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Ruling

Subject: Supply of electricity

Question

If you register for the GST, can you calculate your GST liability on the net amount owing to your electricity supplier?

Answer

No. See below for explanation.

This ruling applies for the following periods:

Not applicable

The scheme commences on:

Not applicable

Relevant facts and circumstances

You are an individual and are not registered for the goods and services tax (GST).

You are a consumer of electricity, which is supplied to you by a registered supplier (utility company).

You have solar panels on your roof and the electricity generated from these you supply to the grid via the same supply network.

Your electricity supplier invoices you for the electricity supplied to you. The invoice includes GST calculated on the value of the total amount of electricity supplied to you.

In the invoice, your electricity supplier credits you for the electricity you supply to the grid.

In some billing periods, the number of units you had supplied to the grid exceeds the number of units the supplier supplied to you.

Thus, in such situations, the dollar amount charged to you by the supplier for the electricity supplied is less than the dollar amount credited to you for the electricity you supplied to the grid.

However, in the utility company's invoices, GST is always included on the total amount of electricity supplied to you.

You believe that as you also supply electricity to the grid, the GST amount that should be charged from you should be the net amount owing to the supplier and not on the whole amount for the electricity supplied by the supplier.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-10.

Reasons for decision

Subsection 9-10(1) of the A New tax System (Goods and Services Tax) Act 1999 (GST Act) gives the meaning of the term 'supply' as:

A supply is any form of supply whatsoever.

Goods and Services Tax Ruling: supplies (GSTR 2006/9) provides the Australian Taxation Office (ATO) view on supplies in the context of the GST law. Paragraphs 67 and 68 of GSTR 20006/9 explains the way a transaction involving two or more supplies should be treated for GST purposes. It states:

Proposition 4: a transaction may involve two or more supplies

67. In a straight forward commercial transaction, a supply is made to a recipient, who provides consideration in the form of money to the supplier. As the payment of money in these circumstances is not a supply, the recipient's payment of money is not a supply.

68. However, if the recipient provides consideration in a non-monetary form, the consideration itself is a separate supply. In a transaction of this kind between two entities, there are two supplies, one going each way. As a result, each party to the transaction needs to account for any GST on the supply it makes, and each party needs to account for any input tax credit entitlement for the acquisition it makes.

In your case, the utility company supplies you electricity and you supply electricity to the grid. There are two supplies in this transaction and consideration is part monetary and part non-monetary.

If you are registered for the GST, there would be GST implications in respect of the electricity you supply to the grid. You can choose to register for the goods and services tax (GST) if you are carrying on an enterprise. An enterprise is, among other things, an activity, or a series of activities, done in the form of a business or in the form of an adventure in the nature of trade.

You advised us that you are supplying electrical energy to the grid. This may constitute an enterprise and you may, if you so choose, register for the GST on this account.

Electricity and Gas Industry Partnerships - Issues Register of the ATO (Issues Register) at item 1 provides the following explanation:

1. Are there any GST implications for owners of grid-connected solar power generation equipment in respect of electricity supplied via the network?

For the source of ATO view, refer to paragraphs 67 to 70 and 92 of GSTR 2006/9 - Goods and services tax: supplies

Yes, if the solar owner is registered for GST.

The supply of solar generated electricity from a solar owner to an electricity retailer is a supply for GST purposes. If the solar owner is registered for GST and the supply is made as part of carrying on their enterprise, it is a taxable supply.

The supply of solar generated electricity from a solar owner via the network is a separate supply from the supply of electricity by an electricity retailer to the solar owner. Therefore, the electricity supplies made by the solar owner and the electricity retailer need to be accounted for separately. Where there are mutual supplies for consideration, the GST law does not allow the price for one supply to be reduced by the price of another.

When an electricity retailer supplies electricity to a solar owner, the electricity retailer must calculate the GST on the full value of the electricity they supply to the solar owner, not on the net amount the solar owner pays to the electricity retailer.

The issue of the value that must be used to determine the GST payable on a taxable supply of electricity by an electricity retailer to a solar owner is addressed at Item 2 in the Issues Register as follows:

2. What value is used to determine the GST payable on a taxable supply of electricity by an electricity retailer to a solar owner?

Non-interpretative - other reference (see paragraphs 67 to 70 and 92 of GSTR 2006/9 - Goods and services tax: supplies.

The GST payable on a taxable supply of electricity by an electricity retailer to a solar owner is calculated on the value of electricity supplied by the electricity retailer. This is not offset or reduced by any electricity that may be supplied by the solar owner to the electricity retailer.

The supply of electricity by an electricity retailer is separate from the supply by the solar owner to the electricity retailer.

This means that the utility company must calculate the GST on the full value of the electricity the utility company supplies to you. If you register for the GST, then, you must remit GST on the full value of the electricity you supply to the grid. You cannot net off the two supplies and then calculate the GST.

You should also note that if you register for the GST, you may claim GST credits for the GST included in a purchase you make, and:

· you intend to use your purchase solely or partly in carrying on your business

· the price includes GST (also referred to as creditable purpose)

· you provide, or are liable to provide payment for the item you purchased

· you have a tax invoice from your supplier.

Creditable purpose is explained in paragraph 11-15(2)(b) of the GST Act. It states:

"…you do not acquire the thing for a creditable purpose to the extent that the acquisition is for a private or domestic nature"

Accordingly, the acquisitions you make, such as electricity that is provided to you by the utility company, are of private or domestic in nature. These acquisitions are not made for any enterprise you may be carrying on (such as supplying electricity to the grid) but merely for private or domestic purposes. Therefore, you cannot claim any input tax credits on these acquisitions.

Based on the above, we are of the view that the utility company is within the law when it includes GST on the value of the supplies of electricity supplied to you.