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Ruling
Subject: GST and Small Scale Technology Certificates
Question
To what extent is the sale (supply) of your Small Scale Technology Certificates (SSTC) subject to goods and services tax (GST)?
Decision
Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), the supply of all of your SSTC will be subject to GST.
Relevant facts and circumstances
• You carry on an enterprise of farming. There is no electricity supplied through the national grid at your location. You have built a private residence at this location.
• As you are not provided with grid power, recently you installed a large number of solar panels across almost the entire roof of your residence at a substantial cost.
• Your previous accountant treated M% of these costs as relating to farm machinery and fencing repairs and claimed input tax credits on M% of the acquisitions.
• Since then you have generated sufficient electricity to sell a number of SSTC through an agent. The sale proceeds totalled $X.
• Your new bookkeeper has inquired from the ATO whether the supply of all of these SSTC is subject to GST and he could not obtain a definitive reply.
• As per our records, you are registered for GST.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 GST Act) - 9-5
Reasons for the decision
Section 9-5 of the GST Act provides that 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.
However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.
It is necessary to determine whether your supply of all of your SSTC to the agent satisfy section 9-5 of the GST Act as a taxable supply.
You made the supply of SSTC for consideration. The supply was connected with Australia as the solar panels were located in Australia. You were registered for GST. The supply of SSTC is not a GST-free or an input taxed supply under any provision of the GST Act. Therefore, your supply satisfied paragraphs 9-5(a), (c) and (d) of the GST Act and was not affected by the negative limbs of section 9-5 of the GST Act.
However, it is necessary to determine whether you made the supply in the course or furtherance of your enterprise of farming and satisfied paragraph 9-5(b) of the GST Act.
Goods and Services Tax Ruling GSTR 2004/8 (ruling) refers to when does an entity have a decreasing adjustment under Division 132 of the GST Act and considers the meaning of 'in the course or furtherance of an enterprise'. Paragraphs 28-31 of the ruling state:
28. For the sale of a thing to be made in the course or furtherance of your enterprise, the sale of the thing must have a connection with your enterprise. Whether a connection between the sale of the thing and your enterprise exists will depend on the facts and circumstances. The Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 states:
'In the course or furtherance' is not defined but is broad enough to cover any supplies made in connection with your enterprise. An act done for the purpose or object of furthering an enterprise, or achieving its goals, is a furtherance of an enterprise although it may not always be in the course of that enterprise. 'In the course or furtherance' does not extend to the supply of private commodities, such as when a car dealer sells his or her own private car. See Case N43 (1991) 13 NZTC 3361.
29. Given the broad meaning of 'in the course or furtherance', a sale of a thing is capable of being made in the course or furtherance of an enterprise regardless of the extent to which it has a connection with the enterprise, so long as it has some connection. The GST Act does not require that the thing must be applied primarily or principally in carrying on the enterprise for the supply of the thing to be in the course or furtherance of an enterprise. Accordingly, a connection between the sale of the thing and your enterprise exists even if, at the time of its sale, the thing is applied in carrying on the enterprise to a minor or secondary extent.
30. Each of the following characteristics of a thing indicates strongly that the sale of the thing has a connection with your enterprise:
• at the time of sale it formed part of the assets of your enterprise (for example, it is trading stock or a depreciable asset for income tax purposes);
• at the time of sale it was applied in carrying on your enterprise to at least some extent; and
• it is sold as a transaction of your enterprise.
31. Factors that tend to indicate that a sale is a transaction of the enterprise include the following:
• the sale is made from enterprise premises;
• payment is accepted using enterprise facilities such as a cash register or a credit card facility;
• the proceeds of sale are deposited into an enterprise bank account; and
• enterprise book accounts are used to record the transaction.
The list in this paragraph is not exhaustive or conclusive. All the facts and circumstances must be considered and balanced.
In this case you were entitled to create and supply the SSTC due to the grid electricity saved by you using your solar panels. About M% of the electricity generated was used for your enterprise of farming. Therefore, the solar panels and solar electricity were connected to your enterprise and at the time of sale of SSTC, the solar electricity was applied in carrying on your enterprise of farming to at least some extent.
As mentioned above, given the broad meaning of 'in the course or furtherance', a sale of a thing is capable of being made in the course or furtherance of an enterprise regardless of the extent to which it has a connection with the enterprise, so long as it has some connection. Therefore, we consider that even though you use only about M% of the solar electricity for your enterprise, the total supply of SSTC was made in the course or furtherance of your enterprise of farming and was connected with your enterprise. The total supply of SSTC satisfied paragraph 9-5(b) of the GST Act.
Accordingly, we consider that your total supply of SSTC through the agent satisfied all the requirements of section 9-5 of the GST Act as a taxable supply.
As you made a taxable supply of all of the SSTC, the total consideration received was GST inclusive. Accordingly, you incurred a GST liability equal to 1/11th of the total consideration received.