; and

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

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

Paragraph 9-5(a) of the GST Act requires the entity to make a supply. For the reasons set out in Question 1 we do not consider that then purported on-assignment of the right to create STCs by the installer to you is a supply. Consequently that purported on-assignment cannot be a taxable supply.

Section 11-5 of the GST Act sets out the requirements to be satisfied in order for an entity to make a creditable acquisition. One of those requirements, as set out in paragraph 11-5(b) of the GST Act, is that the supply of the thing to the entity is a taxable supply. As the purported on-assignment by the installer to you is not a taxable supply, you do not make a creditable acquisition.

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