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Edited version of your written advice
Authorisation Number: 1051209735114
Date of advice: 21 April 2017
Ruling
Subject: Small-Scale Technology Certificates
Question 1
Is the value of the right to create small-scale technology certificates (STCs) assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes.
Question 2
Is the value of the right to create STCs assessable as statutory income under section 15-10 of the ITAA 1997?
Answer
Yes, if it were not assessable under section 6-5 of the ITAA 1997.
Question 3
Will the value of the right to create STCs be assessable as a capital gain under section 102-5 of the ITAA 1997?
Answer
No.
Question 4
If the answers to Questions 1, 2 and 3 are “No”, will the value of the right to create STCs be an assessable recoupment under Subdivision 20-A of the ITAA 1997?
Answer
Yes.
This ruling applies for the following periods:
From XX/XX/XXXX to XX/XX/XXXX
The scheme commences on:
Each installation of an eligible SGU (that gives rise to the right to create STCs) is the commencement of a separate scheme for the purposes of this ruling.
Relevant facts and circumstances
The taxpayer is a company that carries on business. The business includes installing and owning of SGUs and generates electricity income from the SGUs as part of its business activities.
The taxpayer has the right to create STCs upon installation of each SGU and obtains the financial benefit from that right.
On 21 December 2000, the Renewable Energy (Electricity) Act 2000 (REE Act) was enacted.
The objects of the REE Act are:
(a) to encourage the additional generation of electricity from renewable sources; and
(b) to reduce emissions of greenhouse gases in the electricity sector; and
(c) to ensure that renewable energy sources are ecologically sustainable.
The objects are achieved through issuing of certificates for the generation of electricity using eligible renewable energy sources. Certain entities are also required to surrender a specified number of certificates for the electricity that they acquire during a year.
The Renewable Energy Target (RET) is an Australian Government scheme designed to reduce emissions of greenhouse gases in the electricity sector and encourage the additional generation of electricity from sustainable and renewable sources. The RET is comprised of:
a. The Large-scale Renewable Energy Target, which encourages investment in renewable power stations; and
b. The Small-scale Renewable Energy Scheme (SRES), which supports small-scale installations such as household solar panels and solar hot water systems.
Under the SRES, small-scale technology certificates (STCs) may be created after the installation of an eligible small generation unit (SGU) for the purposes of the REE Act. An eligible SGU includes a solar panel system that has a capacity of no more than 100kW, and a total annual electricity output less than 250MWh. The owner of the eligible SGU has the statutory right to create the STCs after the SGU has been installed. The owner gains a financial benefit from the right to create STCs because they can either:
a. Enter into an agreement to assign their right to create STCs to a registered agent in return for a financial benefit (for example, if a person purchases an eligible SGU outright, the seller of the SGU will reduce the amount payable by the person for the purchase and installation of the system); or
b. Apply to the Clean Energy Regulator (CER) to become a registered agent and create STCs themselves. Once the STC has been created, it can be sold to other parties through the Renewable Energy Certificate (REC) Registry in return for a financial benefit.
The number of STCs that can be created for each eligible SGU depends on the geographical location, installation date, and amount of electricity in megawatt hours (MWh) that is generated by the SGU over its lifetime.
An entity that has a right to create STCs may create STCs if certain conditions are satisfied. These conditions include:
a. The installation occurred no more than 12 months before the creation of the STCs;
b. The system was installed by a Clean Energy Council accredited designer and installer;
c. The system meets the Clean Energy Council design and install guidelines;
d. The installation complies with all local, state, territory and federal requirements, including electrical safety; and
e. The system meets Australian and New Zealand standards.
Once the STCs have been created, all signed compliance statements, forms, certificates, reports, photos and invoices must be retained for a minimum period of five years thereafter.
The CER conducts independent audits and enforcement actions are taken for non-compliance which can include the requirement to surrender certificates.
Relevant legislative provisions
Income Tax Assessment Act 1936 section 21
Income Tax Assessment Act 1936 section 21A
Income Tax Assessment Act 1997 section 6-5
Income Tax Assessment Act 1997 section 15-10
Income Tax Assessment Act 1997 subdivision 20-A
Income Tax Assessment Act 1997 section 102-5
Income Tax Assessment Act 1997 section 104-155
Income Tax Assessment Act 1997 section 118-20
Income Tax Assessment Act 1997 section 118-37