Edited version of private ruling

Authorisation Number: 1011480509269

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Ruling

Subject: GST and feeding solar panel generated electricity into the electricity grid

Reasons for decision

Issue 1

Question 1

Is goods and services tax (GST) payable when you supply electricity from your Photovoltaic solar power generating equipment (Photovoltaic Solar System) to an electricity grid in return for a tariff?

Answer/Advice

No.

Relevant facts

You are not registered for GST.

You are an employee.

You state that you are not carrying on an enterprise.

Your primary purpose of installing the Photovoltaic Solar System is to generate sufficient electricity for your household's needs and to insulate yourself from future price rises in electricity.

The electricity produced from the Photovoltaic Solar System is being fed into an electricity grid in return for a tariff under the Solar Bonus Scheme introduced by the government.

You will sell all the electricity that you produce by feeding into the electricity grid at the rate of at least X cents per kilowatt.

Currently in the market place the maximum amount paid is $Y Cents per Kilowatt.

When you would have sold all the electricity that is produced from the Photovoltaic Solar System, the gross amount that you would receive would be approximately $Z.

You estimate that the sale of the electricity to the grid will pay off the system over a number of years. After this time you will continue to receive a credit for the electricity you produce for the life of the Photovoltaic Solar System.

Summary

GST is not payable when you supply electricity from your Photovoltaic Solar System to an electricity grid in return for a tariff as you are not carrying on an enterprise.

Detailed reasoning

Under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), GST is payable where you make a taxable supply.

You make a taxable supply where you satisfy all of the requirements of the GST Act.

Under the GST Act, you make a taxable supply if:

§ you make the supply for consideration

§ the supply is made in the course or furtherance of an enterprise that you carry on

§ the supply is connected with Australia, and

§ you are registered, or required to be registered for GST.

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

Enterprise

The GST Act provides that an enterprise includes an activity or series of activities done in the form of a business.

Miscellaneous Taxation Ruling MT 2006/1 provides guidelines on the meaning of the term 'enterprise' for the Australian Business Number purposes.

Paragraph 1 of Goods and Services Tax Determination GSTD 2006/6 provides that the guidelines in MT 2006/1 are considered to apply equally to the term 'enterprise' as used in the GST Act and can be relied upon for GST purposes.

Paragraphs 177 to 179 of MT 2006/1 provide guidance on the meaning of business. They state:

177. To determine whether an activity, or series of activities, amounts to a business, the activity needs to be considered against the indicators of a business established by case law.

178. TR 97/11 discusses the main indicators of carrying on a business. Based on that discussion some indicators are:

a significant commercial activity;

a purpose and intention of the taxpayer to engage in commercial activity;

an intention to make a profit from the activity;

the activity is or will be profitable;

the recurrent or regular nature of the activity;

the activity is carried on in a similar manner to that of other businesses in the same or similar trade;

activity is systematic, organised and carried on in a businesslike manner and records are kept;

the activities are of a reasonable size and scale;

a business plan exists;

commercial sales of product; and

the entity has relevant knowledge or skill.

179. There is no single test to determine whether a business is being carried on. Paragraph 12 of TR 97/11 states that 'whilst each case might turn on its own particular facts, the determination of the question is generally the result of a process of weighing all the relevant indicators'. TR 97/11 can be referred to for a fuller discussion on whether a particular activity constitutes the carrying on of a business.

From the information that you have provided we find that:

§ your supply of electricity fed into the grid is not a significant commercial activity

§ you are an employee

§ you never intended to make commercial sales of electricity as your primary purpose of installing the Photovoltaic Solar System

§ your purpose for installing the Photovoltaic Solar System is to generate sufficient electricity for your household use and to insulate yourself from future price rises

§ when you sold all the electricity that is produced from the Photovoltaic Solar System, the gross amount that you would have received is approximately $Z

§ you do not have a business plan

§ you do not have relevant knowledge or skill in producing the electricity. It is automatically done when you installed your Photovoltaic Solar System, and

§ your activity of producing electricity and sending it to the electricity grid in return for a tariff is not carried out in a business like manner.

On the basis of the above information, it is considered that, in your situation, the production of electricity by a Photovoltaic Solar System and sending it into the electricity grid in return for a tariff is not carrying on an enterprise for the purposes of the GST Act.

Consequently, you do not supply the electricity in the course or furtherance of an enterprise that you carry on and hence, you do not satisfy the second condition of the GST Act.

Since you do not satisfy all of the conditions of a taxable supply, GST is not payable when you supply electricity produced from your Photovoltaic Solar System into an electricity grid in return for a tariff.