Edited version of private ruling

Authorisation Number: 1011635434708

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Ruling

Subject: Goods and services tax (GST) and sale of electricity generated by solar panels

Question

Is GST payable where you receive credits for electricity you supply to the electricity supplier?

Answer

No.

Relevant facts and circumstances

You are registered for GST.

You carry on various businesses. You operate these businesses from an office in your house. The office is one room of your house. There are a few rooms in your house.

You have installed solar panels on the roof of your house. These solar panels generate electricity.

The solar power electricity generation system is a certain number of KWs system.

The net cost to you of installing the solar power electricity generation system was a certain amount of money.

Your solar power electricity generation system is connected to an Australian electricity grid.

Under an arrangement, you supply the electricity generated from the solar panels to an electricity supplier, by feeding the electricity into the electricity grid. In return for these supplies, you are entitled to credits, which are offset against the bill for the electricity the electricity supplier sells to you.

You commenced generating electricity from the solar power electricity generation system on a certain date.

You sent the Australian Taxation Office a copy of an electricity bill of yours for a certain period. The bill shows a credit of a certain amount of money.

You do not keep accounting records relating to the activity of supplying electricity to the electricity supplier other than the initial invoice and the power bills.

Our research reveals that only about a certain amount of money a year on average would be received in credits for a solar power electricity generation system the size of yours.

Your purpose behind installing the solar panels was to offset some of your power costs.

You do not have a business plan in relation to your activity of supplying electricity.

Your knowledge of the electricity industry is of a lay nature.

Reasons for decision

Summary

GST is not payable where you receive credits for electricity you supply to the electricity supplier, as you do not sell electricity to the electricity supplier in the course or furtherance of an enterprise that you carry on.

Detailed reasoning

You are liable for GST on taxable supplies that you make.

You make a taxable supply where you satisfy the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), which states:

You make a taxable supply if:

you make the supply for *consideration; and

the supply is made in the course or furtherance of an *enterprise that

you *carry on; and

the supply is *connected with Australia; and

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.

The supply of solar generated electricity from a solar owner to an electricity retailer is a supply for GST purposes. If the solar owner is registered for GST and the supply is made in the course or furtherance of their enterprise, it is a taxable supply under section 9-5 of the GST Act.

Supply made for consideration

You are a solar owner and you supply solar generated electricity to an electricity retailer. Therefore, you are making a supply for GST purposes.

In accordance with paragraphs 1 to 3 of Goods and Services Tax Determination GSTD 2004/4:

§ consideration can be provided or received by way of setting off mutual liabilities in accordance with the doctrine of set-off.

§ a set-off can occur if each party has made a supply to the other and each party is required to pay the other for the supply made to it.

§ in each of these cases, the consideration is generally provided or received on the date that the set-off legally occurs.

In your case, you make a supply of electricity to an electricity supplier and the electricity supplier makes a supply of electricity to you. The electricity supplier provides consideration for your supply of electricity by setting off the credits it owes you against your liability for electricity that the electricity supplier supplies to you. Therefore, the requirement of paragraph 9-5(a) of the GST Act is satisfied.

Supply connected with Australia

Your supplies of electricity to the electricity supplier are connected with Australia. Therefore, the requirement of paragraph 9-5(c) of the GST Act is satisfied.

GST registration

You are registered for GST. Therefore, the requirement of paragraph 9-5(d) of the GST Act is satisfied.

There are no provisions in the GST Act or in any other Act under which your supplies of electricity to the electricity supplier are GST-free or input taxed.

Therefore, what remains to be determined is whether you supply the electricity in the course or furtherance of an enterprise that you carry on.

Supply made in course or furtherance of enterprise

In accordance with paragraph 9-20(1)(a) of the GST Act, an activity or series of activities done in the form of a business is an enterprise.

Miscellaneous Taxation Ruling MT 2006/1 discusses the concept of enterprise for the purposes of entitlement to an Australian Business Number.

In accordance with paragraph 1 of Goods and Services Tax Determination GSTD 2006/6, the principles in MT 2006/1 apply equally to the terms 'entity' and 'enterprise' and can be relied upon for GST purposes.

Paragraph 178 of MT 2006/1 sets out the main indicators of carrying on a business. It states:

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.

Paragraph 179 of MT 2006/1 states:

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.

In your case:

§ your activity of supplying electricity is not a significant commercial activity;

§ your purpose behind installing the solar panels was to offset some of your power costs;

§ our research reveals that only about a certain amount of money a year on average would be received in credits for a solar power electricity system the size of yours;

§ it will take a few years until your credits exceed your net cost of installing the solar power electricity generation system;

§ your activity of supplying electricity is not carried on in a similar manner to that of ordinary electricity selling businesses;

§ your activity of supplying electricity is not carried on in a business like manner;

§ your activity of supplying electricity is of a miniscule size and scale;

§ you do not have a business plan in relation to your activity of supplying electricity; and

§ your knowledge of the electricity industry is of a lay nature.

On the basis of the information above, it is considered that your activity of supplying electricity is not a business. This activity is not any other type of enterprise. Additionally, you do not supply the electricity in the course or furtherance of the businesses that you advised us you are carrying on, as your activity of supplying electricity is not connected with these businesses.

Consequently, you do not supply the electricity in the course or furtherance of an enterprise that you carry on and therefore, you do not satisfy the requirement of paragraph 9-5(b) of the GST Act.

Conclusion

As you do not satisfy all of the requirements of section 9-5 of the GST Act, you do not make a taxable supply in return for the credits. Therefore, GST is not payable where you receive these credits.

Additional information

Where an electricity retailer makes a taxable supply of electricity to a solar owner, the electricity retailer must calculate the GST on the full value of the electricity they supply to the solar owner. The value of electricity supplied by the electricity retailer to the solar owner is not offset or reduced by any electricity that may be supplied by the solar owner to the electricity retailer. The supply of electricity by the electricity retailer to the solar owner is separate from the supply by the solar owner to the electricity retailer.