Edited version of private ruling

Authorisation Number: 1011843044301

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Ruling

Subject: GST and recipient created tax invoices

Question:

Is an Australian company (you) permitted to issue recipient created tax invoices (RCTIs) in relation to the rights to create the Small-scale Technology Certificates (STCs)?

Answer:

No, you are not permitted to issue RCTIs in relation to the rights to create the STCs.

Relevant facts and circumstances

An Australian company ('you') is registered for goods and services tax (GST).

You provide a range of services including the creation and sale of environmental certificates such as Small-scale Technology Certificates (STCs), for solar power installations throughout Australia. STCs were previously called Renewable Energy Certificates (RECs).

You are a registered/accredited agent to create STCs for solar power systems installed in Australia. You maintain an Australian Government accreditation to create the STCs.

Customers ('end-customers') who install solar power systems are eligible to create STCs on a Government registry (at www.rec-registy.gov.au ), and sell the STCs on the open market for cash in order to defray some of the costs of the solar power systems.

A typical supply and related transactions involves an end-customer (usually a residential customer) purchasing a solar power system from a retailer. The retailer offers a price which is net after subtracting a value for any eligible STCs (or Government grants/rebates, if applicable). The retailer offers a value for the STCs, as a point of sale discount on the sale of the solar power system. The retailer performs the supply and installation of the solar power system and invoices the customer for the out of pocket expenses.

Under the arrangement between you, the retailer(s), and the end-customer for a sale of the solar power system, you advise that the end-customer assigns the right to create the STCs to you (as you are a registered/accredited agent). You have provided a copy of the assignment/nomination form entitled 'STC Assignment Form - Photovoltaic Power Systems'.

It is your understanding that the retailer(s), and not the end-customer(s), is making a supply to you. You work with the retailer(s) and provide a service to create and sell STCs, on the solar power systems that are sold through the retailer(s).

You issue the retailers with an electronic device which enables the completion of paperwork and the gathering of necessary evidence to register/claim the STCs. The necessary forms and other pieces of evidence are completed using your electronic device. You receive the electronic file which contains all the information for each project (sale/installation). You then proceed to create the STCs on the Government registry. Each project will require a calculation to determine the number of STCs created.

Once the STCs are registered, you then sell the STCs and remit the value of the STCs to the retailer. The Office of Renewable Energy Regulator (ORER) may take up to one month to approve the creation of the STCs before the STCs can be sold to buyers (on the open market).

The price of STCs on the open market fluctuates and cannot be determined in advance (at time of sale/installation). The number and value of the STCs (on the open market) is not confirmed until the project details are entered into the Government registry.

Each project (sale/installation) will create different numbers of certificates (based on geographical location and solar power system size) and the retailers will perform multiple projects over time.

On a regular basis, you remit an amount for the STCs (minus a service fee) to the retailers based on the volume of STCs approved for the projects they have completed and the sales of the STCs.

On your understanding that you are the recipient of the supplies made by the retailers, currently, you have requested invoices from the retailers for the value/sales of the STCs that have been created and sold during the period. This is a difficult process as many of the retailers are small electricians who spend most of their time installing panels and are not up-to-date with their paperwork.

As part of the recruitment of end-customers, you will require users of the electronic device to enter into agreements as to the use of the device and payment terms.

You are requesting permission to create RCTIs to enable your business to function more effectively and efficiently. At present, your electronic device enables a vast simplification of the paperwork to access the STCs on offer for the solar power systems. You advised that there are mutual efficiencies for the retailers/installers and you to conduct business on the basis of issuing RCTIs.

If permission to issue RCTIs is approved, you will include the following statement into the user agreement (of the electronic device):

"The recipient and the supplier declare that this agreement applies to supplies to which this tax invoice relates. The recipient can issue tax invoices in respect of these supplies. The supplier will not issue tax invoices in respect of these supplies. The supplier acknowledges that it is registered for GST and that it will notify the recipient if it ceases to be registered. The recipient acknowledges that it is registered for GST and that it will notify the supplier if it ceases to be registered for GST. Acceptance of this RCTI constitutes acceptance of the terms of this written agreement".

Additional information provided:

Your expected annual turnover for the coming year is less than $20 million, and the turnover is expected to increase rapidly.

You may be acquired by another company with an annual turnover of over $20 million.

You do not have any formal contractual agreement(s) with the retailers for the purchase of the STCs. An agreement may be established in the future.

Legally, you are required to obtain a signed assignment/nomination form from the end-customers that complies with the regulations set by the ORER.

The STCs created on the Government registry are registered in your name. You have complete legal responsibility for the accuracy of the information and STCs that are created. The Government registry does contain all the necessary information for identifying the residential address and contact details where the solar power systems are installed and the installer of these systems. These are mandatory fields to be completed in order to create STCs.

It is your understanding that the right to create STCs are being purchased from the retailers. The retailers have factored in the value of the STCs into the sale price for the end-customers. The value of the STCs payable to the retailers is based on the market price at the time of sale of the STCs (on the open market) minus your service charges. This amount (that is, value of the STCs sold on the open market) is not known when the STCs are assigned to you by the end-customers. For example, a solar power system with total price of $10,000 with $4000 in STC value. The end-customer would pay the retailer/installer $6,000 as an out of pocket expense. You will remit $4,000 amount directly to the retailer/installer upon the sale of the STCs on the open market (with the final $4,000 amount is not precisely known as it fluctuates).

You do not envisage supplying RCTIs directly to end-customers (owners of the solar power systems).

The assignment/nomination form entitled 'STC Assignment Form - Photovoltaic Power Systems' is completed by the end-customer and provides (amongst other things):

· The form legally assigns the right to create STCs to you as permitted under the Renewable Energy (Electricity) Act 2000.

· The form specifies:

o The owner's details, project details and eligibility (reference is also made to ORER's website at www.orer.gov.au for details).

o The amount given for the assignment of the STCs.

o A GST declaration - that is, registration status of the owner.

o The out of pocket expenses.

o Payment details - that is, whether payment is to be made to: (a) the installer/supplier in exchange for the point of sale discount received by the owner, or (b) the owner.

o Installer's details.

· The owner (end-customer) declares that by signing this form that the owner is assigning the right to create the STCs to you for the above mentioned deeming period commencing on the date of installation.

· The owner declares that by choosing you, that the owner is unable to sell or assign anyone else the right to these STCs.

· If the assignment is invalid or you are unable to create or register the STCs, the owner will repay you or the installer/supplier for the benefit received.

· The owner understands that ORER or you have the right to inspect the system within 5 years of the date of the assignment.

· The owner has not previously assigned or created any STCs for this system within this period.

· The owner understands that the system is eligible for the number of STCs (specified) and that in exchange for assigning their right to create these STCs, the owner will receive the point of sale discount (amount specified).

You have provided a sample tax invoice from a retailer to an unregistered residential end-customer (owner) for the solar power system, a sample tax invoice from the retailer to you (in relation to the assignment of the right to create the STCs) and the assignment form completed by that residential end-customer in relation to this specific project (sale/installation).

Reasons for decision

Under paragraph 29-70(1)(a) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) a tax invoice for a taxable supply must be issued by the supplier unless it is a recipient created tax invoice (RCTI), in which case it must be issued by the recipient of the supply.

We need to determine what is being supplied, and who are the supplier and recipient of that supply.

What is the supply?

Subsections B and BA of the Renewable Energy (Electricity) Act 2000 relates to STCs, which are created in relation to installation of solar water heaters (SWHs) and small generation units (SGUs). Sections 23 and 23C of the Renewable Energy (Electricity) Act 2000 provides that the owner of the SWHs/SGUs is entitled to create the certificate(s), that is the STCs. However, the owner may, by written notice, assign the right to create the certificate(s) to another person. If the owner does this, the owner is not entitled to create the certificate(s) but the person to whom the right was assigned is entitled to create the certificate. Further, a person who is not registered may not create a certificate that relates to the SWHs/SGUs.

From the facts provided, an end-customer who installs a solar power system is eligible to create STCs on the Government registry (at www.rec-registy.gov.au) and sell the STCs on the open market for cash in order to defray some of the costs of the solar power systems.

Alternatively, the end-customer can assign the right to create the STCs to a registered agent, who may give a financial benefit for the STCs. A financial benefit for the STCs, such as a discount off the invoice, may be given in exchange for the right to create and sell the STCs.

Accordingly, the supply is of the right to create the STCs.

Who are the supplier and recipient of the supply of the right to the STCs?

The end-customers, who are the owners of the solar power systems and who are eligible to create the STCs, assigns the right to create the STCs to you (as you are a registered/accredited agent).

This is evidence by the assignment/nomination form completed by an end-customer (owner) who declares that:

· The form legally assigns the right to create STCs to you as permitted under the Renewable Energy (Electricity) Act 2000, and by signing this form that the owner is assigning the right to create the STCs to you.

· By choosing you, that the owner is unable to sell or assign anyone else the right to these STCs.

· If the assignment is invalid or you are unable to create or register the STCs, the owner will repay you or the installer/supplier for the benefit received.

· The owner has not previously assigned or created any STCs for this system within this period.

· The owner understands that the system is eligible for the number of STCs (specified) and that in exchange for the assigning their right to create these STCs, the owner will receive the point of sale discount (amount specified).

The form also specifies the amount given for the assignment of the STCs, a GST declaration, and the payment details - that is, the owner indicates whether payment is to be made to the installer/supplier in exchange for the point of sale discount received by the owner, or the owner.

The ORER's Agent's Guide - for agents of SWHs and SGUs ('ORER's Agent's Guide') provides guidance to agents. Agents are parties that are registered to the ORER to assist owners in the purchase and installation of their SWHs or SGUs by offering a financial benefit, which is a delayed cash payment or up front discount in exchange for being assigned the right to create the STCs applicable to the installed system. On page 11 of the ORER's Agent's Guide it provides that you (an agent) have entered into an agreement to the have the STCs assigned to you in exchange for financial benefit to the owner, the STCs have not already been assigned (for example, to a retailer) and the terms of assignment are agreeable to the owner. Further, on page 20 of the ORER's Agent's Guide it states that the right to create STCs can only be assigned once. Agents cannot re-assign the right to create assigned STCs to another registered person or agent.

On the basis of these facts and information, the supply of the right to create the STCs is made by the end-customer (owner of the solar power system), who is the supplier. The end-customer has assigned the right to create the STCs to you (which is also evidence by the assignment/nomination form), and therefore you are the recipient of their supply of the right to create the STCs. The end-customer can only assign the right to create the STCs once, and an agent is unable to re-assign this right to another person or agent. Therefore, once the end-customer has assigned the right to create the STCs to you, the retailer/installer is not able to also make the supply of the right to create the STCs to you.

Although, a payment is/may later be made to the retailer/installer this does not mean that the supply of the right to create the STCs is made by the retailer/installer to you. The amount an end-customer (owner) agrees to receive in exchange for their supply of the right to create the STCs to you is specified and known (at time of sale/installation of the solar power system). Under the arrangements between you, the end-customer (owner), and retailer/installer, any payments received from the sale of the STCs (once registered and sold on the open market) is/may be given to the retailer/installer as instructed on the assignment form.

For the purposes of issuing RCTIs, it is taken that the end-customer (owner) is the supplier of the right to create the STCs, and you are the recipient of this supply.

Permission to issue RCTIs

Subsection 29-70(3) of the GST Act defines an RCTI as a tax invoice belonging to a class of tax invoices that the Commissioner has determined in writing may be issued by the recipient of the supply.

Goods and Services Tax Ruling GSTR 2000/10 outlines the circumstances in which a recipient can issue RCTI's. An entity can issue RCTI's if the Commissioner has determined in writing that the nature of the industry in which the entity operates warrants the use of RCTI's.

GSTR 2000/10 at paragraph 10 explains the three broad classes of tax invoices that may be issued by a recipient of a taxable supply. These classes of tax invoices for taxable supplies relate to:

· Supplies of agricultural products;

· Supplies to Government related entities; and

· Supplies made to registered recipients that:

o have a GST turnover (including input taxed supplies) of at least $20 million annually; or

o are members of a group of companies, partnerships or trusts, or a joint venture operator, in which one or more other members of that group or participants in that joint venture have such a GST turnover.

The tax invoices that come within any of the above three classes can be issued by recipients without notifying or applying to the Commissioner.

From the facts provided, you do not fall within the three broad classes of tax invoices. Currently, your expected annual turnover for the coming year is less than $20 million. Although you may be acquired by another company (who has an annual turnover of over $20 million), this ruling can not be issued based on their turnover, and also without knowing the final re-structure of the entities involved.

Further, there are requirements for issuing RCTIs are outlined in paragraph 13 of GSTR 2000/10. One of the requirements is that the supplier and the recipient must be registered for GST when the invoice is issued and the RCTI must show the Australian Business Number (ABN) of the supplier.

As stated above, the supplier of the right to create the STCs is the end-customer (owner), and you are the recipient of their supply. Accordingly, where the supplier is typically an (residential) end-customer that is not registered for GST, all the requirements outlined in paragraph 13 of GSTR 2000/10 would not be satisfied, and you would not have been able to issue RCTIs under this circumstance.

In addition to these three broad classes of tax invoices, the Commissioner has issued a number of determinations in relation to specific situations, which apply in various industries. You also do not fit within any of the current industry specific determinations.

Accordingly, you are not permitted to issue RCTIs in relation to the rights to create the STCs.