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Edited version of private ruling
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Ruling
Subject: GST credits on a solar electricity generation system
Question
Is the purchase of a solar panel array for the purposes of generating electricity on your property a creditable acquisition whether in whole or in part?
Answer
The purchase of the solar panel array is a creditable acquisition in full.
Relevant facts and circumstances
You carry on an enterprise and are registered for GST.
A 4.1kilowatt solar electricity generation system (the system) was installed on your property. It was acquired from a GST registered entity as part of a government solar bonus scheme.
The system has been paid for and a GST credit was claimed for the acquisition.
The intent for the investment was to offset the significant annual electricity cost which is primarily driven by your business assets that require electricity to run. Your average percentage of electricity used for business purposes is estimated to be 70%.
Your electricity provider purchases all the electricity you produce (referred to as solar credits on your bills) at the rate of 60 cents per kilowatt hour and then sells you the amount of electricity that is used for your business and domestic needs. The two amounts are netted off each other on your bills.
The metering of electricity generated is based on a Gross tariff method, in that all the electricity produced is measured (and sold to the provider) and not just the amount that is used.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 section 11-5.
Reasons for decision
Section 11-20 of a New Tax System (Goods and Services Tax) Act 1999 (the GST Act) provides that you are entitled to the input tax credit for any creditable acquisition that you make.
Section 11-5 of the GST Act stipulates there are four conditions to be met for an acquisition to be creditable. They are:
(a) you acquire anything solely or partly for a creditable purpose; and
(b) the supply of the thing to you is a taxable supply; and
(c) you provide, or are liable to provide, consideration for the supply; and
(d) you are registered, or required to be registered.
You paid for the system. Given you have provided consideration we find that subsection 11-5(c) of the GST Act is satisfied. As you are registered for GST and that the system was acquired from a GST registered entity, then subsections 11-5(d) and 11-5(b) are also satisfied.
The last criterion to examine is whether the acquisition was for a creditable purpose.
The meaning of creditable purpose is provided by section 11-15 of the GST Act. As far as this case applies, it states that you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise unless:
(a) the acquisition relates to making supplies that are input taxed; or
(b) the acquisition is of a private or domestic nature.
It is noted that the exclusions listed in points (a) and (b) above do not apply because:
1. the supply of electricity is not input taxed under Division 40 of the GST Act
2. the acquisition is not of a private or domestic nature as it was acquired primarily as a means to reduce the cost of running your business assets.
Chapter 3.10 of the Explanatory Memorandum for the GST Act explains the term 'in the course or furtherance of your enterprise,' which states:
In the course or furtherance is not defined but is broad enough to cover any supplies made in connection with your enterprise. An act done for the purpose or object of furthering an enterprise, or achieving its goals, is a furtherance of an enterprise although it may not always be in the course of that enterprise. In the course or furtherance does not extend to the supply of private commodities, such as when a car dealer sells his or her own private car. See Case N43 (1991) 13NZTC 3361.
The income generated from your supplies of solar energy is used to directly offset your business electricity power bills. Your activity of solar electricity generation therefore indirectly reduces a business running cost. Reducing costs is one of the goals of business as it potentially increases profitability. Thus this activity can only be construed as being in furtherance of an enterprise that you carry on.
Thus the acquisition of the solar electricity generation system is a creditable acquisition.