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Ruling

Subject: GST and supply of renewal energy systems

Question:

What is the correct amount on which an entity is liable to remit goods and services tax (GST) when they sell renewable energy systems to customers and provide a discount in exchange for the customers assigning their right to a Small-scale Technology Certificates (STCs) to an unrelated third party aggregator?

Advice:

From the information received, the consideration for the sale of renewable energy systems made by the entity is the payment they receive from the customer and the payment they receive from the third party aggregator.

Since the entity accounts their GST on a cash basis they are required to account the payments received from the customer and the third party aggregator in the tax period they receive the payments. The GST liability will be 1/11 of the amount received in that tax period.

Relevant facts

The entity ('you') is a retailer of renewal energy systems and is registered for GST. You account your GST on a cash basis and report on a quarterly basis.

You supply renewable energy systems (for example solar energy unit) to customers who are predominantly not registered for GST. You give the customer an upfront discount in the form of a credit on the purchase price of the energy unit in exchange for the customer assigning their right to create an STC to an unrelated third party aggregator. The amount of the discount offered is calculated at the time the customer commits to the purchase.

The alternative for the customer is to purchase the energy unit at full price (that is no upfront discount) and to undertake the lengthy and complex process of selling the STC themselves.

Upon completion of the installation of the energy unit, the assignment form is completed and signed by the customer. The completed form is generally given to you to be forwarded to the aggregator together with your invoice. The documentation is completed and forwarded to the aggregator only after the installation of the purchased product has been completed.

The aggregator subsequently pays you an amount and the amount that the aggregator pays you is dependent upon the timing of the creation of the STC. You do not have a formal arrangement or written contract/agreement in place with the aggregator or an agreement which stipulates the amount to be received from the aggregator. The Assignment form is the only documentation prepared in relation to the arrangement in place between you, the aggregator and the customer. The amount received from the aggregator is determined by the market.

As the STC is a tradeable commodity, the market price fluctuates and therefore the amount you receive from the aggregator may be similar, more or less than the discount you have originally given to the customer. You have on occasions received an amount from the aggregator which is less than the upfront discount previously provided to the customer.

You consider you are making two taxable supplies when you sell an energy unit and they are:

· a supply of energy unit to the home owner and the consideration for the supply is the net discounted amount. The sale is accounted in the quarter in which the customer makes the payment;

· a supply of intermediary service to the aggregator because you act as a facilitator or an intermediary that has arranged the assignment of the STC from the customer to the aggregator. The consideration for this supply is the payment you received from the aggregator and you account for this payment in the tax period you receive the payment from the aggregator.

You further advised that you do not purchase the right to create STC from the customer nor do you create the STCs. The customer is making a supply to the aggregator when they assign the STC to them. You are not a party to this transaction and therefore there are no GST implications for you from this assignment.

You have provided the following example to explain how a sale transaction is done:

· You sell an eligible system to a customer for $8,800.

· You offer a discount of $2,000 to the customer.

· The discounted sale price of $6,800 ($8,800 - $2,000) is inclusive of GST. GST collected and payable is $618.00.

The customer assigns the right to create STCs to an aggregator.

Upon the customer's assigning their right to the aggregator, the aggregator pays you, say $2,000 for the service of arranging the assignment. You collect GST of $181 (being $2000/11).

You have provided us with a copy of an unexecuted Assignment form issued by the aggregator which evidences the assignment of the customer's right to create an STC to the aggregator and your claim for payment from the aggregator once the form is executed.

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 9-70;

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 subsection 29-5(2)

Reasons for decision

What are you supplying and to whom?

The assignment form and the information you gave to us indicate that there is a tripartite arrangement in place, consisting of:

· you as the supplier;

· the customer as owner of the unit who is entitled to assign the right to create an STC to the aggregator; and

· the aggregator as the entity creating the STCs.

Goods and Services Tax Ruling GSTR 2006/9 (available at www.ato.gov.au) discusses the concept of 'supply' and 'acquisition' in the concept of tripartite arrangements. Paragraphs 115 and 116 of GSTR 2006/9 state:

115. In more complex arrangements involving more than two entities, which the Commissioner refers to as tripartite arrangements, analysis may reveal:

· a supply made to one entity but provided to another entity;

· two or more supplies made; or

· a supply made and provided to one entity and consideration paid by a third party.

116. As with two party transactions, the GST consequences of tripartite arrangements turn on identifying:

· one or more supplies;

· consideration (a payment, act or forbearance);

· a nexus between the supply and the consideration; and

· to whom the supply is made.

Accordingly an analysis of the transactions has to be made to identify the supply or supplies under tripartite arrangements. Paragraph 22 of GTR 2006/9 sets out a list of propositions that are helpful for characterising supplies and analysing complex transactions and include the following:

Proposition 1: For every supply there is a supplier (paragraph 52 of GSTR 2006/9)

Proposition 2: Generally, for every supply there is a recipient and an acquisition (paragraphs 53 to 62 of GSTR 2006/9)

Proposition 11: The agreement is the logical starting point when working out the entity making the supply and the recipient of the supply (paragraphs 119 to 122 of GSTR 2006/9)

Proposition 12: Transactions that are neither based in an agreement that binds the parties in some way nor involve a supply of goods, services, or some other thing, do not establish a supply (paragraphs 123 to 129 of GSTR 2006/9)

Proposition 14: A third party may pay for a supply but not be the recipient of the supply (paragraphs 177 to 216 of GSTR 2006/9)

Proposition 15: One set of activities may constitute the making of two (or more) supplies (paragraphs 217 to 221 of GSTR 2006/9)

Proposition 16: The total fact situation will determine the nature of a transaction, the entity that makes a supply and the recipient of the supply (paragraphs 222 to 246 of GSTR 2006/9)

In this case, as starting point we will examine the Assignment form and the transaction between you, the customer and the aggregator in order to determine who is making a supply of what to whom.

Based on the facts received, there are at least two supplies that can be identified:

· a supply of the unit by you to the customer;

· the assignment of the right to create the STCs from the customer to the aggregator as evidenced by the Assignment form.

You are of the view that you are making two supplies under the arrangement and they are:

· a supply of the unit and the consideration is the payment of the discounted price of the unit; and

· a supply of intermediary services to the aggregator and the consideration is the amount you received from the aggregator.

We disagree with your view that you are making a supply of intermediary services to the aggregator as from the facts received there is no indication that there is an agreement between you and the aggregator in regard to you supplying intermediary services to the aggregator. We are of the view that you have made only a supply of a unit to the customer under this tripartite arrangement for the following reasons:

Under the Assignment form, the customer who is the home owner assigns their rights to create STCs to the aggregator and at the same time notifies the aggregator that you have provided an upfront discount to them on the purchase. You make a claim for payments from the aggregator in the Assignment form as well. This arrangement indicates that the homeowner, when assigning their right to create STCs to the aggregator, has made a supply to the aggregator and at the same time has allowed that the payments for their supply to the aggregator to be made directly to you and not to them.

In this instance, when the homeowner allows the aggregator to make the payments directly to you in the Assignment form, the payments are not consideration for a supply that you have made to the aggregator. Instead the aggregator is considered to be a third party payer as this payment is to recoup the upfront credit you have given to the homeowner when purchasing the unit, a supply for which the aggregator is not the recipient.

There is sufficient nexus between the payment of monies made by the aggregator to you and the provision of the upfront discount/credit you gave to the customer on the purchase of the unit. If the customer does not assign their right to create STCs to the aggregator, you would not give them a point of sale discount on the purchase and therefore no payment is available from the aggregator. The customer would then have to pay the full price of the unit.

Accordingly, this payment from the aggregator is additional consideration for the supply of the unit you have made to the customer. The consideration for your supply of the unit to the customer is therefore the cash payment received from the customer and the payments received from the aggregator.

This arrangement has been entered because of the benefits available to everyone, that is the customer to pay less cash for the purchase, the aggregator is guaranteed of receiving the customer's assignment of their right to create STCs and you are guaranteed of receiving an additional payment to recoup the upfront discount given for the supply of the unit. This arrangement does not indicate that you are making a supply to the aggregator.

To summarise, based on the facts received you are only making a supply of the unit to the customer under this tripartite arrangement.

The next step is to determine the GST status of this supply and your GST liability if the supply is a taxable supply.

GST status of your supply of the unit to customer

Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) an entity makes a taxable supply if:

· it makes the supply for consideration;

· the supply is made in the course or furtherance of an enterprise that you carry 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.

From the facts given, you will satisfy all the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act as you make the supply for consideration and through an enterprise that you carry on in Australia; further the supply is connected with Australia as the unit is delivered in Australia and you are registered for GST.

However the supply is not a taxable supply to the extent that it is GST-free or input taxed. There is no provision under the GST Act that makes your supply GST-free or input taxed.

Accordingly your supply will be a taxable supply and you will be liable to pay GST on that supply.

Attribution of GST payable

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 states:

The value of a *taxable supply is as follows:

Price x 10/11

where:

Price is the sum of:

So far as the *consideration for the supply is consideration expressed as an amount of *money - the amount (without any discount for the amount of GST (if any) payable on the supply; and

So far as the consideration, is not consideration, expressed as an amount of money - the *GST inclusive market value of that consideration.

As discussed above, the consideration of your supply of the unit would be the cash payment received from the customer and the payments received from the aggregator. Based on the example you gave, the consideration for your supply of the unit would therefore be $8,800 ($6800 + $2000).

However, since you are receiving the payments in two instalments and for GST purposes you are accounting your GST on a cash basis and reporting your GST on a quarterly basis, when you will attribute the GST payable on the supply will depend on when the payments are received.

Accounting for GST on a cash basis

Under subsection 29-5(2) of the GST Act, if you account for GST on a cash basis, you attribute GST on a taxable supply to the tax period in which you receive consideration for the supply, but only to the extent that the consideration is received in the tax period.

This means that if, in a particular tax period, you receive only part of the consideration for the supply, you attribute GST on the supply only to the extent that the consideration is received in that tax period. For example, if in a particular tax period you received $5,000 as part of the consideration for a supply, you attribute 1/11 of the consideration received, which is 1/11 of $5,000 of the GST on the supply for that tax period.

In your case, as you account GST on a cash basis and report your GST on a quarterly basis, you will attribute the GST payable to the tax period in which you receive consideration for the supply. This means, if you receive both payments (in the example given $6,800 from the customer and $2,000 from the aggregator) in the same tax period you will account the GST payable to that tax period and the GST liability will be 1/11 of the total amount received (1/11 of $8,800).

Where the payments are received in two different tax periods you will account for the payments in the tax periods in which each payment is received and the GST liability will be 1/11 of each amount received.

You have stated that you are out of pocket when the payment you received is less than the upfront discount you have given to the customer. Since the value of assignment to the STCs, the amount of discount you provide on the unit and the method you use to calculate these figures are contractual decisions that need to be made between all parties in the tripartite arrangement, the Australian Taxation Office cannot make any definitive comments on this statement.