Edited version of your private ruling

Authorisation Number: 1012473696809

Ruling

Subject: GST and assignment of the right to create Small-Scale Technology Certificates

Question 1

Does the assignment of the right to create Small-Scale Technology Certificates (STCs) by a householder form part of the consideration they pay for an installed solar power or solar water heater system (the solar system)?

Answer

Yes, the assignment of the right to create STCs by a householder forms part of the consideration that the householder pays for your supply of the solar system. The assignment of the rights to create STCs is non-monetary consideration.

The price paid by the householder is the monetary consideration plus the GST inclusive market value of the non-monetary consideration.

Question 2

If the answer to Question 1 is yes, what is the correct time at which the right to create STCs as non-monetary consideration must be valued?

Answer

Where the consideration for a supply is non-monetary, the GST inclusive market value of the consideration is used to work out the price and value of the supply.

The time at which the GST inclusive market value of the non-monetary consideration is to be ascertained must be reasonable in the circumstances of a particular transaction, which may for example be when the parties enter into a binding agreement, when economic risk is transferred, or when a recipient assumes effective control.

Refer to our reasons for decision on how to determine the GST inclusive market value.

Question 3

In the context of 'competing interpretations of the law in response to questions 1 and 2', does the principle against double taxation stated by Dixon J in the High Court decision in Executor Trustee & Agency Co of South Australia Ltd v Federal Commissioner of Taxation (1932) 48 CLR 26 which states at page 44

'no interpretation of a taxing Act should be adopted which results in the imposition of double taxation unless the intention to do so is clear beyond doubt'

apply to decide between the competing interpretations?

Answer

We consider that there is no double taxation in your circumstances. You are liable to GST on two separate supplies. The first is the supply of the solar system, the price of which includes the GST inclusive market value of the rights to create the STCs. The second is a subsequent supply of the STCs after they have been created.

Question 4

Will the STC Rights form part of the non-monetary consideration for Transaction 2?

Answer

Yes. Refer to our reasons for decision, and our response to question 1.

Question 5

If the answer to question 4 is yes - is the GST inclusive market value of the non-monetary consideration for Transaction 2 equal to the discount provided? If not, why not?

Answer

The Commissioner declines to answer this question. You have advised that you are not requesting a valuation of the assigned rights to create the STCs and that a general response to the question is sufficient.

A general response to your question is discussed in the reasons for decision.

Relevant facts and circumstances

· You are a supplier and installer of solar power systems and solar water heater systems.

· You are registered for the goods and services tax (GST) and make taxable supplies when you supply and install the systems.

Background information

· Under the Federal Government's Small-scale Renewable Energy Scheme (SRES), householders gain a right to create Small-scale Technology Certificates (STCs) when they have an approved solar power system or solar water heater (the solar system, the system) installed in their home.

· The installation of solar power or hot water systems permits the creation of STCs which can be exchanged for financial benefit by customers.

· A householder has the right to create STCs within 12 months of having the solar system installed. Once created, STCs can be bought, sold or surrendered.

· System owners are able to make their own arrangements for creating and selling the STCs should they wish.

· Alternatively, the householder may assign the right to create STCs to a registered agent who then creates the STCs and sells them on the market to energy generators and retailers through the STC Clearing House or registered STC traders. Generally, the agent is the supplier and installer of the solar system.

· The amount of STCs which energy generators and retailers must buy and surrender each year is set by the Clean Energy Regulator which is an independent agency associated with the Department of Climate Change and Energy Efficiency. The amount is known as the Small-scale Technology Percentage (STP) which changes each year.

· Relevant legislation includes the Renewable Energy (Electricity) Act 2000 (Renewable Energy Act) and the Renewable Energy (Electricity) Regulations 2001. Information on the SRES is also available at the Office of the Renewable Energy Regulator (ORER) website cleanenergyregulator.gov.au

· In particular, this advises that the SRES creates a financial incentive for owners to install eligible small-scale installations such as solar water heaters, heat pumps, solar panel systems, small-scale wind systems, or small-scale hydro systems. It does this by legislating demand for STCs (see http://ret.cleanenergyregulator.gov.au/About-the-Schemes/sres )

Further information available on the Clean Energy Regulator website advises as follows:

· STC ownership is generally vested in the owner of the small-scale system being installed, but STCs can be assigned using a STC Assignment Form to a third-party agency, such as a retailer or installer.

· These agencies must be registered with the Clean Energy Regulator and are known as "Registered Agents".

· Registered Agents co-ordinate the purchase and installation of systems for the owners. They provide a financial benefit (such as a discount off the invoiced price of purchase and installation) to owners in exchange for the right to create and sell the STCs.

· This financial benefit, which is generally based around the price of STCs at the time, ensures that the price of small-scale systems remains within reach of householders, and encourages the installation of more systems.

Once the installation of your solar panel system is complete you can assign your STCs to your solar panel Agent in exchange for a financial incentive such as a discount off the invoice. This is completed by signing an STC Assignment Form.

The financial incentive is usually based on the STC price at the time. The price of STCs fluctuates depending on supply and demand. In most cases STCs are traded at less than $40 in the STC market. 

· The website also explains how to have the right to create STCs assigned to you as a registered agent (http://ret.cleanenergyregulator.gov.au/For-Industry/Agents/Having-STCs-assigned-to-you/stcs-assigned-to-you)

· The system must have been installed less than 12 months ago.

· You need to be registered as a Registered Agent with the Clean Energy Regulator.

· The system is fully installed and operational (that is - it must be capable of generating electricity or hot water. It does not need to have been connected to the grid before the STCs can be assigned).

· You have entered into an agreement to have STCs assigned to you in exchange for financial benefit to the owner (emphasis added).

· The STCs must not already been assigned to someone else (for example, to a retailer).

The process for assignments is described as follows:

· Receive contact from the owner of a water heater or small-scale solar panel, wind, or hydro system.

· Determine that the system to be installed is eligible for STCs.

· Ensure all paperwork is signed and all required documentation is collected.

· Ensure the system exists and the paperwork accurately reflects the installation that has taken place.

· Supply an STC Assignment form to the owner (emphasis added).

· Have the STC Assignment form returned with all required signatures.

· You are now ready to create STCs against the eligible installation.

The Clean Energy Regulator website contains the following information on the requirements of the mandatory STC Assignment form: http://ret.cleanenergyregulator.gov.au/Forms-and-Publications/Forms/Agents/Agent-Forms

The Clean Energy Regulator requires small-scale technology certificate (STC) assignment forms to include particular information for STC creation and comply with the legislation. Agents may customise their own STC Assignment Form to incorporate additional explanatory text, company logos and other features. The Clean Energy Regulator requests STC Assignment forms that are created or changed to be submitted to The Clean Energy Regulator for review.

· We note that one of the requirements for the form is that the mandatory declaration be completed. This requires the owner of the installation to declare that they understand that the system is eligible for a certain number of STCs and that in exchange for assigning their right to create the STCs they will receive from the Agent:

· point of sale discount of $________________

· monetary payment of $________________

· other (please specify) ________________________________

· The Clean Energy Regulator website also advises that householders and registered agents also have the option to sell your small-scale technology certificates (STCs) through the STC Clearing House for a fixed price of $40 (excl.GST). It advises:

When deciding to sell STCs through the STC Clearing House:

· STCs must first be created and validated in the REC Registry. This means that all compliance and process requirements are fulfilled. Once validated, they can be listed for sale in the STC Clearing House. They will remain there until a buyer makes a purchase request.

· The Clean Energy Regulator cannot provide an estimate of how long it will take for your STCs to sell in the STC Clearing House. STCs will only sell when a buyer is available and you should plan your system purchase with this in mind. If you require rapid financial recompense for your certificates, please contact an agent who can organise the creation and sale of your certificates.

Specific facts

· You supply and install the solar systems to householders who are not registered for GST.

· You give the householder a Quote which specifies the total Cash Price (including GST) for the provision and installation of the solar system.

· Completion of the Contract occurs when you finalise installation of the solar system.

· The assignment of the right to create STCs is completed when both you and the householder sign the STC Assignment form.

· You create the STCs and sell them through the Renewable Energy Certificate Registry (REC Registry) either:

· directly to energy generators and retailers who are required by law to surrender a certain number of STCs per year under the SRES, or

· through the STC Clearing House.

· A requirement for creating the STCs is that you must be registered with the Clean Energy Regulator.

· You then generally sell the STCs (once created) directly to energy generators and retailers because the STC Clearing House operates on a first-in first-out basis which means that there could be a lengthy delay in realising the value of the STCs. Further, there is no guarantee that they will be realised.

· You have advised (by conversation, which we confirmed by email) that the competing interpretations that you refer to in the drafting of question three are between whether the rights to create STCs are, or are not, non-monetary consideration and if they are non-monetary consideration whether they have any value.

Transactions 1 & 2

· You provided with your ruling application a copy of a Quote for a particular householder (Transaction 1). You did not provide any other documentation for Transaction 1.

· The Quote includes a condition that the householder must assign their right to create STCs to you. The Contract provides that the agreement between you and the householder is conditional upon the householder assigning their right to create STCs to you.

· The Cash Price is paid in two parts. The householder pays the first part which is a deposit when they accept the Quote. At this time, a legally enforceable Contract is formed between you and the householder.

· The second part is a final payment.

· As only the quote was provided for Transaction 1, we requested that you provide full documentation for that transaction.

· Specifically, we asked for the STC assignment form with declaration, the tax invoice and anything else provided for a particular transaction (which we also note should include a written quote which we had already received for Transaction 1). We asked that if it was not possible to provide the full range of documents for Transaction 1 that you provide the full range of documentation for another transaction.

· You provided a copy of an STC Assignment Form for a different transaction with a householder (Transaction 2). You did not provide any other documentation for Transaction 2 at that time.

The STC assignment form shows that a certain sized system was supplied, and states the total out of pocket expense to the customer. The form states that the system is eligible for a stated number of STCs. It states that the customer assigns their right to create the STCs in exchange for your giving a point of sale discount and a 'Discount on the supply of the system'.

· Upon providing this documentation you also asked us to add the following questions to your original application:

Question 4: Will the STC Rights form part of the non-monetary consideration for Transaction 2?

Question 5: If the answer to question 4 is yes - is the GST inclusive market value of the non-monetary consideration for the Supply equal to the point of sale discount provided - and if not, why not?

· We asked for the full documentation for Transaction 2. We also asked whether your new Question 5 meant that you wanted us to provide a valuation or confirm your valuation.

· You subsequently provided the quote for Transaction 2. This shows the price for the system (after a discount and a point of sale discount). You have also provided a tax invoice that shows the same discounts and price. The tax invoice also states that the 'REC's Discount' is GST-free, but does not specify a value for the REC'S Discount.

· You also advised that you are not requesting a valuation of the assigned rights to create the STCs.

You have advised that you are only seeking clarification on whether they form part of the transaction (ie part of the consideration). You want to know whether it is the market value of the rights to create the STCs that must be used or the 'explicit agreed value'. You have advised that you do not require a valuation and a general response to the question is sufficient.

Other transactions:

In response to our letter headed 'Correct reporting of goods and services tax (GST) for renewable energy supplies' you provided submissions and information, and further information following a request for further information from us.

This included information on the following transactions:

· a system sold for a total price (an out of pocket amount and a 'discretionary POS discount'. The STC assignment form refers to a 'discount on supply of solar system' but does not provide the number of STCs; and

· a system sold for a total price (an out of pocket amount, with the remainder met by 'discretionary POS discount'. The STC assignment form advises that the system is eligible for a certain number of STCs and that the customer assigns their right to create the STCs for the POS discount. A simple calculation shows that each STC generated was worth a certain discount.    

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Division 9,

A New Tax System (Goods and Services Tax) Act 1999 Section 9-75 and

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1.

Reasons for decision

Question 1

Summary

The assignment of the right to create STCs by the householder forms part of the consideration that the householder pays to you for your supply of the solar system. The assignment of the rights to create STCs is non-monetary consideration.

Detailed reasoning

You are registered for GST and have advised that you make a taxable supply when you supply and install a solar system.

The amount of GST payable on your taxable supply is 1/11^th of the price of the taxable supply¹. Under subsection 9-75(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) the price is the sum of any monetary and non-monetary consideration for the supply. That is, the price is the actual amount of monetary consideration plus the GST inclusive market value of the non-monetary consideration.

Under section 195-1 of the GST Act, 'consideration, for a supply or acquisition, means any consideration, within the meaning given by sections 9-15 and 9-17, in connection with the supply of acquisition'.

Of relevance to this case is subsection 9-15(1) of the GST Act which states:

Consideration includes:

(a) any payment, or any act or forbearance, in connection with a supply of anything; and

(b) any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.

Goods and Services Tax Ruling GSTR 2001/6 provides the ATO view on non-monetary consideration, and states at paragraph 12 that a 'payment' is not limited to a payment of money. It includes a payment in a non-monetary or in-kind form, such as:

· providing goods

· granting a right or performing a service (an act), and

· entering into an obligation, for example to refrain from selling a particular product (a forbearance).

Paragraphs 81 and 82 of GSTR 2001/6 state:

81. For a thing to be treated as a payment for a supply, it must have economic value and independent identity provided as compensation for the making of the supply. That is, it must be capable of being valued and be a thing that an acquirer would usually or commercially pay money to acquire. Whether this requirement is satisfied will usually be demonstrated by the parties to an arrangement assigning a specific or separate value to the thing. However, the assigning of a value by the parties is not necessary for a thing to have economic value.

82. Whether a payment is consideration for a supply depends on the true character of the transaction. Consideration for a supply is something the supplier receives for making the supply. Although a non-monetary payment (and acts or forbearances) can form consideration, the character of the transaction will determine whether it forms part of the consideration received by the supplier for making the supply.

We consider that the assignment of the rights to create STCs by the householder forms part of their payment for your supply of the solar system. They are assigned in connection with your supply of the solar system, as they are supplied under the agreement for the supply of the system.

The rights to create the STCs that are assigned by the customer have an independent identity and economic value as discussed below.

Independent identity

The rights to create STCs that are assigned by the householder have an independent identity. That is, the rights to create STCs have an identity that is independent of the underlying actual STCs that are yet to be created. The assignment of the rights to create STCs is a supply to you by the customer, which has an independent identity from your supply of the solar system.

Therefore provision of the non-monetary consideration by the householder is in itself a supply for GST purposes under paragraph 9-10(2)(e) of the GST Act. The consideration for this supply is a proportion of your supply of the installed system. Paragraph 125 of GSTR 2001/6 explains that where there are mutual supplies for consideration, the GST law does not allow the price for one supply to be reduced by the price of the other.

You cite paragraph 84 of GSTR 2001/6 and express the view that the obligation of the householder to assign the right to create STCs is merely an incidental obligation to the provision of the actual consideration (which you say is limited to the cash price). However, we consider that the correct application of paragraph 84 of GSTR 2001/6 in your circumstances is that you provide a supply of the solar system in exchange for a supply of the rights to STCs (and cash). The rights are part of the consideration you receive for your supply of the solar system.

Economic value

The agreement between you and the customer commences on the date the customer accepts the Quote. It is a condition of the Agreement that the customer must assign all rights and interests in the Certificates to you, and that they agree to do all things necessary to assign and transfer the rights in those Certificates to you and irrevocably authorise you to act as their attorney to complete any necessary forms to achieve this.

It is also stated in the quote that the customer agrees to assign all STC creation rights to you (or a trader as you request) upon completion of the installation. Specific terms and conditions in the quote are part of the contract and commence at the same time.

At the time of accepting the quote and entering into the contract it becomes a requirement that you will install the system as agreed. The installation of the system enables the ability to realise the value of the rights to create STCs (as the actual STCs can be created once the system has been installed as per the agreement), however the whole agreement is based on this installation taking place.

It is by virtue of the relevant legislation (see section 23 of the Renewable Energy Act) that the rights to create STCs vests in the purchaser of a solar system. Therefore the right to create the STCs is an economic benefit that would otherwise remain with the customer if they did not assign the rights to create STCs to you. The householders are able to make their own arrangements for creating and selling the STCs should they wish.

We consider that you have made the assignment of the STCs a condition of your quote because you require the economic benefit of these rights in addition to the monetary consideration. The publicly available information on the Clean Energy Regulator website (links and details provided in the ruling facts) also explains the economic benefit to owners of their entitlement to create STCs.

You provide a quote and cash system price on the basis that the rights to create STCs will be assigned as required by your agreement. A value of the rights has been factored into your arrangements at the time of providing the quote, and in particular into the cash system price as detailed in the quote. In requiring the householder to assign their right to create STCs to you in exchange for your supply and installation of the solar system, it is our view that you have changed the form of the consideration for your supply. You agree to accept consideration from the householder in both monetary and non-monetary forms.

Where the customer assigns the rights to create STCs to you they have an economic value as you accept them (along with the cash) in full satisfaction of payment for your supply. The assigned rights to create STCs provide you with an economic or financial benefit as they enable you to create the STCs and sell them and keep the proceeds. We note that even if no value was assigned by the parties this does not mean that objectively they do not have an economic value. In other words, the assigning of a value by the parties is not necessary for a thing to have economic value.

The rights to STCs are capable of being valued and are something that an acquirer would usually or commercially pay money to acquire (see paragraph 81 of GSTR 2001/6). In addition to the matters discussed above, this is demonstrated by the wide range of examples in your industry of STC Agents who pay money (or allow 'discounts') in exchange for having rights to create STCs assigned to them by system owners.

Conclusion

Therefore, in summary, we consider that the rights to STCs have an economic value and independent identity, and that they are provided as compensation for your supply of the solar system. They are something that you receive for making the supply of the solar system. Therefore the householder provides you with monetary and non monetary consideration that is in connection with your supply of the solar system. For GST purposes the price paid by the householder is the monetary consideration plus the GST inclusive market value of the non-monetary consideration (see section 9-75(1) of the GST Act).

You must pay the GST payable on your taxable supply of the solar system (section 9-40). The amount of GST you must pay is 10% of the value of the taxable supply (section 9-70). The value of the taxable supply is 10/11ths of the price, and the price paid by the householder is the monetary consideration plus the GST inclusive market value of the non-monetary consideration.

Question 2

Summary

The time at which to value the non-monetary consideration (the right to create STCs) must be reasonable in the circumstances of a particular transaction. It may be when the parties enter into a binding agreement, when economic risk is transferred, or when a recipient assumes effective control.

Detailed reasoning

Where the consideration for a supply is non-monetary, the GST inclusive market value of the consideration is used to work out the price and value of the supply. The value can be determined by a using a reasonable valuation method that produces a reasonable GST inclusive market value of the things exchanged.

Section 195-1 of the GST Act defines:

GST inclusive market value of

(a) consideration in connection with a supply; or

(b) a thing, or a supply or acquisition of a thing;

means the market value of the consideration or thing, without any discount for any amount of GST (or luxury car tax) payable on the supply.

Market value is regarded as the price that would be negotiated at a specified time between a knowledgeable and willing but not anxious buyer and a knowledgeable and willing but not anxious seller acting at arm's length in an appropriate market. It is an objective test and not the subjective view of any one party (see paragraph 141 of GSTR 2001/6).

The GST Act does not specify the 'appropriate time' when market value of non-monetary consideration is to be ascertained for the purposes of working out the value of the supply. Paragraphs 159 to 165 of GSTR 2001/6 provide assistance on when the market value of non-monetary consideration is to be ascertained. The time must be reasonable in the circumstances of a particular transaction, which may for example be when the parties enter into a binding agreement, when economic risk is transferred, or when a recipient assumes effective control.

Paragraph 163 of GSTR 2001/6 advises that in practical terms, you need to value any non-monetary consideration before you can work out the GST on a taxable supply or issue a tax invoice. We expect that in issuing a quote (which provides the details later entered on the tax invoice) you would have made an assessment about the value of non-monetary consideration at or around the time of the supply.

At the time the Agreement is formed it becomes a requirement that you will complete installation of the solar system, and that you will become entitled to the assigned rights to create STCs. Entry into the binding obligations to make the supplies is the subject matter of a supply in this instance. It is quite normal that prices or values of supplies are set in anticipation of the subject matter of the supply actually taking place as agreed. We therefore consider that there is a value attributable to the rights to create the STCs at the time of entry into the contract. If the value agreed with the customer in the mandatory STC assignment form reasonably reflects the value as at the time the agreement is made, you can use that to work out the value of your supply.

We consider that the process of valuing non-monetary consideration can be done before, at, or after the appropriate time as long as it reflects the GST inclusive market value at the time when it should be determined. There is no reason that a valuation cannot be done after the event. We note that a valuation may also be instigated and done at the request of the Commissioner.

Therefore, the GST inclusive market value of the non-monetary consideration is whatever the value was at the time of the transaction.

It is a risk of accepting non-monetary consideration that its market value may fluctuate over time. This is contemplated in GSTR 2001/6, where it states (at paragraph 164) that a change in the market value of non-monetary consideration after the time at which it needs to be determined does not have the effect of changing the original GST inclusive market value.

Methods of valuation

As discussed, you make a supply of a fully installed solar system to the householder customer. In exchange for that supply, the householder pays an amount of cash and also makes a supply of rights to create STCs to you.

In most circumstances where parties are dealing at arm's length, we are of the view that the goods, services or other things exchanged are of equal GST inclusive market value (see paragraphs 19 and 138 GSTR 2001/6). That is, we would normally expect that the GST inclusive market value of your supply of the solar system (at the time of the supply) is equal to the customer's provision of cash and their supply to you of rights to the STCs (also at or around the time of the supply or assignment). We would anticipate that this is the case in your scenario, as you effectively set the price for both supplies.

The GST inclusive market value of the things exchanged can be determined by using a reasonable valuation method that is agreed to by you and the other party, and the method must produce a reasonable GST inclusive market value of the things exchanged (see paragraph 19 of GSTR 2001/6).

GSTR 2001/6 advises that you may determine the GST inclusive market value of non-monetary consideration for a taxable supply by applying a method that produces a reasonable GST inclusive market value of the consideration.

Examples of reasonable methods include:

· the market value of an identical good, service or thing;

· the market value of a similar good, service or thing;

· the market value of the supply;

· a professional appraisal; or

· other reasonable methods.

In the circumstances of the transaction described a reasonable market value may be, for example, the value of the rights agreed with the customer in the STC assignment form (where properly completed such that there is a value ascribed to the rights in the mandatory declaration).

While the Commissioner does not have the power to require that you use a particular valuation method, it is suggested that these methods may be interpreted as representing successive tests in their ease of application and compliance costs. However, they should all provide the correct GST inclusive market value.

The guide Market valuation for tax purposes (available on our website) also advises that to determine the market value, you should use the most appropriate valuation method. Where comparable arm's length sales data is available (for example, in a market for a commodity), this is generally considered the most appropriate method. That is, where a market exists for a commodity, that market is widely considered to be the best evidence of the market value of the commodity.

For example, the GST inclusive market value of the STCs could be determined by the amount that a similar installer would ordinarily pay for the rights in the same market in which these rights are purchased (that is, from other household customers). We consider that there is a market where other installers undertake the same activities as you.

We therefore anticipate that it would not be necessary to rely on the market value of a similar good, service or thing. However if it were necessary to use the market value of a similar thing, then this may for example be the market value of the STCs themselves.

The market value of the supply of the system could also be used to value the market value of the non-monetary consideration (the supply of the rights).

Where the market value of the non-monetary consideration is difficult to value (because it intangible, such as the rights to create STCs which are neither goods, services or real property and exist only in connection with something else being the actual STCs which are themselves intangible) but the market value of the supply (the solar system) may be readily ascertainable, you may determine the market value of the non-monetary consideration by reference to the market value of the supply of the solar system.

That is, the value of the rights to STCs can be determined by reference to the market value of the supply of the solar system, for example by deducting the monetary consideration provided from the full cash price of the system.

A professional appraisal directed at determining the market value of the consideration for your supply will also be a reasonable method where it is done by a person who is recognised in the particular field in which the appraisal is being given as having the requisite skills and knowledge for the task and uses valuation methodologies that are consistent with professional guidelines.

We note that the amount represented as the 'discount' or the value attributed to the rights received as stated in the documentation between the parties (as required to be entered in the mandatory declaration for the STC assignment form) may also be relevant matters to be considered by a valuer, as well as the valuation methods discussed above.

We have not been asked to confirm, and do not confirm, a value for the rights to create the STCs.

Under the law, you can apply for a private ruling about the value of a thing, such as the rights to create STCs assigned to you. Where you do this, you have two choices:

· ask us to provide a valuation of the thing, or

· provide us with a valuation of the thing and ask us to confirm it.

We then use a professional valuer to undertake the valuation or review work. The Private rulings and valuations fact sheet (available on our website, NAT 71796) explains further what happens when you apply for a private ruling about the value of a thing.

Question 3

Summary

We consider that there is no double taxation in your circumstances. You are liable to GST on two separate supplies. The first is the supply of the solar system, the price of which includes the GST inclusive market value of the rights to create the STCs. The second is a subsequent supply of the STCs after they have been created.

Detailed reasoning

You have advised (by conversation, which we confirmed by email) that the competing interpretations that you refer to in the drafting of your question are between whether the rights to create STCs are, or are not, non-monetary consideration and if they are non-monetary consideration whether they have any value.

We refer to reasons for decision for questions 1 and 2 above, and provide the following further explanation.

System owner's supply of the rights to create STCs to you

As advised, when you supply the solar system to a household customer you make a taxable supply for consideration. Your supply is the solar system and GST is payable on the full value of the solar system. The value of the solar system is determined by the price, and the price is the sum of the monetary consideration and the GST inclusive market value of the non-monetary consideration.

You do not pay, and are not liable to pay, GST on the value of the rights to STCs assigned to you. The customer makes a supply of these rights to you and as the supplier would (if the conditions in section 9-5 of the GST Act were met), have the liability to pay the GST on the supply. As previously discussed, the relevant governing legislation (see section 23 of the Renewable Energy Act) specifies that the rights to create STCs vest in the purchaser of a solar system. The assignment of these rights to you is a supply made by the system owner.

You do not pay GST on the assignment of the rights, only on the full value of your supply of the solar system (for the monetary and non-monetary consideration).

Paragraph 130 of GSTR 2001/6 explains that the GST treatment of non-monetary consideration (when it is viewed as a supply itself) is not relevant to its status as consideration. Circumstances in which the GST treatment is not relevant include where non-monetary consideration is received from an entity that is not registered for GST purposes. These things, when they are consideration, have a GST inclusive market value with the GST component being 'nil'.

We note that it is a normal incidence of acquiring goods or services from an unregistered supplier that there is no creditable acquisition made and no entitlement to input tax credits.

We also note your comparison with second hand goods and Division 66 of the GST Act, which allows an entity to claim input tax credits for acquisition of second-hand goods even though GST was not payable on the supply of the goods to the entity. This is specific legislation that has been enacted to overcome a particular scenario.

However, in your circumstances the rights to create STCs are not second hand goods, and there is no provision in the GST legislation that gives a similar outcome.

Your supply of the STCs once created

To be assigned the rights to the STCs you must be a registered agent. The registered agent to whom the rights are assigned then creates or validates the STCs in the system, and is then able to sell those STCs.

When you create the STC in the REC Registry there is nothing supplied from the regulator to create the STC. Therefore, for GST purposes there is no supply of the STC from the regulator to you, so there is no GST payable on the creation of a STC.

However, once you have created the STCs you can then trade them, for example through the clearing house. As a supply is any form of sale or transfer, if an STC is transferred for payment and the other requirements of a taxable supply are satisfied then you will have a GST liability on the sale or transfer. In other words, further trades will be a supply for GST purposes and will be taxable where the requirements of section 9-5 of the GST Act are met.

We consider that the supply of the actual STCs is a separate supply (made by you) to the supply of the right to create those STCs (supplied by the customer). When you create and then sell the actual STCs, you are liable for GST on this supply.

Question 4

Summary

The rights to create STCs form part of the non-monetary consideration you receive for your supply of the solar system.

Detailed reasoning

The assignment of the right to create STCs by a householder forms part of the consideration that the householder pays for your supply of the solar system. The assignment of the rights to create STCs is non-monetary consideration.

The price paid by the householder is the monetary consideration plus the GST inclusive market value of the non-monetary consideration.

Please refer to our response to Question 1 for further explanation.

Question 5

Summary

Your question asks us to confirm the GST inclusive market value of the non-monetary consideration.

The Commissioner declines to answer this question. You have advised that you are not requesting a valuation of the assigned rights to create the STCs and that a general response to the question is sufficient.

A general response to your question is discussed below.

Detailed reasoning

The Commissioner may decline to rule where the correctness of a private ruling would depend on an assumption about some matter and it is considered inappropriate to make a private ruling on the basis of that assumption.

In this instance the question is based on an assumption as to the validity of your valuation of the GST inclusive market value of the rights to create STCs.

We have not been asked to confirm, and do not confirm, a value for the rights to create the STCs. We refer to our response to question 2 for how to apply for a private ruling about the value of a thing, such as the rights to create STCs assigned to you.

The Commissioner therefore declines to rule on this question.

However, we confirm that the GST liability on the non-monetary consideration is 1/11^th of the total number of rights to create STCs received multiplied by the GST inclusive market value of each of those rights.

Reasonable valuation methods have been discussed in more detail at Question 2.

In circumstances where parties are dealing at arm's length, we are of the view that the goods, services or other things exchanged are of equal GST inclusive market value (see paragraphs 19 and 138 GSTR 2001/6). That is, we would normally expect that the GST inclusive market value of your supply of the solar system (at the time of the supply) is equal to the householder's provision of cash and their supply to you of rights to the STCs (also at or around the time of the supply or assignment).

We note that the value of the rights to create STCs in your Transaction 2 is significantly lower than values you have previously attributed to rights to create STCs (see for example the 'other transactions' outlined in the ruling facts). The value is also significantly lower than the spot prices widely used in the market. Furthermore, it is significantly lower than the amount the household customer could obtain by assigning the rights to STCs to another party or creating them and selling them themselves in the Clearing House. This indicates that the transaction is not an arm's length transaction and it may not be appropriate to use the agreed value.

We also note that the assignment form for Transaction 2 states that the customer assigns their right to create the STCs in exchange for your giving a point of sale discount and a 'Discount on the supply of the system' for which a value has not been advised.

A valuation is therefore necessary to determine the GST inclusive market value. Please refer to our response to Question 2.

¹ Section 9-70 of the GST Act provides that the amount of GST on a taxable supply is 10% of the value of the taxable supply, and the value of a taxable supply is 10/11ths of the price (subsection 9-75(1) of the GST Act).

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