Edited version of your private ruling

Authorisation Number: 1012520711695

Ruling

Subject: Goods and services tax (GST) and supply of solar systems

Question 1

Have you overstated your GST liabilities at label 1A of your business activity statements in respect of your sales of solar systems, where your customer assigned their rights to create STC to the third party?

Answer

Yes.

Question 2

If you have overstated your GST liabilities at label 1A of your business activity statements, can you amend the business activity statements, subject to the 4 year time limit on claiming GST refunds?

Answer

Yes.

Relevant facts and circumstances

You are registered for GST.

You operate a solar panel sale and installation enterprise.

Customers are quoted a total cost for the supply and installation of the solar panels.

Customers can elect to receive a so called 'discount' to the total cost if they transfer their rights to create STC to a third party. These customers also pay a cash amount to you. You reduce the cash amount the customer has to pay you if the customer assigns their rights to create STC to a third party.

If customers elect to transfer their rights to create STC to the third party, the 'discount' is calculated at a standard amount per right to create STC in most cases. Sometimes you would offer less than a certain amount per right to create STC 'discount'.

Some of your competitors have been offering a certain amount per right to create STC 'discount'. Some of your competitors have been offering less than a certain amount per right to create STC 'discount'.

The standard rate is purely an estimate of the market value of the rights to create STC at the time of the solar installation agreement. You stated that the actual market value of the rights to create STC will vary depending on the underlying market for trade in the rights to create STC.

You provide a completed 'rights to create STC Assignment Form' to the third party and the third party then pays you an amount that reflects the market value of the associated rights to create STC at the time you provide the form to the third party. This amount may be less than the certain amount per right to create STC you usually allowed as a discount on the sale of a solar system, for example, the third party may pay you a certain amount per right to create STC relating to a solar system you gave a certain amount per right to create STC 'discount' on.

The solar customer is not required to fund any shortfall between the quoted 'discount' (calculated in most cases at a certain amount per right to create STC) and the amount you receive from the third party. Accordingly, the cash component of the quoted consideration does not alter.

The original business activity statements have been prepared with reference to the Total Cost as noted on the Customer Order Form, which includes a certain amount per right to create STC 'discount' (in most cases) where the customer assigns their rights to create STC to the third party and the cash payment your customer makes to you.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-15

A New Tax System (Goods and Services Tax) Act 1999 subsection 9-15(2)

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)

A New Tax System (Goods and Services Tax) Act 1999 section 19-40

A New Tax System (Goods and Services Tax) Act 1999 section 21-5(1)

A New Tax System (Goods and Services Tax) Act 1999 section 29-25

Taxation Administration Act 1953 Schedule 1 section 105-55

Reasons for decisions

Question 1

Summary

You have overstated your GST liabilities on sales of solar systems because:

· GST should be calculated at 1/11^th of the sum of the amount of cash payment you receive from your customer and the amount of the cash payment you receive from the third party, but

· you have instead calculated GST at 1/11^th of the sum of the cash payment you receive from your customer and amount of the so called 'discount' and the amount of the so called 'discount' is higher than the amount you receive from the third party.

Detailed reasoning

In accordance with section 9-70 and subsection 9-75(1) of the GST Act, the GST payable on a supply made solely for monetary consideration is 1/11^th of the amount of monetary consideration.

Consideration is defined in section 9-15 of the GST Act.

Consideration includes any payment in connection with, in response to, or for the inducement of, the supply of anything.

Subsection 9-15(2) of the GST Act provides that it does not matter whether the payment was by the recipient of the supply.

Paragraph 180 of Goods and Services Tax Ruling GSTR 2006/9 provides guidance on the meaning of consideration. It states:

180. In other GST rulings the Commissioner discusses the close coupling between supply and consideration in the GST Act. In determining whether a payment is consideration under section 9-15 and whether there is a 'supply for consideration' those rulings take the view that:

· the test is whether there is a sufficient nexus between the supply and the payment made; this test is objective;

· regard needs to be had to the true character of the transaction; and

· an arrangement between parties will be characterised not merely by the description that the parties give to the arrangement, but by looking at all of the transactions entered into and the circumstances in which the transactions are made.

In accordance with paragraph 81 of Goods and Services Tax Ruling GSTR 2001/6, for a thing to be treated as a payment for a supply, it must be provided as compensation for the making of the supply.

Paragraph 82 of GSTR 2001/6 provides that consideration for a supply is something the supplier receives for making the supply.

The cash payment you receive from a customer has a sufficient nexus with your supply of a solar system; this payment is compensation for your supply of the solar system and it is something you receive for making the supply. Therefore, this payment is consideration for your supply of a solar system

Paragraphs 182 and 183 of GSTR 2006/9 discuss third party payers. They state:

182. The objective test discussed in paragraph 180 of this Ruling may determine that a payment an entity makes is:

· consideration for a supply made to the payer and the payer is the recipient of that supply;

· not consideration for a supply; or

· consideration for a supply but the paying entity is not the recipient of that supply.

183. If you provide or are liable to provide consideration for a supply, but you are not the recipient of the supply, you are referred to in this Ruling as a 'third party payer'. As a third party payer you do not make a creditable acquisition in relation to your payment because the supply is not made to you as required by section 11-5. Making a payment for a supply that is made to another entity is not sufficient to make you the recipient of that supply.

The payment you receive from the third party has a sufficient nexus with your supply of a solar system; this payment is compensation for your supply of a solar system and it is something you receive for making the supply. Therefore, this payment is consideration for your supply of a solar system. The third party is a third party payer in relation to your supply of the solar system as it pays consideration for that supply but it is not the recipient of that supply.

Your GST liability on the sale of a solar system is 1/11^th of the amount of the cash payment you receive from your customer and the amount of the cash payment you receive from the third party. Your customer is not required to pay you the difference between the so called 'discount' and the amount of the cash payment you receive from the third party. The quoted 'total cost' for the supply of the solar system does not accurately reflect the amount of the total actual consideration for the supply of the solar system.

You have calculated your GST liabilities at 1/11^th of the sum of the cash amount you receive from your customer and the amount of the so called 'discount', but the discount amount is higher than the amount of the cash payment you receive from the third party.

Therefore, you have overstated your GST liabilities on your sales of solar systems at label 1A.

Section 29-25 of the GST Act provides that the Commissioner may determine the tax periods to which GST on a taxable supply of a specified kind is attributable.

One of the situations in which the Commissioner may be able to make such a determination is when the supply occurs before the supplier knows the total consideration. The Commissioner has made such a determination on that situation. This is contained in Goods and Services Tax Ruling GSTR 2000/29.

Paragraphs 92 to 94 of GSTR 2000/29 state:

A supply or acquisition occurring before the supplier or recipient knows the total consideration (paragraph 29-25(2)(e))

92. The particular attribution rule is for supplies and acquisitions where some consideration is received (or provided), or an invoice is issued, but the total consideration for the supply or acquisition has not been ascertained because it depends on a future event or events. The determination does not apply if that event is entirely within the control of the supplier. A copy of this determination is attached to this Ruling as Schedule 5 at page 65.

93. The effect of the particular attribution rule is to defer attribution of GST on the supply or entitlement to an input tax credit for the amount that can not be ascertained.

94. The supplier attributes GST payable (or the recipient claims input tax credits) to the extent that consideration is received (or provided), or an invoice is issued. At the time the supplier (or recipient) knows the total consideration, GST payable on the taxable supply (or input tax credit for the creditable acquisition) is attributable to the tax period in which the supplier (or recipient) first knows the total consideration, but only to the extent that the GST (or input tax credit) has not been previously attributed to an earlier tax period.

At the time you make your supply of a solar system you do not know what the total consideration will be because it will depend on a future event. The future event is negotiation between you and the third party on how much the third party will pay you when you give it the Assignment Form. The amount the third party pays you depends on the market value of the rights to create STC at the time of the negotiation, but the market value of rights to create STC fluctuates over time. Therefore, you must attribute GST on your sales of solar systems in accordance with the rules set out in paragraphs 93 and 94 of GSTR 2000/29.

Question 2

Where a taxpayer overstates their GST liability at label 1A, it is entitled to revise its BAS to correct the error, subject to the 4 year limitation and limitations regarding non-taxable sales that have been incorrectly classified as taxable.