Edited version of your private ruling

Authorisation Number: 1012243033592

This edited version of your ruling will be published in the public register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.

Ruling

Subject: GST and legal ownership of gas

Question 1

Is there a taxable supply made by you as a consequence of having legal ownership of gas when it enters the gas pipeline and a quantity of the gas subsequently gets consumed by the pipeline operator to transport the gas.

Answer

See discussion below.

Relevant facts and circumstances

You believe that the introduction of Clean Energy legislation (Carbon Tax) has highlighted a potential GST supply issue relating to Systems Use Gas (SUG). Under this new law:

· the obligation for emissions from gas lies with the gas supplier

· an Obligation Transfer Number (OTN) allows the gas supplier to pass this obligation on to the user

· the main issue you see is what constitutes a supply of gas given the inception of the Clean Energy legislation

· supply occurs at the time at which natural gas is withdrawn from the pipeline

· measurement of the gas supplied must occur at the withdrawal point

· you pay for and takes title to natural gas measured at the point it enters the pipeline

· for the purpose of the Clean Energy Regulator legislation a supply of gas does not occur at this point

· a quantity of gas is used by the pipeline operator as part of pipeline operation (SUG)

· as SUG is withdrawn from the pipeline a supply occurs at this point

· as gas in the pipeline is owned by you and SUG is a supply you believe that you could be viewed as a supplier of gas to the pipeline operators

· as you are the supplier, you have an obligation for the emissions unless an OTN is quoted by the operator

· the pipeline operator has signalled its intention to quote an OTN and pass the cost of the carbon tax back to you via an increase in price.

· you advise that the pass through costs identified on Invoice are Power and SUG Gas

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) section 9-10

A New Tax System (Goods and Services Tax) section 9-15

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

Clean Energy Act 2011

Australian National Registry of Emissions Act 2011

Reasons for decision

Summary

The volume of gas at the point of legal ownership of gas as it enters the pipeline is a component of the overall calculation of the supply made for GST purposes.

Detailed reasoning

The relevant GST legislation, the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and the Clean Energy legislation define the term 'supply' for different reasons. The Clean Energy legislation deals with a supply from the perspective of who is liable for a potential emission at some later point. Further, section 6 of the Clean Energy Act 2011 ensures that a supply of natural gas is governed by time of supply rules for the purpose of that Act:

For the purposes of this Act, the supply of natural gas occurs:

(a) if the regulations provide that the supply occurs when the gas passes a point ascertained in accordance with the regulations-when the gas passes that point; or

(b) if:

(i) paragraph (a) does not apply; and

(ii) the supply involves physical delivery;

when the gas is physically delivered.

In contrast, the GST Act does not require suppliers to work out when a supply occurs. Instead GST payment obligations arise when payments are received or invoices are issued.

The imposition of the Clean Energy legislation does not have an impact on the definition of supply for GST purposes. It follows that if you were (prior to the Clean Energy legislation) making taxable supplies, it would still be making taxable supplies today. Further, the quoting of an OTN does not have any GST consequences. The quoter is not supplying anything, in the GST sense, to the gas supplier. Nor is the gas supplier supplying anything (other than gas) to the quoter.

The right to quote an OTN is provided by the Clean Energy legislation. In the same way, it is the legislation that removes the carbon liability from the gas supplier and shifts it to the gas user.

As a result of the imposition of the Clean Energy regime, prices for existing supplies of gas could change. The changed prices will become the 'consideration', in GST terms, for supplies. GST on taxable supplies is calculated from consideration.

Existing supplies in respect of GST law

If you make a creditable acquisition of natural gas from a gas supplier, you will be entitled to claim an input tax credit equal to the GST component included in the purchase price. You are required to hold a tax invoice before claiming the input tax credit. This will be evidenced by agreements for supply and tax invoices issued by the supplier.

If you sell the natural gas you have acquired, you have a GST liability equal to 1/11 of the price paid or payable by the recipient for the gas. You are expected to keep records of its sales of gas (if any).

If you use the natural gas you have acquired as non-cash consideration for the acquisition of supplies, you will have a GST liability of 1/11 the GST inclusive market value of the gas. You are expected to keep records of these transactions (if any) and any agreements that deal with such supplies of gas.

Interaction of GST law and the Clean Energy Act 2011

Section 38-590 of the GST Act allows that a supply of an eligible emissions unit is GST-free. Eligible emissions unit is defined with reference to the Clean Energy Act 2011 and the Australian National Registry of Emissions Act 2011.

The Clean Energy Regulator advises that each eligible emissions unit represents one tonne of carbon dioxide equivalent and that liability under the carbon pricing mechanism can be satisfied by surrendering units. Eligible emissions units are surrendered from your account in the Australian National Registry of Emissions Units by an electronic notice transmitted to the Clean Energy Regulator.

As eligible emissions units are transferable units that are distinct from the supplies of natural gas discussed above, the GST status of the units will not affect the GST status of supplies of natural gas.