Edited version of private ruling

Authorisation Number: 1011768910888

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: GST and assignment of rights to create Renewable Energy Certificates

Question

Is the entity making a creditable acquisition for which it is entitled to a GST credit when it pays the installer company an amount on behalf of a home owner who assigns to it the right to create Renewable Energy Certificates (RECs)?

Advice

No, the entity is not making a creditable acquisition for which it is entitled to a GST credit nor is it making any acquisition when it pays the installer company an amount on behalf of a home owner who assigns to the entity the right to create the RECs.

Relevant facts

The entity operates as an aggregator and trades in Renewable Energy Certificates (RECs) also known as Small Scale Technology Certificates (STCs).

It is a registered agent with the Office of the Renewable Energy Regulator (ORER).

It is registered for the goods and services tax (GST).

RECs are a tradeable commodity and the right to create them belongs to the home owners of solar power systems. The home owners use the RECs to reduce the net cost of the solar power system.

In most cases, companies who sell solar power systems offer an upfront discount, referred to as a point of sale discount, to the home owners. The discount is the number of RECs multiplied by a value for each REC. In return, the home owner must assign the right to create the RECs to the company or to a registered agent nominated by the company.

The reason home owners trade through a registered agent is due to the volumes required to trade. A standard parcel (number of RECs) traded is a minimum of 5000 RECs. Agents such as the entity buy the right to create the RECs from multiple customers so that they accumulate 5000 RECs weekly to trade in the market.

Although the RECs are for the discount provided by the installer company to the home owner, it is always the home owner as the owner of the solar power system who assigns the right to create the RECs to the agent. The home owner and installer company agree that the payment for the right to create the RECs will be made by the entity to the installer company as reimbursement for the discount provided by the installer company to the home owner with the home owner paying the balance directly to the installer company.

The entity does not have written agreements with installer companies and they do not charge the entity for arranging the assignment of the right to create the RECs.

There is no agency relationship between the entity and the home owners or the installer company.

In this case, the home owners who assign their rights to create the RECs to the entity are not registered or required to be registered for GST and do not make the supply in the course of any enterprise that they carry on.

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 9-10

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

A New Tax System (Goods and Services Tax) Act 1999 Section 11-10

A New Tax System (Goods and Services Tax) Act 1999 Section 11-15

Reasons for decision

Section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states:

You make a creditable acquisition if:

· you acquire anything solely or partly for a *creditable purpose; and

· the supply of the thing to you is a *taxable supply; and

· you provide, or are liable to provide, *consideration for the supply; and

· you are *registered, or *required to be registered.

(*Asterisked items are defined terms in section 195-1 of the GST Act).

All the elements of section 11-5 of the GST Act as stated above must be satisfied for there to be a creditable acquisition.

Subsection 11-10(1) of the GST Act provides that an acquisition is any form of acquisition whatsoever. Under subsection 11-10(2) of the GST Act, an acquisition includes, amongst other things, any of the following:

· an acquisition of goods

· an acquisition of services

· an acceptance of a grant, transfer, assignment or surrender of any right

· an acquisition of a right to require another person:

· to do anything

· to refrain from an act, or

· to tolerate an act or situation

· any combination of any 2 of the matters referred to in paragraphs (a) to (g) of subsection 11-10(2) of the GST Act.

The concept of supply and acquisition are related. An entity makes an acquisition if the entity is the recipient of the supply. That is, the supply is made to the entity. An entity must have made an acquisition of a thing in order to satisfy the requirements of section 11-10 of the GST Act.

An entity acquires a thing for a creditable purpose if it acquires it in carrying on its enterprise (subsection 11-15(1) of the GST Act). However, it does not acquire the thing for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed or the acquisition is of a private or domestic nature.

In this case, the entity is carrying on an enterprise of creating and trading RECs in the market. Its acquisitions in these circumstances do not relate to making supplies that are input taxed nor are they of a private or domestic nature. The entity's purchase of the right to create the RECs falls within the definition of an acquisition within the meaning of section 11-10 of the GST Act. As such, paragraph 11-5(a) of the GST Act which requires that an entity acquire anything for a creditable purpose is satisfied.

The second element in section 11-5 of the GST Act is the requirement that the supply of the thing to an entity is a taxable supply.

The meaning of 'supply' is given in section 9-10 of the GST Act. Subsection 9-10(1) of the GST Act provides that a supply is any form of supply whatsoever. Under subsection 9-10(2) of the GST Act, a supply includes, amongst other things, the following:

· a supply of goods

· a supply of services

· a provision of advice or information

· a creation, grant, transfer, assignment or surrender of any right

· an entry into, or release from, an obligation:

· to do anything

· to refrain from an act, or

· to tolerate an act or situation.

· any combination of any 2 or more of the matters referred to in paragraphs (a) to (g) of the subsection 9-10(2) of the GST Act.

Under section 9-5 of the GST Act, an entity makes a taxable supply if:

· it makes a supply for consideration

· the supply is made in the course or furtherance of an enterprise that it carries on

· the supply is connected with Australia, and

· the entity is registered or is required to be registered for GST.

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

Firstly, it is important to identify who is making the supply and to whom (that is, who is acquiring that supply).

The transaction in this case involves more than two parties (sometimes referred to as a tripartite arrangement) consisting of:

· the entity as a registered agent trading in RECs

· the home owner as owner of the solar power system who is entitled to assign the right to create RECs to another person at the time that the solar power system is installed, and

· the company that installs the solar power system.

The ATO has considered the concept of 'supply' and 'acquisition' in the context of tripartite arrangements in Goods and Services Tax Ruling GSTR 2006/9. The GST consequences of tripartite arrangements turn on identifying:

· one or more supplies

· the consideration (a payment, act or forbearance)

· a nexus between the supply and the consideration, and

· the entity to whom the supply is made.

GSTR 2006/9 explains that the starting point in analysing any transaction in order to determine who is making a supply of what to whom is to examine the agreements.

It follows that in this case, the question that arises under section 11-5 of the GST Act is:

· whether a supply of a thing was made to the entity, and

· if so, whether any such supply was a taxable supply.

There are at least two supplies that can be identified in this case:

· the assignment of the right to create the RECs from the home owner to the entity, and

· the supply and installation of the solar power system by the installer company.

As discussed above, the acquisition of the assignment of the right to create the RECs satisfies the definition of an acquisition in section 11-10 of the GST Act. The assignment of the right to create the RECs satisfies the definition of a supply under section 9-10 of the GST Act.

The information provided indicates that the arrangement is such that the installer company offers what is referred to as a point of sale discount to the home owner in respect of the solar power system on the condition that the home owner assigns the right to create the RECs to the entity. The agreement between the entity, the installer company and the home owner requires the entity to pay the consideration for the assignment of the right to create the RECs, which would otherwise be payable to the home owner, directly to the installer company.

Having established that the home owner makes a supply to the entity, the next question to address is whether that supply is a taxable supply for the purposes of paragraph 11-5(b) of the GST Act.

As explained above, a supply is only a taxable supply where all the requirements of section 9-5 of the GST Act are satisfied. Two essential requirements are that the supplier is registered or required to be registered for GST and makes the supply in the course or furtherance of an enterprise the supplier carries on.

In this case, the home owners are not registered for GST nor do they make the supply in the course or furtherance of an enterprise they carry on. As such, their supply to the entity by way of assignment of the right to create RECs is not a taxable supply. On that basis, the requirement in paragraph 11-5(b) of the GST Act that the supply of the thing must be a taxable supply is not satisfied.

Under the agreement, the entity is liable to pay consideration for the home owner's assignment of their right to create the RECs to the entity.

The term 'consideration' is defined in subsection 9-15(1) of the GST Act. A payment is consideration for a supply if the payment is 'in connection with', 'in response to' or for the 'inducement of' a supply of anything. A payment is consideration for a supply if there is a sufficient nexus between the supply and the payment made.

In this case, there is sufficient nexus between the payments made by the entity to the installer company to constitute consideration for the assignment of the right to create the RECs from the home owner to the entity.

On that basis, paragraph 11-5(c) of the GST Act is satisfied irrespective of the fact that the entity pays the consideration to the company that installs the solar system.

The entity is registered for GST and as such, paragraph 11-5(d) of the GST Act is also satisfied.

In conclusion, the entity is making the acquisition of the right to create RECs from the home owners of the solar power system. However, as the home owners are not registered for GST nor do they make the supply in the course or furtherance of an enterprise that they carry on, the entity is not making a creditable acquisition for the purposes of section 11-5 of the GST Act.