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Ruling

Subject: GST and feed-in tariffs

Question

Is the payment of a credit by the distributor to the retailer, under the relevant statutory scheme, consideration for a taxable supply from the retailer to the distributor?

Answer

No, the payment of a credit by the distributor to the retailer under the relevant statutory scheme is not consideration for a taxable supply made by the retailer to the distributor.

Relevant facts and circumstances

You are registered for GST and conduct a retail business of supplying electricity.

Some of your consumers have solar generators on their premises and they supply part of their solar generated electricity back into the power grid. The relevant statutory scheme states, among other things, that a licensee will purchase from a qualifying customer solar generated electricity.

You pay feed-in tariffs to the consumers who supply solar electricity back into the power grid in accordance with the relevant statutory scheme.

You settle the energy value on the AEMO (Australian Energy Market Operator) electricity market and receive a credit from the distributor.

The credit you receive from the distributor is a state government legislated amount paid under the relevant statutory scheme.

Your ruling request seeks to clarify the GST treatment of the payment of the credit by the distributor to the retailer.

Reasons for decision

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states:

You make a taxable supply if:

· you make the supply for *consideration; and

· the supply is made in the course or furtherance of an *enterprise that you *carry on; and

· the supply is *connected with Australia; and

· 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.)

Section 9-40 of the GST Act states:

You must pay the GST payable on any taxable supply that you make.

We need to ascertain in the first instance, whether the retailer makes a supply to the distributor in respect of the relevant payment it received from the distributor under the statutory scheme. If this is the case, then it is necessary to establish whether the retailer makes a taxable supply to the distributor in respect of that payment.

Meaning of 'supply'

The meaning of 'supply' is given in section 9-10 of the GST Act and is very broadly defined to be 'any form of supply whatsoever'.

Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax: supplies (GSTR 2006/9) provides the Commissioner's views on the meaning of the term 'supplies' for the purposes of section 9-10 of the GST Act and include a number of propositions for characterising supplies and analysing more complex transactions. In particular Proposition 5 states to 'make a supply' an entity must do something.

Paragraphs 72 - 74 of GTR 2006/9 state:

72. The use of the word 'make' in the context of section 9-5 was considered by Underwood J in Shaw v Director of Housing and State of Tasmania (No 2) (Shaw) in relation to the payment of a judgment debt. His honour was of the view that GST only applies where the 'supplier' makes a voluntary supply and not where a supply occurs without any action by the entity that would be the 'supplier' had there been a supply. He considered the actions of the judgment creditor with respect to the extinguishment of the debt when the judgment debtor made the payment of the judgment sum to meet the judgment debtor's obligations.

73. The Commissioner agrees with Underwood J's decision that there was no supply by the judgment creditor, as the judgment creditor did not do any act or thing to extinguish the obligation, when the judgment debtor paid the judgment debt.

74. However, Underwood J was of the view, with which the Commissioner also agrees, that an entity can still make a supply even if the supply is made under the compulsion of statute if the entity takes some action to cause a supply to occur. His Honour went on to compare a supply resulting from a positive act against a situation where there is no supply because nothing is done.

Meaning of consideration

Consideration is defined in section 9-15 of the GST Act to include any payment in connection with, in response to, or for the inducement of a supply.

In your case, the distributor makes a payment to the retailer by way of a credit, in respect of the feed-in tariff payment the retailer makes to the consumer. The distributor has to make this payment to the retailer as required by the relevant statutory scheme. The retailer has not taken any action to cause a supply to occur in relation to the credit it receives from the distributor. As such, there is no supply being made by the retailer to the distributor in relation to the credit it receives from the distributor.

As there is no supply being made by the retailer to the distributor, the retailer does not satisfy paragraph 9-5(a) of the GST Act. Therefore, the retailer does not make a taxable supply to the distributor. It follows that the credit payment from the distributor to the retailer does not meet the requirements of consideration for a taxable supply from the retailer.

Based on the above analysis, we conclude that the retailer does not incur a GST liability on the credit payment received from the distributor under the relevant statutory scheme.