Edited version of private ruling

Authorisation Number: 1011573498217

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Ruling

Subject: GST and Renewable Energy Certificates

Question 1

Is the assignment of the Renewable Energy Certificates (RECs) by the customer to entity one a creditable acquisition made by entity one if a customer is not registered for GST?

Answer 1

No. The assignment of the RECs to entity one can only be a creditable acquisition if all the requirements under section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) are satisfied. One of the requirements is that the supply of the RECs to entity one is a taxable supply.

When the customer is not registered or required to be registered for GST, any supply it makes will not be taxable.

Consequently, the assignment of the REC to entity one is not a creditable acquisition if the customer is not registered for GST.

Question 2

Is the assignment of an REC by the customer to entity one a creditable acquisition made by entity one if the customer is registered for GST and the supply is made in the course or furtherance of the customer's enterprise?

Answer 2

Yes, the assignment of an REC by the customer to entity one will be a creditable acquisition made by entity one if the customer is registered for GST and the supply is made in the course or furtherance of the customer's enterprise.

Question 3

Should the discount provided by entity two to a customer be included in the value of the taxable supply of the product by entity two?

Answer 3

In this case entity two will not be providing a discount to a customer where it applies a customer's entitlement for the assignment of the RECs at the point of sale of the product, for the customer's convenience, rather than entity one making the payment directly to the customer.

Question 4

Is the assignment of the RECs by the customer to entity one not a taxable supply made by entity two?

Answer 4

Yes, the assignment of the interest in the RECs is made by the customer to entity one. Therefore, such an assignment is not a supply made by entity two.

Question 5

Does the receipt of the facilitation fee need to be included in the value of a taxable supply of facilitation services made by entity two to entity one?

Answer 5

Yes, the receipt of the facilitation fee needs to be included in the value of a taxable supply of facilitation services made by entity two to entity one.

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.

Entity one is a RECs trader.

Entity two operates a business and supplies its solar products to its customers.

Entity one and entity two are registered for GST.

We are informed that the right in an REC is an electronic, tradeable commodity equal to 1 Megawatt hour of renewable energy generation and is a tradeable commodity in the RECs market.

Entity two has entered into an agreement with entity one.

The PV System Assignment form provided with the agreement indicates that:

· RECs can be created by owners of Solar PV (photovoltaic) systems,

· systems owners' can assign the right to create RECs to registered agent entity one,

· RECs are produced under the government's Renewable Energy Target Scheme (Renewable Energy Electricity Act 2000) to encourage renewable energy production and provide an incentive for Australians installing renewable energy systems.

A clause of the agreement provides that entity one agrees that entity two to act as its facilitator for the purpose of transferring the RECs from entity two's customers to entity one.

Under a clause of the agreement entity one agrees to pay entity two all facilitation fees.

A clause of the agreement provides that entity two must not portray that it is acting as an agent of entity one without prior written consent of entity one.

The RECs must be assigned to a registered RECs trader and are of no value to entity two because it is not a registered RECs trader.

The parties informed that:

· the contract specifies that the customer will receive a point of sale discount on their purchase of the solar panels following the assignment of the RECs;

· Entity two and entity one are controlled by the same directors; however, similar arrangements could be made at arms length between parties.

· the facilitation fee is kind of a commission paid to entity two for facilitating the transfer of the RECs under the agreement between entity two and entity one;

· they are not sure whether the facilitation fee provided forms part of entity's one price for their supply of solar water heater and electricity generation systems.

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 9-15

A New Tax System (Goods and Services Tax) Act 1999 subsection 9-75(1)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 9-10(2)(e)

A New Tax System (Goods and Services Tax) Act 1999 section 11-5

Renewable Energy Electricity Act 2000

Reasons for decision

These reasons for decision accompany the Notice of private ruling for entity two and entity one.

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Question 1

Is the assignment of the RECs by the customer to entity one a creditable acquisition made by entity one if a customer is not registered for GST?

Summary

No. The assignment of the RECs to entity one can only be a creditable acquisition made by entity one if all the requirements under section 11-5 of the GST Act are satisfied. One of the requirements is that the supply of the RECs to entity one is a taxable supply.

When the customer is not registered or required to be registered for GST, any supply it makes will not be taxable.

Consequently, the assignment of the RECs to entity one is not a creditable acquisition made by entity one if the customer is not registered for GST.

Detailed reasoning

Section 11-5 of the GST Act provides that you make a creditable acquisition if:

· You acquire anything solely or partly for a creditable purpose;

· The supply of the thing to you is a taxable supply;

· You provide, or is liable to provide consideration for the supply; and

· You are registered, or required to be registered

In order to determine if the assignment of the RECs to entity one is a creditable acquisition, the only factor at issue is whether the supply of the RECs to entity one is a taxable supply.

Goods and Services Tax Ruling GSTR 2006/9 on supplies (GSTR 2006/9) examines the meaning of 'supply' in the GST Act.

Paragraph 12 of GSTR 2006/9 provides that the basic rules require an entity, the supplier, to make the supply and generally another entity, the recipient, to acquire the supply. This ruling also provides that the GST on a taxable supply is payable by a supplier who is registered or required to be registered for GST.

The requirements for a taxable supply are stated in section 9-5 of the GST Act.

Section 9-5 of the GST Act provides that an entity makes a taxable supply if it makes the supply for consideration, in the course or furtherance of an enterprise that it carries on, the supply is connected with Australia and the entity is 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.

Under paragraph 9-10(2)(e) of the GST Act, an assignment of any right is a supply.

In this case, entity two supplies the solar water heater and electricity generation systems to customers and also facilitates the transfer of a customer's right regarding the creation of an REC to entity one.

Hence, we consider that according to the facts provided a customer makes a supply when it assigns its right to the RECs to entity one. Consequently, a customer will make a taxable supply when it assigns its rights to an REC if the customer is registered or required to be registered, the customer assigns the right to entity one in the course or furtherance of an enterprise it carries on, the supply is for consideration and is connected with Australia.

Where a customer is not registered or required to be registered for GST any supply made by that customer, regarding the transfer of the right to create an REC, will not be taxable.

It follows therefore that entity one will not be making a creditable acquisition when the customer who is not registered for GST assigns the RECs to them.

Question 2

Is the assignment of an REC by the customer to entity one a creditable acquisition made by entity one if the customer is registered for GST and the supply is made in the course or furtherance of the customer's enterprise?

Summary

Yes, the assignment of an REC by the customer to entity one will be a creditable acquisition made by entity one if the customer is registered for GST and the supply is made in the course or furtherance of the customer's enterprise.

Detailed reasoning

For more information see the answer to question 1.

Question 3

Should the discount provided by entity two to a customer be included in the value of the taxable supply of the solar system by entity two?

Summary

In this case entity two will not be providing a discount to a customer where it applies a customer's entitlement for the assignment of the RECs at the point of sale of the solar system, for the customer's convenience, rather than entity one making the payment directly to the customer.

Detailed reasoning

Goods and Services Tax Ruling GSTR 2003/12: When consideration is provided and received for various payment instruments and other methods of payment (GSTR 2003/12) describes the various payment instruments and methods of payment that may be used in transactions, and provides guidelines to help entities decide when they have provided or received consideration for a supply.

Paragraph 14 of GSTR 2003/12 provides that section 9-15 of the GST Act expands on the meaning of 'consideration for a supply' and explains that consideration includes any payment, act or forbearance in connection with, in response to, or for the inducement of, a supply of anything.

In the current case we are informed that entity two provides a discount to a customer on the acquisition of a solar water heater and electricity generation systems. The provision of a discount entitles an entity to a price reduction on the acquisition of goods or services and does not constitute part of the consideration for the supply of the goods or services. In other words the consideration for the supply is limited to the discounted selling price of the goods or services, that is, the actual payment received by the supplier.

The issue in this case is to determine whether entity two provides a discount to a customer when the customer acquires a solar water heater and electricity generation systems from entity two and where entity two facilitates the transfer of the RECs to entity one.

Goods and Services Tax Ruling GSTR 2000/19: Making adjustments under Division 19 for adjustment events explains the Commissioner's view on the operation of Division 19 of the GST Act. This ruling provides that (in relation to third parties payment) an entity (such as a RECs trader) may offer to make a payment to a third party customer if the customer acquires a thing from another entity (such as a retailer). Typically, the RECs trader will make the payment directly to the customer independently of the retailer. The payment is made pursuant to a separate agreement between the customer and the RECs trader but not involving the retailer. A payment made in these circumstances does not change the consideration received by the retailer for the supply to the customer. A change in the consideration for these supplies cannot occur independently of the retailer.

For example where a customer pays $XX,000 for a product from entity two who subsequently forwards $X,000 in the form of rebate to the customer on behalf of, or at the direction of entity one; then the $X,000 forwarded to the customer for the assignment of the RECs to entity one still forms part of the price of the product and is not considered to be a discount provided by entity two to the customer.

Consequently, according to the explanation provided above, entity two will not be providing a discount to a customer where entity two applies a customer's entitlement for the assignment of the RECs at the point of sale, for the customer's convenience, rather than entity one making the payment directly to the customer. Hence entity two should account for GST on the full undiscounted price of the solar system when it was sold to the customer.

Question 4

Is the assignment of the RECs by the customer to entity one not a taxable supply made by entity two?

Summary

Yes, the assignment of the interest in the REC is made by the customer to entity one. Therefore, such an assignment is not a supply made by entity two.

Detailed reasoning

According to the facts provided, entity two acts as a facilitator for entity one in relation to the assignment of the REC by the customer to entity one and receives consideration for its facilitation services.

Goods and Services Tax Ruling GSTR 200/37: Agency relationships and the application of the law (GSTR 2000/37) describes what is meant by principal/agent relationships.

Paragraph 10 of GSTR 200/37 provides that an intermediary may be authorised by another party to do something on that party's behalf. Generally, the intermediary is called an agent. The party who authorises the agent to act on their behalf is called the principal.

Paragraph 15 of GSTR 200/37 mentions that when an agent uses his or her authority to act for a principal, then any act done on behalf of that principal is an act of the principal.

As stated above, entity two acts as an agent when facilitating the transfer of the REC from the customer to entity one. Therefore, it is the customer and not entity two that supplies the REC to entity one. Consequently, the assignment of the REC by the customer to entity one is not a supply made by entity two.

Question 5

Does the receipt of the facilitation fee need to be included in the value of a taxable supply of facilitation services made by entity two to entity one?

Summary

Yes, the receipt of the facilitation fee needs to be included in the value of a taxable supply of facilitation services made by entity two to entity one.

Detailed reasoning

Subsection 9-75(1) of the GST Act defines "price" as the consideration for a supply expressed as an amount of money including any GST. Furthermore, it describes the "value" of a taxable supply as the "price" minus the GST.

When entity two facilitates the transfer of the RECs to entity one as provided under the agreement between both parties, we consider that all the conditions under section 9-5 of the GST Act are satisfied as entity two is registered for GST, the supply is connected with Australia, entity two makes the supply in the course or furtherance or its enterprise and the facilitation fee provided by entity one is consideration for the supply of the services made by entity two.

Furthermore, the supply made by entity two is neither GST-free nor input-taxed. Consequently entity two must include the facilitation fee received in the value of its taxable supply of facilitation services to entity one.