Edited version of private advice

Authorisation Number: 1012649969660

Ruling

Subject: GST and supply of solar system

Question

What is the GST payable when you supply a solar system to a Homeowner who gives you part cash payment and you receive cash payment from the Renewable Energy Certificates (RECs) Trader under an arrangement that they have with the Homeowner?

Answer

The GST payable on your supply of the solar system is 1/11^th of the total amount received from the Homeowner and the RECs Trader.

Relevant facts and circumstances

You supply and install solar systems. You are registered for GST and account on a non-cash basis.

You give the Homeowner a quote for the total cost for the supply and installation of the solar system.

The Homeowner can elect to receive an upfront 'discount' to the total cost if they assign their rights to create Small Technology Certificates (STCs) to a RECs Trader and nominates you to be the recipient of the payment for the assignment of the STCs. The Homeowner also pays a cash amount to you.

The 'discount' is an estimate of the market value of the rights to create STC at the time of the agreement to supply the solar system. The market value of the rights to create STC fluctuates from the time of the agreement to supply the solar system to the time when the STC is sold.

You are not a RECs Trader.

The Homeowner completes the STC Assignment Form, which contains the following information:

• The Homeowner has a choice of 2 payment/lodgement options:

• once the STCs have been approved, they are submitted to a 'Clearing House' that offers the STCs for sale at a fixed price per STC as quoted in the RECs Traders website or

• once the STCs have been approved, they can be sold at the market price at that time.

• The Homeowner can choose for the payment to be made to the installer in exchange for the point of sale discount.

• The Homeowner makes, among others, the following declarations:

• By signing the form the Homeowner is assigning the rights to create STCs for the solar system to the RECs Trader.

• The Homeowner agrees that if their assignment is invalid that they are not entitled to any payment or if for any reason the Clean Energy Regulator deems the assignment ineligible for STCs and a payment has already been received by the Homeowner or the Homeowner has received a point of sale discount for the STCs, the Homeowner will reimburse the full value of the STCs to the RECs Trader.

• If payment for the STCs is being made to the installer the Homeowner gives the installer authority to change between payment options.

To be included with the Assignment form are the copy of the invoice for the installation of the solar system and the copy of the certificate of Electrical Compliance/Safety for the installation.

Currently, when you submit the assignment documents to the RECs Trader you instruct them that once the STC has been approved, they sell the STCs at the market price. However, previously, you have instructed the RECs Trader to submit the STCs to the 'Clearing House' offering the STCs for sale at a later date at a price per STC quoted in the RECs Trader's website at that time.

You currently calculate the GST payable on the supply of the solar power as 1/11^th of the contract price as shown on the invoice, that is, the price before any 'discounts'. When you receive the payment from the RECs Trader, you also calculate GST payable of 1/11^th of the payment received.

You provided the following scenario to illustrate how you currently account for GST on the supply of the solar system:

You sell a solar system to a homeowner for $A. You give the Homeowner an upfront discount of $B as long as they give to you the money from the STCs when they are sold.

The Homeowner pays you $C and completes the assignment form giving the RECs trader the right to create the STCs on their behalf and selects you to receive the funds when the STCs are sold.

You pay the GST on the full contract price calculated as follows

$A x 1/11 = $X GST.

Assuming you receive a payment from the RECs trader of $D, you account for a further GST amount calculated as follows:

$D x 1/11 = $W GST

This ruling application only relates to supplies made to a Homeowner who is not registered for GST.

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 Section 9-10.

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

A New Tax System (Goods and Services Tax) Act 1999 Section 9-70.

A New Tax System (Goods and Services Tax) Act 1999 Section 9-75.

A New Tax System (Goods and Services Tax) Act 1999 Section 29-5.

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

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1.

Reasons for decision

The A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you must pay the GST payable on any taxable supply that you make. The amount of GST on a taxable supply is 1/11^th of the price.

Section 9-5 of the GST Act sets out the requirements of a taxable supply and it states:

You make a taxable supply if:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and

(c) the supply is *connected with Australia; and

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

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

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

Supply for consideration

A 'supply for consideration' is the first step towards there being a taxable supply. However, for there to be a supply for consideration, three fundamental criteria must be met:

(i) there must be a supply

(ii) there must be a payment, and

(iii) there must be a sufficient nexus between the supply and the payment for it to be a supply for consideration.

'Supply' is defined in subsection 9-10(1) of the GST Act as 'any form of supply whatsoever'. Subsection 9-10(2) provides a non-exhaustive list of activities or occurrences that are included within the meaning of supply and this list includes a supply of goods and a creation, grant, transfer, assignment or surrender of any right.

Consideration is defined in section 9-15 of the GST Act to include any payment in connection with, in response to, or for the inducement of, the supply of anything. Under subsection 9-15(2) of the GST Act, it does not matter whether the payment, act or forbearance was voluntary, or whether it was by the recipient of the supply.

Paragraph 180 of Goods and Services Tax Ruling GSTR 2006/9 discusses when a sufficient nexus exits, and 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. Further, paragraph 82 of GSTR 2001/6 provides that consideration for a supply is something the supplier receives for making the supply.

On the information you provided, two supplies can be identified.

The first supply is the supply of the solar system that you make to the Homeowner. You offer a 'discount' on the supply of the solar system on the condition that the Homeowner assigns the rights to create STCs associated with the solar system to the RECs Trader and nominate you to be the recipient of the monies payable on the assignment. The expectation of the arrangement is that you will receive a payment from a party to whom the Homeowner assigns the rights to create STCs at a later stage.

The owner makes a 'discounted' cash payment to you.

The second supply is the supply of the rights to create STCs by the Homeowner to the RECs Trader.

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

It may be argued that there is a third supply, which is the provision of the assignment documents by you to the RECs Trader. However it is considered that the payment that the RECs Trader makes to you has no nexus with that supply.

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

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

The cash payment you receive from a Homeowner 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.

Under the arrangement that the Homeowner has with the RECs Trader, the Homeowner has chosen you to receive any monies payable by the RECs Trader to the Homeowner, in exchange for the point of sale 'discount'.

The cash payment you receive from RECs Trader 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 RECs Trader 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.

Therefore, the consideration for the supply of the solar system is the amount of the cash payment you receive from the Homeowner and the amount of the cash payment you receive from RECs Trader.

GST payable

The GST payable on a supply made solely for monetary consideration is 1/11^th of the amount of monetary consideration.

Hence, the GST payable on the supply of the solar system is 1/11^th of the total amount of the cash payment you receive from your Homeowner and the amount of the cash payment you receive from RECs Trader.

Attribution

Subsection 29-5(1) of the GST Act provides that an entity that accounts for GST on a non-cash basis must attribute the GST payable on a taxable supply that it makes:

(a) to the tax period in which any of the consideration is received for the supply; or

(b) if, before any of the consideration is received, an invoice is issued relating to the supply - the tax period in which the invoice is issued.

However, the Commissioner can determine particular tax periods different to the tax periods that would otherwise apply under the basic or special rules, to which the GST payable of a specified kind must be attributed. One such determination applies in circumstances where the total consideration is unknown in the tax period when GST would normally be payable.

GSTR 2000/29 discusses this issue at paragraphs 92 to 94, which 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 cannot 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.

In your case you are making a taxable supply of a solar system to the Homeowner. As outlined above, the consideration for your supply of the solar system is the cash payment you receive from the Homeowner and the cash payment you receive from the RECs Trader.

At the time you make the supply of the solar system the total consideration is not known as it depends on some future event, being the creation and sale of the STCs and the fact that the sale price of the STCs may fluctuate.

You are initially paid a certain sum by the Homeowner however the remainder of the consideration is not known until the RECs Trader makes the payment to you.

Therefore, the Determination applies to you and you may choose to attribute the GST payable on the supply of the solar system that you make to the Homeowner in accordance with the attribution rule in the Determination.

In the scenario you provided you attributed in the tax period you issued an invoice the GST calculated as follows:

$A x 1/11 = $X GST.

When the total consideration is known, you attribute the GST payable but only to the extent that the GST has not been previously attributed to the earlier tax period.

The GST payable on the supply of the solar system is 1/11^th of the amount of the cash payment received from the Homeowner and the cash payment received from RECs Trader. Hence, the GST payable on the supply is:

($A + $D) x 1/11 = $Y GST

Total GST payable = $Y

GST previously attributed = $X

Remaining GST payable to be attributed $Z

Additional information

If you made a GST error on an earlier activity statement, you can choose to correct that error on a later activity statement if you meet the conditions set out in the guide Correcting GST errors, which is available on our website www.ato.gov.au

You should note that the Commissioner usually makes a private ruling in response to an application by, or on behalf of, a particular entity. Each private ruling is specific to an entity, and cannot be relied on by another entity.