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Edited version of private ruling
Authorisation Number: 1011851171046
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Ruling
Subject: GST and entitlement to credits on the purchase of a solar electricity generation system
Question
Are you entitled to an input tax credit (GST credit) in whole or in part on the purchase of the solar electricity generation system?
Answer
Yes. You can claim the whole amount.
Relevant facts and circumstances
You are registered for GST.
You conduct a farming business.
You installed a large solar electricity generation system on the farm.
You acquired it from a GST registered entity as part of the government solar bonus scheme.
You received a rebate in the form of renewable energy certificates which you assigned to the installer. You have paid for the system.
You have not yet claimed any GST credits on the purchase of the solar electricity generation system.
The intent of 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 Z%.
A smaller per centum is attributed to your domestic consumption.
There is also a tenanted building connected to the same main electricity meter. You receive reimbursements from the tenants for the portion of electricity that they consume.
The farming business has several electricity-consuming devices.
Your electricity provider purchases all of the electricity you produce at the rate of Q cents per kilowatt hour and sells you the amount of electricity that is used for your business and for your domestic needs.
Reasons for decision
Summary
You are entitled to claim GST credits wholly on the purchase of solar electricity generation system for the purpose of generating electricity on your property.
Detailed reasoning
Section 11-20 of a New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you are entitled to a GST 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
(b) the supply of the thing to you is a taxable supply
(c) you provide, or are liable to provide, consideration for the supply, and
(d) you are registered, or required to be registered.
In your case you will provide consideration for the purchase and therefore, you satisfy subsection 11-5(c) of the GST Act. As you are registered for GST and 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 explained in section 11-15 of the GST Act. It provides that you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise.
However you do not acquire the thing for a creditable purpose to the extent that:
(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) your 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.
Paragraph 3.10 of the Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 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...
The income generated from your supplies of solar energy to the grid is used to directly offset your business electricity power bills. Your activity of solar electricity generation therefore indirectly reduces a business 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 the farming enterprise that you carry on.
Thus the acquisition of the solar electricity generation system is a creditable acquisition.
Therefore, you are entitled to a GST credit wholly for the purchase and installation of your solar electricity generation system.