ATO ID 2011/26: Capital gains tax: assignment of renewable energy certificates
Date of decision: 16 March 2011
Year of income: Year ended 30 June 2011
Business line: Private Groups and High Wealth Individuals

Issue
Are there any consequences under Part 3-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for the prospective owner of a small generation unit or a solar water heater, if they use their right to create a renewable energy certificate (REC) to acquire the unit or heater?

Decision
No, there are no consequences under Part 3-1 of the ITAA 1997 in these circumstances for the prospective owner of the generation unit or solar water heater.

Facts
You have contracted to have a solar power generation unit installed. The unit is an eligible small generation unit for the purposes of the Renewable Energy (Electricity) Act 2000 (the REE Act) Following your purchase and installation of the generation unit a statutory right arises under the REE Act entitling you as the owner of the generation unit to create RECs. However, as provided for under the REE Act, you have entered into an agreement with the installer of the unit, who is an agent for the purposes of the REE Act, assigning your right to create RECs to the installer in return for a financial benefit. The financial benefit you receive under the agreement with the installer is a reduction in the amount of money you will pay for the purchase and installation of the generation unit. The reduction reflects the value of the right to create RECs that you assigned to the installer.

Reasons for decision
Summary: The right to create RECs is a CGT asset. The right arises under the REE Act (Taxation Determination TD 1999/77). CGT event A1 happens if a change in ownership occurs from you to another entity, whether because of some act or event or by operation of law (subsection 104-10(2) of the ITAA 1997). The transfer of the right, viewed separately from the acquisition of the generation unit, might be taken to cause CGT event A1 to happen. However in this case, where as part of the process of acquiring the small generation unit you assign your rights to the installer, it is considered that the reality of the matter is that you are acquiring a generation unit and the assignment of the right to create a REC merely facilitates that acquisition. Accordingly, where there is an assignment of the right to create a REC, and a reduction in the amount of money required to be paid for the small generation unit (the underlying asset), the CGT provisions of the ITAA 1997 will apply only to the acquisition of the underlying asset and not to the right that merely facilitates the acquisition.

Legislative references: Income Tax Assessment Act 1997 subsection 104-10(2)
Related public rulings and determinations: Taxation Determination TD 1999/77
Related ATO interpretative decisions: ATO ID 2003/775 | ATO ID 2003/790
Subject references: Capital gains Capital gains tax CGT events CGT event A1 -disposal of a CGT asset