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Ruling

Subject: Tax treatment of Small-scale Technology Certificates

Question 1:

Will CGT events happen in both instances where the taxpayer creates STCs from the rights to STCs, and when it disposes those STCs?

Answer:

Yes. Please see our 'Reasons for decision'.

Question 2:

Would both the rights to the STCs and the STCs be considered trading stock of the taxpayer?

Answer:

Yes.

Please see our 'Reasons for decision'.

This ruling applies for the following periods:

1 July 2010 to 30 June 2011

1 July 2011 to 30 June 2012

The scheme commences on:

1 July 2010

Relevant facts and circumstances

The taxpayer is a private company who sells and installs solar panels.

As part of the process of installing and selling solar panels, the customer agrees to assign to the taxpayer the rights to Small-scale Technology Certificates (STCs) in order to receive a reduction in the up-front price.

The customer will only assign the rights to STCs to the taxpayer upon the solar panels being correctly and completely installed.

Upon being assigned the rights to STCs, the taxpayer will create STCs from those rights in the REC Registry at either:

· the going price, after searching for STC traders on the internet, or

· the fixed STC Clearing House price of $40 (excluding GST).

The taxpayer is registered as a Registered Agent with the Clean Energy Regulator, and has a current account in the REC Registry with Registered Agent access.

Upon creating the STCs, the taxpayer will seek to value them for closing stock purposes at either:

the going price, after searching for STC traders on the internet, or

the fixed STC Clearing House price of $40 (excluding GST).

The taxpayer will seek to sell the STCs on either:

· the open STC market at a price to be determined by both it and the purchaser, or

· through the STC Clearing House at a fixed price of $40 (excluding GST).

Relevant legislative provisions

Income Tax Assessment Act 1997 Paragraph 70-10(1)(a),

Income Tax Assessment Act 1997 Section 104-5,

Income Tax Assessment Act 1997 Subsection 104-25(1),

Income Tax Assessment Act 1997 Paragraph 108-5(1)(b),

Income Tax Assessment Act 1997 Section 109-5,

Income Tax Assessment Act 1997 Subsection 118-25(1),

Renewable Energy (Electricity) Act 2000 Section 23A,

Renewable Energy (Electricity) Act 2000 Subsection 23C(1) and

Renewable Energy (Electricity) Act 2000 Subsection 23C(2).

ATO view documents

ATO Interpretative Decision ATO ID 2009/97

Taxation Ruling TR 2005/6

Reasons for decision

Issue 1 Question 1

Summary

CGT events will happen when the taxpayer creates STCs from the rights to STCs, and when it disposes those STCs, with any capital gain or capital loss that is made under these CGT events being disregarded if both the rights to STCs and the STCs are trading stock.

Detailed reasoning

The rights to create STCs are a CGT asset as per paragraph 108-5(1)(b) of the Income Tax Assessment Act 1997, and arise under subsection 23C(1) of the Renewable Energy (Electricity) Act 2000 (REE Act).

Upon a customer assigning to the taxpayer their right to create STCs under subsection 23C(2) of the REE Act, the taxpayer acquires a CGT asset under section 109-5.

When the taxpayer:

· creates STCs from the rights to STC under section 23A of the REE Act, CGT event C2 under subsection 104-25(1) happens as a result of those rights being discharged, and

· disposes the STCs, CGT event A1 under section 104-5 happens as a result of the change in ownership occurring.

However, any capital gain or capital loss that the taxpayer makes under these CGT events will be disregarded under subsection 118-25(1) if both the rights to STCs and the STCs are trading stock.

Issue 2 Question 1

Summary

Both the rights to the STCs and the STCs are considered to be trading stock of the taxpayer.

Detailed reasoning

Trading stock is defined by paragraph 70-10(1)(a) to include anything produced, manufactured or acquired that is held for purposes of manufacture, sale or exchange in the ordinary course of business.

Thus a thing can only relevantly be trading stock where is held for sale or exchange in the ordinary course of business.

The rights to STCs are held by the taxpayer for exchange in the event of STCs being created from those rights in the REC Registry, and will be trading stock provided that they are held in the ordinary course of the taxpayer's business. Whilst the term 'exchange' is not defined in the ITAA 1997, the Commissioner's considers its ordinary meaning in ATO Interpretative Decision ATO ID 2009/97 to cover the situation where a thing is given up for something equivalent and the thing given up may not continue to exist.

The STCs are held by the taxpayer for sale on either the open STC market or through the STC clearing house, and will be trading stock provided that they are held in the ordinary course of the taxpayer's business.

The phrase "ordinary course of business" is considered by the Commissioner in paragraph 83 of Taxation Ruling TR 2005/6 to include secondary activities carried on by a taxpayer that are a normal incident of its business, as they are a part of the normal ebb and flow of the business.

Based on the relevant facts, we accept that it is a normal incident of the taxpayer's business of selling and installing solar panels, to acquire rights to STCs from its customers and to subsequently sell the STCs created from those rights.

Therefore, we accept that both the rights to STCs held for exchange and the STCs held for sale are trading stock of the taxpayer.