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Ruling

Subject: GST and Energy Efficiency Certificates

Question

Will the Commissioner confirm that the GST liability arising from the supply of the devices to a typical household is equal to 1/11^th of the GST-inclusive market value of the consideration received, being the right to create a specified number of Energy Efficiency certificates?

Answer

Yes, the GST liability arising from the supply of the devices to a typical household is equal to 1/11^th of the GST-inclusive market value of the consideration received, being the right to create a specified number of Energy Efficiency certificates, provided that the things exchanged are of equal GST inclusive market value.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The supplier is an entity and is registered for the goods and services tax (GST).

The supplier intends to supply devices to residential customers. The majority of the customers are not registered for GST.

No monetary payment is made by the customers to the supplier for the purchase and installation of the devices.

The devices are standby power controllers that comply with the criteria specified in the relevant legislative provisions to give rise to a prescribed activity upon installation.

The devices installed by the supplier give rise to the right to create Energy Efficiency certificates.

A typical supply to the average household customers consists of the supplier providing a set number of devices. Upon installation, the devices generate the right to create a specified number of Energy Efficiency certificates.

The devices are sold to customers in return for customers assigning the rights to create Energy Efficiency certificates to the supplier.

There is no cash amount paid by the customer. The only consideration provided by the customer is the right to create a specified number of Energy Efficiency certificates.

The assignment of the rights to create Energy Efficiency certificates is effected by the customer completing an assignment form once the devices are installed.

There are no additional contracts containing terms and conditions for the sale of the devices, other than the terms and conditions included in the assignment form.

Where the customer assigns its rights to create a specified number of Energy Efficiency certificates to the supplier, the supplier creates the Energy Efficiency certificates by registering them on the relevant Energy Efficiency certificates registry. It is only once the Energy Efficiency certificates are registered on the registry that the Energy Efficiency certificates are created and are able to be traded by the supplier on the market. In this sense, the rights to create the Energy Efficiency certificates can be distinguished from the registered Energy Efficiency certificates that are available for trading.

In order to create, buy or surrender registered Energy Efficiency certificates, businesses must be duly accredited.

The supplier has obtained an independent valuation confirming the valuation of the rights to create Energy Efficiency certificates that are assigned by the customer to the supplier in consideration for the supply and installation of the devices.

The purpose of the valuation is to assist the supplier in determining the amount of its GST liability on future supplies of devices to household customers, for which the rights to create Energy Efficiency certificates are regarded as consideration for the supply and installation of the devices.

The report states that the valuation has been conducted in accordance with the Market Valuation Guidelines published by the Australian Taxation Office (ATO) for tax purposes, and APES 225 Valuation Services.

The valuation obtained is based on a typical supply by the supplier to the average household customers, with the right to create a specified number of Energy Efficiency certificates upon installation of the devices.

It is submitted that the above valuation report is in accordance with the market valuation principles contained in the public ruling GSTR 2001/6 and the guidelines prescribed in the ATO publication "Market valuation for tax purposes".

The supplier has confirmed that it has not asked the Commissioner to confirm the above valuation obtained from the valuer, in this ruling application.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 section 9-40,

A New Tax System (Goods and Services Tax) Act 1999 section 9-70,

A New Tax System (Goods and Services Tax) Act 1999 subsection 9-75(1) and

A New Tax System (Goods and Services Tax) Act 1999 section 195-1.

Reasons for the decision

Section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) sets out the liability for GST on taxable supplies. In accordance with this section, an entity is required to remit the GST payable on any taxable supply that it makes.

The requirements for a taxable supply are set out in section 9-5 of the GST Act. Section 9-5 of the GST Act provides that an entity makes a taxable supply if it makes the supply for consideration, in the course or furtherance of an enterprise that it carries on, the supply is connected with Australia and the entity is registered, or required to be registered for GST. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

Based on the facts provided, the supplier makes a taxable supply when it supplies devices to customers. In this case, the customers do not make any cash payment to the supplier for the purchase and installation of the devices. The devices are sold to customers in return for the customers assigning their rights to create Energy Efficiency certificates to the supplier. The consideration for the supply and installation of the devices is the customer's right to create the Energy Efficiency certificates, which the customer provides to the supplier by way of assignment.

Section 9-70 of the GST Act provides that the amount of GST payable on a taxable supply is 10% of the value of the taxable supply. Subsection 9-75(1) of the GST Act provides that the value of a taxable supply is 10/11^th of the price. That is the amount of GST is 1/11th of the price of the taxable supply or 1/11^th of the consideration received for the taxable supply, provided that the transaction occurred at arms length. As such, the price of a taxable supply, which is also the consideration for the taxable supply, is GST-inclusive.

Further, subsection 9-75(1) of the GST Act provides that the price is the sum of any part of the consideration for the supply expressed as an amount of money (monetary consideration) and any part of the consideration for the supply that is not expressed as an amount of money (non-monetary consideration). Under paragraph 9-75(1)(b) of the GST Act, a GST inclusive market value needs to be established and worked out for the part of the consideration that is non-monetary.

Market value of the rights to create Energy Efficiency certificates that are assigned by the customer

It is submitted that the consideration received by the supplier from its customers for the supply and installation of the devices is non-monetary consideration, being the assignment of the rights to create Energy Efficiency certificates by the customers to the supplier.

Accordingly, the supplier will have a GST liability based on 1/11^th of the total price charged for the supply and installation of the devices, which is the GST-inclusive market value of the rights to create a specified number of Energy Efficiency certificates that are assigned by the customer (in accordance with section 9-70 and 9-75(1) of the GST Act).

By providing non-monetary consideration, in the form of assigning to the supplier, the rights to create a specified number of Energy Efficiency certificates, as consideration for the supply of the devices by the supplier, the customer is in turn making a supply to the supplier. However, the GST law does not allow the price for one supply to be reduced by the price of another, so as to apply GST to the net figure. In this case, for example, the supply and installation of the devices by the supplier and the supply by way of assignment of the rights by the customer are two separate transactions that must be accounted for separately for GST purposes. It is not possible to net off the two supplies and apply GST to the net figure.

Paragraphs 128 to 130 of Goods and Services Tax Ruling GSTR 2001/6 Goods and services tax: non-monetary consideration (GSTR 2001/6) state:

Non-monetary consideration does not itself need to be a taxable supply

128. Section 195-1 states: GST inclusive market value of:

(a) consideration in connection with a supply; or

(b) a thing, or a supply or acquisition of a thing;

means the market value of the consideration or thing, without any discount for any amount of GST or luxury car tax payable on the supply.

129. The effect of this provision is that, for the purpose of working out the price of a taxable supply under subsection 9-75(1), the GST inclusive market value of any non-monetary consideration is not reduced by the amount of GST payable on the supply to which the non-monetary consideration is connected. This is in line with paragraph 9-75(1)(a) that provides that price, so far as the consideration is expressed as an amount of money, is 'the amount (without any discount for the amount of GST (if any) payable on the supply)'.

130. The GST treatment of non-monetary consideration (when it is viewed as a supply itself) is not relevant to its status as consideration. Circumstances in which the GST treatment is not relevant include where non-monetary consideration is received from an entity that is not registered for GST purposes, or is a GST-free or an input taxed supply. These things, when they are consideration, have a GST inclusive market value with the GST component being 'nil'.

Where the consideration for a supply is non-monetary, the GST inclusive market value of that consideration is used to work out the price and value of the supply.

We consider that, in most circumstances, when the parties to a transaction are dealing at arm's length, the things being exchanged are of equal GST inclusive market value.

This value can be determined by using a reasonable valuation method that is agreed to by the relevant parties. However, this method must produce a reasonable GST inclusive market value of the things exchanged.

As the GST inclusive market value of consideration will be shown as the price on any tax invoice that the supplier issues, the onus for determining the GST inclusive market value of the consideration rests with the supplier

Market value

Paragraphs 141 to 158 of GSTR 2001/6 provide guidance on the ATO view on market value and the determination of the GST inclusive market value of non-monetary consideration for a taxable supply. Further, paragraphs 159 to 165 of GSTR 2001/6 provide guidance on when the valuation should be done.

The supplier has obtained an independent valuation report to assist the supplier in determining the amount of its GST liability on supplies of the devices to household customers, where the rights to create the Energy Efficiency certificates are regarded as consideration for the supply and installation of the devices.

The report states that the valuation has been conducted in accordance with the Market Valuation Guidelines published by the Australian Taxation Office (ATO) for tax purposes, and APES 225 Valuation Services.

The supplier has submitted that the above valuation report is in accordance with the market valuation principles contained in the public ruling GSTR 2001/6 and the guidelines prescribed in the ATO publication "Market valuation for tax purposes".

Note that an entity can apply for a private ruling about the value of a thing. An entity can ask the Commissioner to provide a valuation of the thing or provide a valuation of the thing and ask the Commissioner to confirm it. We use a professional valuer to undertake the valuation or review the work. The law allows us to pass onto the ruling applicant the fee charged by the valuer for their services. Consequently, the entity must pay for the work of the valuer.

The supplier has confirmed that it has not applied for a private ruling asking the Commissioner to provide a valuation or to confirm the valuation obtained.

As such, this ruling is provided without confirmation of the valuation of the rights to create Energy Efficiency certificates as contained in the valuation report.