Edited version of your written advice

Authorisation Number: 1012931299195

Date of advice: 1 March 2016

Ruling

Subject: GST and assignment of rights to create Renewable Energy Certificates

Question 1

Do you make an acquisition from the customer when the customer assigns the right to create Small Scale Technology Certificates (STC) to the wholesaler?

Answer:

No, the customer is making a supply of the assignment of the rights to create STCs to the wholesaler. You do not make an acquisition from the customer.

Question 2

Since the wholesaler pays you part of the consideration for your supply of the solar system (delayed payment), to the customer is there a supply from you to the wholesaler of the solar system?

Answer

No, you do not make a supply to the wholesaler of the solar system.

Question 3

If the wholesaler pays you more than the delayed payment that was agreed between you and the customer, would the extra amount be consideration for a supply from you to the wholesaler?

Answer

Yes, you make a taxable supply of an administration/handling service to the wholesaler when the wholesaler pays you more than the delayed payment amount. The consideration is the extra payment amount. You are liable to remit GST of 1/11 of this amount.

Question 4

If the discount given by you to the customer is less than the credit received from the wholesaler for the STCs, is the difference a taxable or non-taxable adjustment for income tax purposes?

Answer

The difference will be a taxable adjustment because the credit received from the wholesaler is assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) and the discount given by you will be an allowable deduction under subsection 8-1(1) of the ITAA 1997.

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.

Background information

Small Scale Technology Certificates (STC) are tradable commodities where the right to create them belongs to the end-customer (customer) home owners of solar power systems. The customers can use the STCs to reduce the net cost of the solar power system.

Retailers of solar power systems usually offer an upfront point of sale discount to the customers. In return, the customer assigns the right to create the STCs to the retailer or to a third party nominated by the retailer. The customer and retailer agree that the payment for the right to create the STCs will be made by the retailer or the third party to the retailer as reimbursement for the discount provided by the retailer to the customer with the customer paying the balance directly to the retailer.

Facts

You are a GST registered Solar Systems Retailer.

You purchase solar power systems from A, a solar equipment wholesaler (wholesaler) and sell these to customers.

Under an arrangement between you, the wholesaler and the customer for a sale of a solar power system, the customer assigns the right to create the STCs to the wholesaler. You offer a net price after subtracting a value for any eligible STCs. This is described by you as a point of sale 'discount' on the sale of the solar power system for the customer but it is a delayed payment to you of the balance of the full price of the solar system.

You supply the solar power system and invoice the customer the full price of the solar system but require only the net balance to be paid by the customer after deducting the amount representing the transfer of the STC credits. You remit 1/11 of the full price of the solar system to the ATO.

The wholesaler pays the delayed payment to you in return for receiving the STC rights from the customer. This can be either paying the actual amount or reducing the amount you have to pay for receiving the solar system from the wholesaler.

The wholesaler may pay you another amount in addition to the delayed payment. You gave as an example, the customer receiving $B per STC right as a discount from the retailer and the wholesaler pays $C per STC right to the retailer.

You have provided:

• A sample tax invoice issued by you to a customer giving $D inclusive of GST as the total price for the solar system. This is reduced by $E to $F due to the transfer of STC credits by the customer. The customer pays you $F as the amount due. You remit 1/11 of $D to the ATO.

• A copy of the STC Assignment Form showing that:

• The customer is the owner of the small generation unit (SGU) and assigns the right to create STCs to A for a deeming period commencing on the date of installation.

• An accredited installer named on the form physically attended the installation of the unit.

• There is a 'point of sale discount' of $E in exchange for the customer assigning his rights to create the STCs.

• A Proforma invoice issued by A to you for A's supply of the solar system for $G. A Payment Receipt accompanies the invoice stating that A provides you $H as the STC offset. This means that instead of the wholesaler paying cash to the retailer for this amount, the wholesaler applies this amount as part payment for the solar system supplied to the retailer. For this transaction, the retailer has a net debt of $G-$H to pay.

• The $H credited by the wholesaler is $J more than the delayed payment amount of $E.

Relevant legislative provisions

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

Income Tax Assessment Act 1997: Section 6-5

Income Tax Assessment Act 1997: Subsection 8-1(1)

Reasons for decision

Characterisation of the supplies

First, we need to determine what the supplies are in this arrangement between the wholesaler, the retailer and the customer. We consider that there are 4 supplies as follows:

A. The supply of the solar system from the wholesaler to the retailer. The consideration is $G (GST inclusive).

B. The supply of the solar system from the retailer to the customer. The consideration is $D (GST inclusive).

C. The supply of the right to create the STCs from the unregistered private individual (customer) to the wholesaler. The consideration is $E.

D. The supply of the admin/handling service from the retailer to the wholesaler. The consideration is $J (GST inclusive).

Question 1: Do you make an acquisition from the customer when the customer assigns the right to create STCs to the wholesaler?

To make an acquisition from a supply, we need to determine what is being supplied and who are the supplier and recipient of that supply.

What is the supply?

Subsections B and BA of the Renewable Energy (Electricity) Act 2000 relates to STCs, which are created in relation to installation of solar water heaters (SWHs) and small generation units (SGUs). Sections 23 and 23C of the Renewable Energy (Electricity) Act 2000 provides that the owner of the SWHs/SGUs is entitled to create the certificate(s) that is the STCs. However, the owner may by written notice assign the right to create the certificate(s) to another person. If the owner does this, the owner is not entitled to create the certificate(s) but the person to whom the right was assigned is entitled to create the certificate. Further, a person who is not registered may not create a certificate that relates to the SWHs/SGUs.

A customer who installs a solar power system is eligible to create STCs and sell them on the open market in order to defray some of the costs of the solar power systems or assign the right to create the STCs to a registered agent, who may give a financial benefit for the STCs such as a reduction of the invoice amount.

Therefore the supply is of the right to create the STCs.

Who are the supplier and recipient of the supply of the right to the STCs?

The customers who are the owners of the solar power systems and who are eligible to create the STCs assign the right to create the STCs to the wholesaler. This is evidence by the assignment form completed by a customer who declares that the form legally assigns the right to create STCs to the wholesaler and by signing this form that the owner is assigning the right to create the STCs.

The form also specifies the amount given for the assignment of the STCs, a GST declaration, and the payment details - that is, the owner indicates whether payment is to be made to the wholesaler in exchange for the point of sale discount received by the owner.

The amount of $E which the wholesaler is liable to pay to the customer is consideration for the right to create the STCs. However, the customer enters into an arrangement that the wholesaler pays this amount to the retailer to reduce the price of the solar system which the customer buys from the retailer.

The supply of the right to create the STCs is made by the customer. The wholesaler is the recipient of the supply of the right to create the STCs.

In conclusion, you neither acquire the rights from the customers, nor do you own the STC rights therefore you do not make an acquisition in relation to the STCs.

Question 2: Since the wholesaler pays you part of the consideration for your supply of the solar system (delayed payment), is there a supply from you to the wholesaler of the solar system?

Although a payment is made from the wholesaler to you (the delayed payment), this does not mean that you make a supply to the wholesaler of the solar system. You are making a supply of the solar system to the customer. The wholesaler is simply paying the discounted amount on behalf of the customer.

Question 3: If the wholesaler pays you more than the delayed payment that was agreed between you and the customer, would the extra amount be consideration for a supply from you to the wholesaler?

GST is payable if an entity is making 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:

(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.

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

(* denotes a defined term in the GST Act.)

The supply of the administration/handling service satisfies the requirements of paragraphs 9-5(a), 9-5(b), 9-5(c) and 9-5(d) of the GST Act because:

• your supply for the administration/handling service is made for consideration

• your supply is made in the course of your enterprise

• your supply is connected with Australia because the administration/handling service is supplied in Australia to the resident recipient, and

• you are registered for GST.

Your supply of the admin/handling service is neither GST-free nor input taxed. Hence the supply is a taxable supply.

The consideration received for the supply of the administration/handling service is the amount in addition to the delayed payment amount.

From the documentation provided, A's credit for the STCs is $H. This is $J more than the 'point of sale discount' ie delayed payment amount of $E. Therefore, the $J represents consideration for your admin/handling services. You are liable to remit 1/11^th of J to the ATO.

Question 4: If the discount given by you to the customer is less than the credit received from the wholesaler for the STCs, is the difference a taxable or non-taxable adjustment for income tax purposes?

Section 6-5 of the ITAA 1997 provides:

'6-5(1) Your assessable income includes income according to ordinary income which is called ordinary income….'

6-5(2) If you are an Australian resident, your assessable income includes the *ordinary income you *derived directly or indirectly from all sources, whether in or out of Australia, during the income year…'

It is established that a receipt is income according to ordinary concepts if it has 'come in' to the recipient of the income: FC of T v Cooke & Sherden (1980) 42 FLR 403 at 416.

A profit or gain is income according to ordinary concepts if it is derived in the ordinary course of carrying on a business: see FC of T v The Myer Emporium Ltd (1987) 163 CLR 199 at 210; GP International Pipecoaters Pty Ltd v FC of T (1990) 170 CLR 124 at 139; Taxation Ruling TR 92/3, at paragraphs 31-32.

It is further established that recurrence or regularity is usually (but not always) an indication that an amount constitutes income: FC of T v Dixon (1952) 86 CLR 540 at 567-568 (Fullagar J); see also GP International Pipecoaters (above) at 138.

Application of principles in this case

Credit of $X received from the wholesaler

You are registered for GST.

In the 20XX-20YY income year you carried on a business of purchasing solar systems from a wholesaler and selling them to your customers.

Your tax accounts show that you regularly purchased solar systems from the wholesaler and sold them to customers. You invoiced the customers at the same time that you purchased the solar systems from the wholesaler.

The credit of $X which you receive from the wholesaler for the STCs is a receipt which has 'come into' the client (Cooke & Sherden (above)).

The credit is a regular and expected incident of your ordinary business of selling solar systems to customers (TR 92/3 (above)).

Further, it is a payment which you are entitled to receive under your arrangements with the wholesaler and was an integral part of the work which you performed. It is therefore of an income nature (GP International Pipecoaters (above) at 139). Likewise, where a company was in the business of hiring scaffolding equipment, contractual payments made to that company for non-return of scaffolding equipment by customers were held to be a regular and expected incident of the company's business and therefore assessable income: FC of T v GKN Kwikform Services Pty Ltd 91 ATC 4336; (1991) 91 ATR 1532.

The credit of $X will be assessable income in the income year in which you derive it under section 6-(5)(2) of the ITAA 1997.

Discount of $X-4 paid to the customer

Subsection 8-1(1) of the ITAA 1997 provides:

'8-1(1) You can deduct from your assessable income any loss or outgoing to the extent that:

(a) It is incurred in gaining or producing your assessable income; or

(b) It is necessarily incurred in carrying on a*business for the purpose of gaining or producing your assessable income...'

You are carrying on a business and therefore may apply either paragraphs 8-1(1)(a) (the first limb) or 8-1(1)(b) (the second limb).

A loss or outgoing is deductible under the second limb if it is part of the cost of trading operations: John Fairfax & Sons Pty Ltd v FC of T (1958-9) 101 CLR 30 at 49 (Menzies J); Taxation Ruling TR 2004/2, paragraph 12.

Alternatively, a loss or outgoing is deductible under the second limb if the occasion of the loss or outgoing is to be found in the carrying on of a business for the production of assessable income: AGC (Advances) Ltd v FC of T (1975) 132 CLR 175 at 198 (Mason J); Placer Pacific Management Pty Ltd v FC of T 95 ATC 4459 at 4464.

Your tax accounts reveal that you regularly derived income receipts from the sale of solar systems to customers.

The upfront payment of the discount of $X-4 to the customer is part of the contractual arrangement under which the customer assigns the right to create the STCs to the wholesaler.

The discount of $X-4 is part of the cost of trading operations undertaken by you and is therefore deductible under subsection 8-1(1) of the ITAA 1997.

Alternatively the discount paid to the customer may be deductible under the first limb if the expenditure was incidental and relevant to gaining or producing the client's assessable income: Ronpibon Tin NL v FC of T; Tongkah Compound NL v FC of T (1949) 78 CLR 47 at 56-57.

Subsection 8-1(2) of the ITAA 1997 provides:

'8-1(2) However you cannot deduct a loss or outgoing under this section to the extent that:

(a) It is a loss or outgoing of capital, or of a capital nature; or

(b) It is a loss or outgoing of a private or domestic nature; or

(c) It is incurred in relation to gaining or producing your *exempt income or your*non-assessable non-exempt income; or

(d) a provision of this Act prevents you from deducting it….'

Subsection 8-1(2) has no application in relation to the discounts paid by you to the customer.

The discount will be an allowable deduction in the income year in which it is incurred: Taxation Ruling TR 97/7, paragraph 3.

Sample tax invoice issued by you to customer Y

You will derive the following amounts as assessable income under section 6-5 of the ITAA 1997, being income derived in the ordinary course of business (Taxation Ruling TR 92/3, paragraphs 31-32):

(i) Gross invoice amount to the customer of $D less the GST credit of $K (being 1/11 of the gross invoice amount). GST payable on a taxable supply is regarded as non-assessable non-exempt income for income tax purposes under paragraph 17-5(a) of the ITAA 1997). This works out at $L (whole dollars are used for the purposes of this exercise.)

(ii) The credit of $H received from the wholesaler.

You have incurred the following deduction under subsection 8-1(1) of the ITAA 1997:

(i) The discount of $B paid to the customer (as discussed).

The taxable income for you is therefore $L + $H = $M - $B = $N.

By comparison, had the customer paid the full amount of $D directly to you (i.e. without the delayed payment arrangement), you would have had a taxable income of $L. This is calculated as gross receipt of $D less GST credit of $K (non-assessable non-exempt income as explained) = $L.

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