Edited version of your private ruling

Authorisation Number: 1012587685230

Ruling

Subject: Solar panels

Question

Is the supply of the electricity to the grid system taxable?

Advice:

Yes

Relevant facts:

• You are registered for goods and services tax (GST).

• You carry on a farming business as a sole trader on an agricultural farm land.

• You have a residential home on the farm.

• You installed solar panels on the roof tops of the farm sheds.

• The installations of the solar panels were substantial in costs and scales.

• You entered into an agreement with an electricity grid network to install the inverter energy system on your farm property for your supply of the electricity to grid network.

• The agreement requires you to ensure that the equipment installed is inspected and maintained by qualified persons.

• The agreement lists your obligations in return for supplying the electricity to grid network.

• You also entered into a contract for the supply of electricity from the grid system.

• You advised you have already received payments from the grid network for your supply of electricity from your solar panels. You are treating these payments as business income.

• You confirmed that you have not charged GST on your supplies of electricity to the grid system.

Reasons for decision

Under section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), you are liable for GST on your taxable supplies.

Under section 9-5 of the GST Act, you make a taxable supply if:

a) you make a supply for consideration

b) the supply in the course or furtherance of an enterprise that you carry on

c) the supply is connected with Australia and

d) you are registered or required to be registered for GST

However, the supply is not taxable to the extent that it is GST-free or input taxed.

For your information there are no provisions in the GST Act under which a supply of electricity to a business entity can be GST-free or input taxed.

You installed solar panels on the roof tops of your farm sheds and entered into an agreement to supply electricity generated from the solar panels to grid network. We consider the supply of electricity from your solar panels is a supply for GST purposes. You are registered for GST and your supply is connected with Australia.

You supply the electricity for consideration. You advised that you had received payments for your supply from the grid network. Therefore, the issue remaining is whether your supply of electricity to grid network is made in the course of an enterprise.

Supply made in course an enterprise

Enterprise

The meaning of enterprise is outlined in section 9-20 of the GST and it includes an activity or a series of activities done in the form of a business (paragraph 9-20(1)(a) of the GST Act). Paragraph 1 of Goods and Services Tax Determination GSTD 2006/6 provides that the principals stated in Miscellaneous Taxation Ruling MT 2006/1 (MT 2006/1) applying to the term 'enterprise' can also be relied on to determine the meaning of 'enterprise' for GST purposes.

Paragraph 170 of MT 2006/1 provides that an enterprise includes an activity or activities done in the form of a business. Paragraph 177 of MT 2006/1 states:

To determine whether an activity, or series of activities, amounts to a business, the activity needs to be considered against the indicators of a business established by case law.

Some of these indicators of a business are listed in paragraph 13 of Taxation Ruling TR 97/11 and they are:

• a significant commercial activity;

• a purpose and intention of the taxpayer to engage in commercial activity;

• an intention to make a profit from the activity;

• the activity is or will be profitable;

• the recurrent or regular nature of the activity;

• the activity is carried on in a similar manner to that of other businesses in the same or similar trade;

• activity is systematic, organised and carried on in a businesslike manner and records are kept;

• the activities are of a reasonable size and scale;

• a business plan exists;

• commercial sales of product; and

• the entity has relevant knowledge or skill.

Paragraph 179 of MT 2006/1 provides further guidance to determine whether a business is being carried on. The paragraph states:

There is no single test to determine whether a business is being carried on. Paragraph 12 of TR 97/11 states that 'whilst each case might turn on its own particular facts, the determination of the question is generally the result of a process of weighing all the relevant indicators'. TR 97/11 can be referred to for a fuller discussion on whether a particular activity constitutes the carrying on of a business

Therefore, if after weighing the relevant indicators and the conclusion drawn is that the activities are done in the form of a business, then we consider that the activities satisfy the meaning of "enterprise" under paragraph 9-20(1)(a) of the GST Act.

In your case, you carry out activities to supply electricity generated from your solar panels to grid network. You installed the solar panels and equipment and entered into an agreement to supply electricity generated from your solar panels. The agreement outlines your responsibilities and obligations in regard to the equipment and supplies of electricity to grid network.

The solar panel systems installed on your farm sheds are substantial in costs and scales. The electricity generated from these solar panels is in excess of your consumption needs.

You advised that you received payments for your supplies of electricity generated from your solar panels. It is expected that the solar panels will continue to generate electricity in the foreseeable future. Therefore, there is a realistic opportunity for you to profit from these activities.

Although the installed solar panels require low maintenance, you have an obligation under the agreement to ensure that the equipment is adequately maintained so that the supplies of electricity to grid network are not impeded or interrupted.

Based on the above, we consider that your activities display the indicators of a business supplying electricity generated from solar panels. There is a significant commercial purpose in this arrangement in terms of costs and scales. In addition the agreement outlines your business obligations and supplies of electricity from the solar panels to grid network.

You have the intention to profit from these activities. The installed solar panels generate electricity in excess of your electricity requirements. The activities are profitable as the payments you received and continued to receive in the future.

There is a recurrent or regular nature of the activities as the equipment ensures the electricity generated is supplied to grid network under the agreement. In addition the agreement requires you to ensure the equipment installed is maintained by qualified persons.

The activities are carried out in a systematic, organised and businesslike manner. The solar panels and equipment were professional installed and you entered into a supply agreement with the grid network. You advised that you are treating the payments received from the network as business income.

Example 39 in MT 2006/1 provides an example similar to your circumstances where a property owner enters into an arrangement for a partnership to carry out a farming business on her property. Under the arrangement, the owner has an obligation for the capital improvements on the farm and the partnership carries on the farming. She is entitled to a share of the fruit crop each year. In this case she is carrying an enterprise.

Therefore, the activities you carry out to install the solar panels to supply the electricity are done in the form of a business and would be an enterprise if the activities are not excluded by subsection 9-20(2) of the GST Act.

Paragraph 9-20(2)(c) of the GST Act provides that the term "enterprise" does not include activities done by an individual who does not have a reasonable expectation of profit or gain.

In your case, we consider that paragraph 9-20(2)(c) of the GST Act does not apply to your activities of supplying electricity generated from the solar panels. You received payments for your supplies and there is a realistic opportunity for you to profit or gain from the continuous supply of electricity generated from your solar panels in the future. The installed solar panels are substantial in scales and therefore, the electricity generated from these solar panels is in excess of your needs. Therefore, you are carrying on an enterprise of supplying electricity from your solar panels installed on your farm sheds. The supply of electricity is made in the course of your enterprise and they satisfy paragraph 9-5(b) of the GST Act.

Therefore the supply of electricity from your solar panels is a taxable supply as it satisfies the criteria in section 9-5 of the GST Act. You are liable for GST on your taxable supply under section 9-40 of the GST Act.

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