Private ruling: GST and renewable energy certificates (RECs)
Published: June 2012

Ruling: Q1: Are you making a creditable acquisition for which you are entitled to an input tax credit (GST credit), when you pay the installer company (installer) an amount on behalf of a home owner (also referred to as the purchaser) who assigns to you the right to create RECs? If the purchaser who assigns to you the right to create the RECs is a GST registered business, can the installer issue you with a tax invoice for the RECs assigned to you to allow you claim the GST credit on your payment? If the installer issues you with a tax invoice for your payment of the RECs for an individual customer (not GST registered) can you claim the GST credit if you pay this tax invoice including GST? Does the fact that once the RECs are created and the installer has control over the point in time the RECs are traded and paid to them, change the GST treatment? | A1: No. No. No. No.

Relevant facts and circumstances: You are registered for goods and services tax (GST). You are a registered agent with the Office of the Renewable Energy Regulator. You carry on an enterprise of supplying services to installers. An installer will supply solar equipment to a purchaser. The purchaser in turn pays a monetary payment to the installer and assigns to you the right to create RECs for an agreed amount. The RECs are also known as small scale technology certificates. The right to create the RECs initially belongs to a business or individual who purchases a solar hot water service or a solar power system. The RECs are generally used by the purchaser to reduce the cost of their purchase. You operate your business in the following manner: · The installer offers the purchaser the option to assign their RECs to you for an agreed price thus reducing the cash payment the purchaser has to make. · The installer has control over when the RECs are traded (sold). They can instruct you to trade the RECs immediately or to hold the RECs and trade them at a later date, hopefully to increase their value. · You pay the installer the money received once the RECs have been traded. The amount paid to the installer can vary from the original agreed price but any monetary loss is borne by the installer. · You charge a fee to the installer for your service of acquiring and trading the RECs which you deduct from your payment made to the installer. A GST registered business that purchases a solar power system would issue to the installer a tax invoice for the point of sale discount provided.

Relevant legislative provisions: All references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act): Section 9-5 | Section 9-10 | Section 11-20 | Subsection 9-15(2)

Reasons for decision: Summary: Are you making a creditable acquisition for which you are entitled to a GST credit when you pay the installer an amount on behalf of a home owner who assigns to you the right to create RECs? The purchaser, to obtain the solar equipment: · pays a monetary payment to the installer, and · assigns to you the right to create RECs (as instructed by the installer) for an agreed amount. Under section 9-15 of the GST Act, consideration for a supply includes any payment made in relation to the supply. The ATO view on what is meant by payment is provided by the GST public ruling GSTR 2001/6 (available from the ATO website www.ato.gov.au ). Paragraph 12 of GSTR 2001/6 states: A 'payment' is not limited to a payment of money. It includes a payment in a non-monetary or in an 'in kind' form, such as: · providing goods; · granting a right or performing a service (an act); and · entering into an obligation, for example to refrain from selling a particular product (a forbearance). Given this view provided by GSTR 2001/6, the consideration paid for the solar equipment includes both the cash payment and an in kind payment (the assignment to you of the right to create the RECs). Thus, as far as the home owner in concerned they have paid for the solar equipment in full through these two payments and have no further payment liability either with you or the installer. Note that the assignment of RECs at an agreed value is commonly mistaken as the "discount". There is no discount, only two separate payments, in cash and in kind (RECs). Under a verbal agreement with the installer: · you are not required to pay for the assignment but are required to create the RECs and hold them in trust for the installer. You have no discretion regarding the use and disposal of the RECs and deal with the RECs solely at the direction of the installer · the assignment gives you legal title over the right to create the RECs. However, it is the installer who has control over when the RECs are traded, that is, the installer will instruct you to either trade the RECs immediately or to hold the RECs and trade them at a later date, hopefully to increase their value, and · you pay the installer once the RECs have been traded. This amount can vary from the original agreed price as it depends on the value of the RECs when traded. It is the installer however who accepts any monetary gain or loss. Given this agreement, your role is as a facilitator in the transaction between the installer and the purchaser (that is, it is you that has the necessary skills and registration requirements to enable the RECs to be acquired and traded as directed by the installer). It is the installer who enjoys the benefits of ownership of the RECs and is therefore the beneficial owner. Further to this, it is the view of the Tax Office, expressed in the GST public ruling GSTR 2008/3, (also available from the website) that the arrangement between you and the installer forms a bare trust as: · it is not you that is carrying on an enterprise in relation to the RECs but the beneficiary of the bare trust (the installer), and · when the RECs are acquired or traded under the direction of the installer, it is the installer that causes the acquisition or supply to be made while carrying on their enterprise. Paragraph 78 of GSTR 2008/3 provides that in these circumstances it is the installer that is making the acquisition of the right to create the RECs and is entitled to claim a GST credit on the acquisition if the purchaser is registered for GST. The installer would also be liable to pay the GST on the traded RECs. This is the case albeit that the title to the right to create the RECs is assigned to you. Paragraph 78 states: In accordance with the principles discussed in this Ruling [GSTR 2008/3], a supply or acquisition may be made in the course of an enterprise carried on by the beneficiary, such that the beneficiary is liable for GST or entitled to an input tax credit, notwithstanding that title to the relevant property is conveyed by or to a bare trustee for the beneficiary. For these reasons, there are no GST consequences for you when you are assigned the right to create the RECs or when you trade the RECs and pay the installer. The payment is not on behalf of the home owner and is nothing more than the payment of the installer's own money (the installer's RECs converted to a monetary value). If the purchaser who assigns to you the right to create the RECs is a GST registered business, can the installer issue a tax invoice for the RECs assigned to you to allow you to claim the GST credit on your payment? As previously stated, paragraph 78 of GSTR 2008/3 provides that it would be the installer that is entitled to claim a GST credit where the purchaser is registered for GST. To claim the GST credit the installer would require a tax invoice. However, the purchaser would be required to issue you with a tax invoice as you have legal title over the right to create the RECs. Paragraphs 78 and 79 provide that the installer can claim the GST credit when you have been issued with the tax invoice as you hold the tax invoice on behalf of the installer. Paragraphs 78 and 79 state: … As it is the beneficiary that makes the taxable supply or creditable acquisition, if the trustee issues or holds the tax invoice it does so on behalf of the beneficiary. The requirement for the supplier to issue or the beneficiary to hold a tax invoice is satisfied in those circumstances, as the trustee issues or holds the tax invoice on behalf of the beneficiary… Note that for ease of administration, the installer would be entitled to supply a pre-printed form to the purchaser which the purchaser could inturn make into a tax invoice by completing any unfilled fields. If the installer issues you with a tax invoice for your payment of the RECs for an individual customer (not GST registered) can you claim the GST credits if you pay this tax invoice including GST? As discussed above, the installer is not entitled to issue you with a tax invoice as there are no GST consequences for you on the payment made to the installer (the installer is not making a supply to you for this payment). Does the fact that once the RECs are created and the installer has control over the point in time the RECs are traded and paid to them, change the GST treatment? As per the discussion above, there are no GST consequences for you with regards to the payment made to the installer. Consequently, it does not matter when the payment is made or for what reason the payment is delayed.

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