Edited version of your private ruling

Authorisation Number: 1012533057273

Ruling

Subject: Goods and services tax (GST) and RECs

Question

Are you making a creditable acquisition when you make a payment to the retailer/installer?

Answer

No, you are not making a creditable acquisition when you make a payment to the retailer/installer (please see discussion below re registration status of owner).

Relevant facts and circumstances

You operate as an Xr and trade in renewable energy certificates (RECs) also known as small scale technology certificates (STCs).

You are registered for GST.

You trade in small-scale technology certificates - Renewable Energy Certificates (RECs).

RECs are a tradeable commodity and the right to create them belongs to the owners of solar power systems.

Solar system retailers/installers, who are registered for GST, supply and install solar water heaters or small generator units at the owner's premises.

The retailer/installer offers the owner what is referred to as a 'discount' for the supply and installation of the unit.

The owners are required to assign their rights to the RECs to you and provide a completed Assignment Form to the retailer/installer in order to receive the 'discount'.

The Assignment Form also explains that if for any reason the RECs associated with the assignment cannot be registered by you with the Clean Energy Regulator then all monies paid for them by you must be refunded by the owner.

The owner pays an amount of money to the retailer/installer for the solar system, which is the full price of the system less the 'discount'.

You do not have written agreements with the retailers/installers and they do not charge you for arranging the assignment of the rights to create RECs.

There is no agency relationship between you and the owners or the retailers/installers.

For the rights to create RECs to be assigned to, and for RECs to be created by a registered agent (you), various documents (Assignment Documents) need to be completed, including:

· the Assignment Form

· invoice from the installer to the owner, and

· copy of certificate of electrical safety (and plumbing compliance in the case of a solar hot water system)

The retailer/installer gives the completed Assignment Documents to you and you then make a payment to the retailer/installer.

You stated that the amount of money you pay the retailer/installer reflects the market value of the Assignment Documents when they are being supplied to you and that the market value of the Assignment Documents reflects the market value of the RECs that can be created when you have those documents in your possession.

You consider that you make a creditable acquisition of the Assignment Documents, for which you are entitled to an input tax credit.

You stated that you are under no obligation to purchase the Assignment Documents.

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 paragraph 9-10(2)(e)

A New Tax System (Goods and Services Tax) Act 1999 subsection 9-15(1)

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 11-5

A New Tax System (Goods and Services Tax) Act 1999 paragraph 11-10(1)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 11-10(2)(e)

A New Tax System (Goods and Services Tax) Act 1999 subsection 11-15(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 11-15(2)

A New Tax System (Goods and Services Tax) Act 1999 section 11-20

Reasons for decision

Summary

You do not make a creditable acquisition when you make a payment to the retailer/installer.

Detailed reasoning

You are entitled to input tax credits on your creditable acquisitions.

You make a creditable acquisition where you satisfy the requirements of section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), which states:

You make a creditable acquisition if:

(a) you acquire anything solely or partly for a *creditable purpose; and

(b) the supply of the thing to you is a *taxable supply; and

(c) you provide, or are liable to provide, *consideration for the supply; and

(d) you are *registered or *required to be registered.

(*Denotes a term defined in section 195-1 of the GST Act)

Therefore, in order to make a creditable acquisition, you must acquire something and you must provide or be liable to provide consideration for the supply to you of the thing you acquire.

In accordance with paragraph 11-10(2)(e) of the GST Act, an acquisition includes an acceptance of rights.

The concept of supply and acquisition are related. An entity makes an acquisition if the entity is the recipient of the supply. That is, the supply is made to the entity.

Goods and Services Tax Ruling GSTR 2001/4: GST consequences of court orders and out-of-court settlements, at paragraph 56 explains that it is not sufficient for there to be a supply and a payment. GST is not payable on supplies unless they are made for consideration, and the other tests in section 9-5 of the GST Act are satisfied. There must be a sufficient nexus between the supply and the payment.

Goods and Services Tax Ruling GSTR 2001/6: non-monetary consideration, at paragraph 71 explains that in determining whether a sufficient nexus exists between a supply and consideration, regard needs to be had to the true character of the transaction. An arrangement between parties will be characterised not merely by the description that parties give to the arrangement, but by looking at all of the transactions entered into and the circumstances in which the transactions are made.

On the basis of the facts and the arrangement and the facts described, two supplies can be identified.

The first supply is the supply that the retailer/installer makes to the owner of the solar system. The retailer/installer offers a 'discount' on the supply of the solar system on the condition that the owner assigns the rights to create RECs associated with the solar system to you. The expectation of the arrangement is that the retailer/installer will receive a payment from a party to whom the owner assigns the rights to create RECs at a later stage.

The owner makes a 'discounted' cash payment to the retailer/installer.

The second supply is the supply of the rights to create RECs by the owner to you, as evidenced by the Assignment Form.

This is the case despite you not being aware of the assignment of the rights to create RECs to you until the retailer/installer presents you with the completed Assignment Documents.

The Assignment Documents consist of and are evidence of the supply of the rights to create RECs (Assignment Form) made by the owner to you, and additional documents required by the Regulator that enables you to exercise the rights acquired and create RECs with the Regulator.

It may be argued that there is a third supply, which is the provision of the Assignment Documents to you by the installer. However it is considered that the payment you make has no nexus with that supply.

This is supported by the fact that if the owner did not assign rights to you (which is a supply) to create RECs as evidenced by the Assignment Form, the installer would not have any reason to present those documents to you as without the assignment of the rights by the owner the documents have no effect. That is, without the assignment of the rights by the owner you would not be able to use the Assignment Documents to create RECs as the mere documentation without the assignment has no effect.

The actual supply that makes the arrangement between the installer, the owner and you work is the fact that the owner agrees to assign the rights to create RECs in the first place. If this was not the case, the installer would not offer the owner the discount and the owner would be liable to pay the full amount under the contract. The act of the assignment of rights by the owner ensures that the owner receives a discount on the system as the installer will receive a payment at a later stage for the supply of the rights made by the owner to you.

It is considered that the payment you make to the retailer/installer is not for a creditable acquisition made by you from the installer; rather the payment is consideration for the supply of the rights to create RECs made by the owner to you.

If the owner is not registered or required to be registered and the supply of the rights to create RECs is not made in the course of any enterprise that they carry on and is not a taxable supply to you, you do not make a creditable acquisition from the owner.

Additional information

If the owner is registered for GST and they supply you with the rights to create REC in the course or furtherance of an enterprise that they carry on, you would make a creditable acquisition of the rights to create RECs because the requirements of section 11-5 of the GST Act would be met. In this situation you would be entitled to an input tax credit provided you hold a valid tax invoice.