Edited version of private ruling

Authorisation Number: 1011671759124

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Ruling

Subject: GST and payment of credits

Questions

1. Is the payment of a credit by the Entity X to you under the relevant statutory scheme, consideration for a supply from you to the Entity X?

2. Is the payment of a credit by the Entity X to you under the relevant statutory scheme, a third party consideration for a supply from you to a customer?

3. Is the payment of a credit by the Entity X to you under the relevant statutory scheme, an adjustment event in respect of a supply from the Entity X to you?

Decisions

1. No, the payment of a credit by the Entity X to you under the relevant statutory scheme is not consideration for a supply made by you to the Entity X.

2. No, the payment of a credit by the Entity X to you under the relevant statutory scheme is not a third party consideration for a supply made by you to a customer.

3. No, the payment by way of a credit by the Entity X to you under the relevant statutory scheme is not an adjustment event in respect of a supply of services from the Entity X to you.

Relevant facts and circumstances

You are registered for GST.

You conduct a retail business of supplying electricity to customers. Some of these customers have set up solar electricity generators on their premises and they supply part of their solar generated electricity (solar electricity) back into the network.

The Entity X owns the electricity meter that is connected to each customer's premises and is responsible for meter readings that measure each customer's consumption for a billing period. The Entity X also measures the extent to which a customer has supplied electricity to the network or in some instances, has generated their own electricity to offset their consumption from the network. This information is forwarded to you and you issue a tax invoice to the customer.

You make a payment of credit to customers, who supply solar electricity to the network. Such customers will be referred to as solar customers. Various state based regulatory schemes have been put in place to govern the arrangements for payment of credits. The payment information is forwarded to you by the Entity X and you include a credit on the tax invoice you issue to the customer.

Scenario 1

The customer is your existing electricity customer when they install the solar electricity generator.

1. When the customer signs up with you (prior to entering into the credit payment arrangement), the information is obtained in respect of that customer.

2. The customer purchases an eligible solar electricity generator.

3. The customer or the customer's installer arranges a connection agreement between the customer and the Entity X.

4. You and the customer enter into a credit payment agreement.

5. The customer or the installer submits an addition/alteration service order to you to replace the existing meter, in order to ensure that the meter is capable of recording electricity exported to the network.

6. The payment arrangement commences. The customer is paid a statutory amount for electricity supplied to the network. You pay this amount by issuing a credit on the customer's quarterly electricity invoice. It is generally not a cash payment.

7. The Entity X reimburses you for this expense, generally on a weekly basis by applying a credit to the amount otherwise payable by you to the Entity X for the services supplied. In this manner, the credit is funded by the Entity X, as mandated by the relevant regulatory scheme.

8. The Entity X recovers the cost of reimbursing the retailer for this expense by increasing the prices for all of their services.

Scenario 2

The customer transfers to you as an electricity customer with a solar generator.

1. In the course of the transfer process, you obtain information in respect of that customer.

2. You and the customer enter into a credit payment agreement.

3. Payment of the credit commences as per steps 6-8 above.

Metering

The metering of the electricity supplied to the network by a customer can be on a net or gross basis.

Net metering measures the flow of electricity to and from the network. The electricity generated and consumed by a customer is not measured by the meter. No credit payments are made in respect of electricity generated and consumed by the customer.

Gross metering measures the entirety of the output of the customer's generator and the customer is paid for all the electricity generated. The customer is then charged for all their electricity consumption.

Reasons for the decisions

Decision 1

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 term defined in section 195-1 of the GST Act.)

Section 9-40 of the GST Act states:

You must pay the GST payable on any taxable supply that you make.

We need to ascertain in the first instance, whether you make a supply to the distributor in respect of the relevant payment you received from the distributor under the relevant statutory scheme. If it is the case, then it is necessary to establish whether you make a taxable supply to the distributor in respect of that payment.

Meaning of 'supply'

Subsection 9-10(1) of the GST Act defines a supply to be 'any form of supply whatsoever'.

Goods and Services Tax Ruling GSTR 2006/9 (GSTR 2006/9) provides the Commissioner's views on the meaning of the term 'supplies' for the purposes of section 9-10 of the GST Act and include a number of propositions. The proposition 5 of GSTR 2006/9 states:

To 'make a supply', an entity must do something.

Paragraphs 72 - 74 of GTR 2006/9 state:

72. The use of the word 'make' in the context of section 9-5 was considered by Underwood J in Shaw v Director of Housing and State of Tasmania (No 2) (Shaw) in relation to the payment of a judgment debt. His honour was of the view that GST only applies where the 'supplier' makes a voluntary supply and not where a supply occurs without any action by the entity that would be the 'supplier' had there been a supply. He considered the actions of the judgment creditor with respect to the extinguishment of the debt when the judgment debtor made the payment of the judgment sum to meet the judgment debtor's obligations.

73. The Commissioner agrees with Underwood J's decision that there was no supply by the judgment creditor, as the judgment creditor did not do any act or thing to extinguish the obligation, when the judgment debtor paid the judgment debt.

74. However, Underwood J was of the view, with which the Commissioner also agrees, that an entity can still make a supply even if the supply is made under the compulsion of statute if the entity takes some action to cause a supply to occur. His Honour went on to compare a supply resulting from a positive act against a situation where there is no supply because nothing is done.

In this case, as a requirement of the statutory scheme operating in the specific state or territory, the Entity X makes a payment to you by way of a credit, in respect of the payment made by you to a customer as a credit payment. Under the relevant statutory scheme, there is an obligation for the Entity X to make a payment to you by way of a credit, to compensate you for the payment of credit to your customer. The Entity X has to make this payment to you as mandated under the regulatory scheme.

Based on the above analysis, we conclude that you do not make a supply to the Entity X in respect of the payment made by the Entity X to you by way of a credit. The payment you received from the Entity X does not constitute consideration for a supply made by you to the Entity X and therefore, you fail to satisfy paragraph 9-5(a) of the GST Act. As such, you do not satisfy all the requirements of section 9-5 of the GST Act in respect of the payment received from the Entity X. Consequently, you do not incur any GST liability in respect of the payment received from the Entity X.

Decision 2

Section 9-15 of the GST Act refers to consideration and states:

(1) 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.

(2) ……..

Paragraph 180 of GSTR 2006/9 refers to sufficient nexus and states:

180. In other GST rulings, the Commissioner discusses the close coupling between supply and consideration in the GST Act. In determining whether a payment is consideration under section 9-15 and whether there is a 'supply for consideration', those rulings take the view that:

§ the test is whether there is a sufficient nexus between the supply and the payment made; the test is objective;

§ regard needs to be had to the true character of the transaction; and

§ an arrangement between parties will be characterised not merely by the description that the parties give to the arrangement, but by looking at all of the transactions entered into and the circumstances in which the transactions are made.

In this case, you supply electricity and any related services to a solar customer and the customer makes a full payment to you in respect of your supplies. When the customer makes the full payment, it is the consideration which bears the necessary nexus to the supplies of electricity made by you. You account for your GST liability in respect of such supplies.

The solar customer supplies to you solar electricity and for which, you make a payment as prescribed by the relevant statutory scheme.

We conclude that you do not make any additional supply to a solar customer in respect of the payment you receive from the Entity X. The payment made by the Entity X to you to reimburse your payment to the solar customer, does not have any nexus to any supply you make to the solar customer. Therefore, the payment to you from the Entity X by way of a credit does not constitute third party consideration for any supply you make to a solar customer.

Decision 3

Subsection 19-10(1) of the GST Act refers to an adjustment event and states:

An adjustment event is any event which has the effect of:

a) cancelling a supply or acquisition; or

b) changing the *consideration for a supply or acquisition; or

c) causing a supply or acquisition to become or stop being a *taxable supply or *creditable acquisition.

Goods and Services Tax Ruling GSTR 2000/19 refers to making adjustments under Division 19 for adjustment events. Paragraph 18 of GSTR 2000/19 states:

18. Where the consideration for a supply or acquisition changes for any reason, you have an adjustment event. In the following paragraphs we consider payments and other amounts which may or may not change the consideration. Whether a payment or allowance changes the consideration for a supply will depend on the circumstances. The same commercial term could be used to describe various types of arrangements, which may be quite different in substance. The substance of the arrangement or event will determine whether it is an adjustment event.

In this case, the reimbursement to you by the Entity X in respect of the credit applied to your customers, does not change the consideration payable by you to the Entity X for the supply of services. Therefore, the reimbursement by the Entity X does not give rise to an adjustment event under subsection 19-10(1) of the GST Act.

You have an obligation to make a payment for the services supplied by the Entity X to you for a given period. Under the terms of the relevant statutory scheme, the Entity X has an obligation to reimburse you for your payment of credit to a customer. The Entity X reimburses you by way of a credit posted to your account. Although this credit entry has the effect of changing the final amount payable by you to the Entity X, it does not actually change the consideration for the services provided to you by the Entity X.

For the purposes of the GST Act, the GST obligation on taxable supplies made by both, you and the Entity X should be recognised separately and accounted in full.

Accordingly, under subsection 19-10(1) of the GST Act, the payment of credits by the Entity X to you, does not lead to an adjustment event for the services supplied to you by the Entity X. You have an obligation to pay the full consideration for the services supplied by the Entity X. The Entity X incurs a GST liability for the total amount of the services supplied.