Edited version of private ruling

Authorisation Number: 1011864775158

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Ruling

Subject: Goods and services tax (GST) and RECs

Question 1

How do you calculate GST on your supply of a solar energy unit and the service of installing the unit?

Answer

The GST payable on your supply of a solar energy unit and the service of installing the unit is 1/11^th of the sum of the cash consideration and the GST inclusive market value of the RECs at the time the unit is installed.

Question 2

Are you entitled to an input tax credit on your acquisition of the rights to create the RECs?

Answer

You are entitled to an input tax credit on your acquisition of the rights to create the RECs where the assignor supplies these rights to you in the course or furtherance of an enterprise that it carries on and it is registered or required to be registered for GST.

You are not entitled to an input tax credit on your acquisition of the rights to create the RECs where the assignor does not supply these rights to you in the course or furtherance of an enterprise that it carries on and/or it is not registered or required to be registered for GST.

Question 3

Is GST payable on your sale of the RECs?

Answer

Yes.

Question 4

How do you calculate GST on your sale of the RECs?

Answer

GST on your sale of the RECs is 1/11^th of the money you receive for your sale of the RECs.

Question 5

Does your sale of the RECs trigger an entitlement to an input tax credit?

Answer

No.

Question 6

If the realised value of the RECs is less than the market value of the RECs at the time of receipt of the assignment of the right to create the RECs, would you have a decreasing adjustment?

Answer

No.

Question 7

If the realised value of the RECs is higher than the market value of the RECs at the time of receipt of the assignment of the right to create the RECs, would you have an increasing adjustment?

Answer

No.

Question 8

If the realised value of the RECs is less than the market value of the RECs at the time of receipt of the assignment of the right to create the RECs, would this decrease your GST liability on the original invoice for your supply of the solar energy unit and the service of installing the unit?

Answer

No.

Question 9

If the realised value of the RECs is higher than the market value of the RECs at the time of receipt of the assignment of the right to create the RECs, would this increase your GST liability on the original invoice for your supply of the solar energy unit and the service of installing the unit?
Answer

No.

Relevant facts and circumstances

You are registered for GST.

You supply and install solar energy units. As a result of having these units installed, your customer is entitled to create Renewable Energy Certificates (RECs) when the unit is installed.

The consideration you receive for your supply of a solar energy unit and the service of installing the unit is a cash amount plus your customer's assignment to you of their right to create RECs. Your customer assigns these rights to you when the unit is installed.

You issue an invoice to the solar energy unit customer when the unit is installed.

The market value of the RECs could fluctuate significantly between the time the solar energy unit contract is entered into and the time the unit is installed.

The price you receive for selling the RECs may be higher or lower than their market value at the time that your solar energy unit customers assign their rights to create these RECs.

Under your solar energy unit contracts, prices may change at the time of installation.

Reasons for decisions

Question 1

Summary

The GST payable on your supply of a solar energy unit and the service of installing the unit is 1/11^th of the sum of the cash consideration and the GST inclusive market value of the RECs at the time the unit is installed, as the cash consideration and the assignment of the rights to create the RECs are consideration for your taxable supplies and the GST inclusive market value of the rights to create the RECs at the time the unit is installed is equal to the GST inclusive market of the RECs at the time the unit is installed.

Detailed reasoning

GST is payable where you make a taxable supply.

You make a taxable supply where you satisfy the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), which 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)

In your case, you satisfy the requirements of section 9-5 of the GST Act where you supply a solar energy unit and the service of installing the unit. That is, you make these supplies for consideration and in the course or furtherance of an enterprise that you carry on. These supplies are connected with Australia and you are registered for GST. There are no provisions in the GST Act under which your supplies of the solar energy units and the service of installing the units are GST-free or input taxed.

Therefore, you make taxable supplies of the solar energy units and the service of installing the units. Hence, GST is payable on these supplies.

In accordance with section 9-70 and subsection 9-75(1) of the GST Act, the amount of GST on a taxable supply is 1/11^th of the price for the supply.

Price is the sum of:

(a) so far as the consideration for the supply is money - the amount of money; and

(b) so far as the consideration is not money - the GST inclusive market value of that consideration.

You receive monetary consideration as well as non-monetary consideration (the assignment of rights to create the RECs) for your supply of solar energy units and the service of installing the units. The market value of the assignment of rights to create the RECs is equal to the market value of the RECs.

Paragraph 160 of Goods and Services Tax Ruling GSTR 2001/6 Goods and services tax: non-monetary consideration (GSTR 2001/6) provides guidelines on determining the time when the market value of non-monetary consideration is to be ascertained. It states:

160. The GST Act does not specify the time when the market value of non-monetary consideration is to be ascertained for the purposes of working out the value of the supply under paragraph 9-75(1)(b). We consider that the time must be reasonable in the circumstances of a particular transaction. Depending on the circumstances, it may be:

· when parties enter into a binding agreement;

· when economic risk is transferred; or

· when a recipient assumes effective control.

We consider that the reasonable time when the market value of the RECs should be ascertained is when the solar energy unit is installed because:

· the right to create the RECs only comes into existence when the unit is installed;

· under your solar energy unit contracts, prices may change at the date of installation; and

· the market value of the RECs could fluctuate significantly between the time the solar energy unit contract is entered into and the time the unit is installed.

Therefore, the GST payable on your supply of a solar energy unit and the service of installing the unit is 1/11^th of the sum of the cash consideration and the GST inclusive market value of the RECs at the time the unit is installed.

Question 2

Summary

You are entitled to an input tax credit on your acquisition of the rights to create the RECs where the assignor supplies these rights to you in the course or furtherance of an enterprise that it carries on and it is registered or required to be registered for GST. This is because you satisfy the requirements of section 11-5 of the GST Act under these circumstances.

You are not entitled to an input tax credit on your acquisition of the rights to create the RECs where the assignor does not supply these rights to you in the course or furtherance of an enterprise that it carries on and/or it is not registered or required to be registered for GST. This is because you do not satisfy the requirements of section 11-5 of the GST Act under these circumstances.

Detailed reasoning

You are entitled to input tax credits on your creditable acquisitions.

You make a creditable acquisition where you satisfy the requirements of section 11-5 of the GST Act, which states:

You make a creditable acquisition if:

(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 acquire from your solar energy unit customers rights to create the RECs.

Creditable purpose

Subsection 11-15(1) of the GST Act states:

You acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your *enterprise.

Subsection 11-15(2) of the GST Act states:

However, you do not acquire the thing for a creditable purpose to the extent that:

(a) the acquisition relates to making supplies that would be *input taxed;
or

(b) the acquisition is of a private or domestic nature.

You acquire the rights to create the RECs in carrying on your enterprise. Your acquisition of these rights do not relate to making supplies that would be input taxed. Your acquisitions of these rights are not of a private or domestic nature.

Hence, you acquire these rights for a creditable purpose, and therefore, you satisfy the requirement of paragraph 11-5(a) of the GST Act.

Taxable supply

The rights to create the RECs are supplied to you for consideration - the supply of the solar energy unit and the supply of the service of installing the unit. Therefore, the requirement of paragraph 9-5(a) of the GST Act is satisfied.

Where the supply of the rights to you is made in the course or furtherance of an enterprise that the solar energy unit customer carries on, the requirement of paragraph 9-5(b) of the GST Act will be satisfied.

The supply of the rights to you is connected with Australia. Therefore, the requirement of paragraph 9-5(c) of the GST Act is satisfied.

Where the solar energy unit customer is registered or required to be registered for GST, the requirement of paragraph 9-5(d) of the GST Act will be satisfied.

There are no provisions in the GST Act under which the supply of the rights to you is GST-free or input taxed.

Therefore, where the solar energy unit customer supplies the rights to you in the course or furtherance of an enterprise that it carries on and it is registered or required to be registered for GST, it will make a taxable supply of the rights to you. Hence, under these circumstances you will satisfy the requirement of paragraph 11-5(b) of the GST Act.

If these requirements are not satisfied, it will not make a taxable supply to you, and therefore, under these circumstances you will not satisfy the requirement of paragraph 11-5(b) of the GST Act

Consideration

You provide consideration for the supply of the rights to create the RECs. Therefore, you satisfy the requirement of paragraph 11-5(c) of the GST Act.

GST registration

You are registered for GST. Therefore, you satisfy the requirement of paragraph 11-5(d) of the GST Act.

Conclusion

Where a solar energy unit customer supplies the rights to you in the course or furtherance of an enterprise that it carries on and it is registered or required to be registered for GST, you will satisfy the requirements of section 11-5 of the GST Act. Hence, under these circumstances you will make a creditable acquisition of the rights, and therefore, under these circumstances you will be entitled to an input tax credit on your acquisition of the rights.

However, where a solar energy unit customer does not supply the rights to you in the course or furtherance of an enterprise that it carries on and/or it is not registered or required to be registered for GST, you will not satisfy the requirements of section 11-5 of the GST Act. Hence, under these circumstances you will not make a creditable acquisition of the rights, and therefore, under these circumstances you will not be entitled to an input tax credit on your acquisition of the rights.

Question 3

Summary

GST is payable on your sale of the RECs, because you satisfy the requirements of section 9-5 of the GST Act.

Detailed reasoning

You satisfy the requirements of section 9-5 of the GST Act where you sell the RECs. That is, you make these supplies for consideration and in the course or furtherance of an enterprise that you carry on. These supplies are connected with Australia and you are registered for GST. There are no provisions in the GST Act under which your supplies of the RECs are GST-free or input taxed.

Therefore, you make taxable supplies of the RECs. Hence, GST is payable on your sale of the RECs.

Question 4

The GST payable on your sale of the RECs is 1/11^th of the money you receive for your sale of the RECs, in accordance with section 9-70 and subsection 9-75(1) of the GST Act.

Question 5

Summary

Your sale of the RECs does not trigger an entitlement to an input tax credit because your sale of the RECs is not an acquisition.

Detailed reasoning

You are only entitled to input tax credits on your creditable acquisitions. You do not make a creditable acquisition if you do not make an acquisition. As your sale of the RECs is not an acquisition, it is not a creditable acquisition. Therefore, your sale of the RECs does not trigger an entitlement to an input tax credit

Questions 6 and 7

Summary

No adjustment arises as a result of the increase or decrease in the market value of the RECs between the time you acquire the rights to create them and the time you sell them as this change does not represent a change in the consideration for your supply of a solar energy unit and the service of installing the unit.

Detailed reasoning

In accordance with section 19-40 of the GST Act, an entity may have an adjustment for a supply for which it is liable to pay GST where, in relation to the supply, an adjustment event occurs during a tax period.

In accordance with paragraph 19-10(1)(b) of the GST Act, an event which has the effect of changing the consideration for a supply is an adjustment event.

A change in the market value of the RECs between the time when the market value of the RECs should be ascertained (the time of installation) and the time you sell the RECs could only potentially result in an adjustment if this change in market value represented a change in consideration for your supply of a solar energy unit and the service of installing the unit.

In accordance with paragraph 164 of GSTR 2001/6, a change in the market value of the REC's between the time when the market value of the RECs should be ascertained (the time of installation) and the time you sell the RECs is not an adjustment event for the purposes of paragraph 19-10(1)(b) of the GST Act. It is not an event that has the effect of changing the consideration for your supply of a solar energy unit and the service of installing the unit that was determined at the time of installation. Although the market value of the RECs changes between the time of installation and the time you sell the RECs, it does not have the effect of changing the originally agreed GST inclusive market value of the non-monetary consideration you receive for your supply of the solar energy unit and the service of installing the unit.

Therefore, no adjustment arises as a result of the increase or decrease in the market value of the RECs between the time you acquire the rights to create them (which is at the time of installation) and the time you sell them.

Questions 8 and 9

As the change in the market value of the RECs between the time the rights to create the RECs are assigned to you and the time you sell the RECs is not a change in consideration for your supply of the solar energy unit and the service of installing the unit, the difference between the realised value of the RECs and the market value of the RECs at the time of assignment of the rights to create the RECs does not have the effect of changing the originally agreed GST inclusive market value of the non-monetary consideration you receive for your supply of the solar energy unit and the service of installing the unit.

Hence, your GST liability on the original invoice for your supply of the solar energy unit and the service of installing the unit does not increase or decrease as a result of this change.