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Ruling

Subject: GST and supply of small scale technology certificates

Question 1

Should GST be charged on the supply made when aggregators pay solar retailers for small scale technology certificates (STCs) that have been assigned by home owners to aggregators?

Answer

No.

Relevant facts and circumstances

The Small-scale Renewable Energy Scheme (SRES) is part of the Renewable Energy Target (RET) scheme administered by the Australian Government through the Office of the Renewable Energy Regulator (ORER).

According to ORER's publication 'Agent's Guide For Agents of SWHs and SGUs' (Agent's Guide), the SRES provides a financial benefit for owners wishing to purchase eligible solar water heaters, air source heat pumps and small-scale solar photovoltaic panels, wind and hydro systems. Installation of these units permits the generation of STCs, which can be exchanged for the financial benefit of owners. Owners have two options for gaining a financial benefit for their certificates:

Selling the right to include STCs to an Agent, in exchange for discounts or payment, or

Selling the certificates themselves, either through the open STC market (pricing subject to market forces) or through the STC Clearing House (price fixed at $40 per STC, excl. GST.)

Liable entities (typically electricity retailers) are required to buy from agents or owners a number of STCs as defined by the Small-scale Technology Percentage (STP). These STCs are surrendered to ORER by liable entities quarterly in April, July, October and February.

In a typical transaction under SRES you believe that it is the retailer, rather than the home owner, who is selling the STCs to the aggregator. The home owner accepts a point of sale discount in exchange for assigning the right to the STCs. The retailer then banks these STC assignment forms and then trades them with the aggregator in exchange for cash.

Retailers who are not registered as RET agents often use aggregators who supply the retailer with domiciled assignment forms which the retailer gets signed by the home owner. The Retailer then supplies the assignment forms to the aggregator in exchange for cash. The Aggregator pays the money to the retailer and not the home owner.

If a retailer is dissatisfied with the price offered by the aggregator it can go back to the home owner and have them sign a new STC assignment form with another RET agent. You state that the retailer will simply tear up the first assignment form.

You supply solar retailers with an online system that calculates and generates STC assignment forms. These forms have you as the assignee of the STCs. The STC form the installer takes onsite to the installation address has you as the assignee (rather than the retailer). This is so the retailer can onsell to you instead of having to process the STCs themselves which can take up to 6 weeks with ORER.

The retailer then banks its STC assignment forms until it is satisfied with the price you are offering per each STC. Your online system calculates the amount of STCs each form is notionally worth in order to offer a price per STC. This price is based on the price you will eventually receive when successfully lodging the assignment forms. It's important to remember the STCs have not yet been created at this point.

Once the Retailer is satisfied with the price offered, the forms are then sent to you and you then pay the cash to the installer within X days. You then lodge the assignment forms with ORER in order to have the STCs for each form processed and approved. Once ORER approves the STCs, you then sell the created STCs to liable parties via a broker.

It is illegal to change the assignment of a STC assignment form to another agent without a new form being signed.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

Reasons for decision

Summary

The underlying supply made is one of rights made by the home owner. This supply cannot be subject to GST where the supplier is not registered or required to be registered for GST.

Detailed reasoning

Subdivisions B and BA of Division 4 of Part 1 of the Renewable Energy (Electricity) Act 2000 relate to STCs, which are created in relation to the installation of solar water heaters (SWHs) and small generation units (SGUs). Sections 23 and 23C of the Renewable Energy (Electricity) Act 2000 provide that the owner of the SWHs/SGUs is entitled to create the certificate(s) ie. 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 is 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, a home owner who installs a solar power system is eligible to create STCs 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 home owner can assign the right to create the STCs to a registered agent in exchange for a financial benefit. A financial benefit for the STCs, such as a discount on the purchase price of the eligible system, 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 suppliers and recipients of the supply of the rights to the STCs?

The home owners, who are the owners of the solar power systems and who are eligible to create the STCs, assign the right to create the STCs to registered/accredited agents. This is evidenced by the assignment/nomination form completed by a home owner who declares that:

· The form legally assigns the right to create STCs to you.

· They have not assigned or created any STCs for this system previously.

· While not obliged to make the assignment to you, if the assignment is invalid they will repay the 'STC payment' to you.

· They understand that the installed system is eligible for the number of STCs (specified) and that in exchange for the assigning their right to create these STCs, they will receive the point of sale discount or a monetary payment (amount specified).

Agents are parties that are registered by ORER to assist owners in the purchase and installation of their SWHs or SGUs by offering a financial benefit, in the form of either a delayed cash payment or an up front discount in exchange for being assigned the right to create the STCs applicable to the installed system. On page 11 of the 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 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 home owner, who is the supplier. The home owner has assigned the right to create the STCs to you (which is also evidenced by the assignment/nomination form), and therefore you are the recipient of their supply of the right to create the STCs. The home owner 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 home owner has assigned the right to create the STCs to you, the retailer/installer cannot make the exact same supply to you.

Although, a payment 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 a home 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 home owner and retailer/installer, any payments received from the sale of the STCs (once registered and sold on the open market) may be given to the retailer/installer as instructed on the assignment form.

Accordingly, where the supplier is typically a (residential) home owner who is not registered for GST, the supply of rights cannot meet the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 and therefore cannot be a taxable supply, that is the supply will not be subject to GST.

Note that where the supplier is registered or required to be registered for GST and is able to make the supply of rights in the furtherance of the enterprise they carry on, the supply will be subject to GST. However, in the circumstances contemplated in your submission, we consider that this will not be a regular occurrence.