Product Ruling PR 2021/8
Date of effect: 14 July 2021

What this ruling is about: 1. This Product Ruling sets out the Commissioner's opinion on the way in which the relevant provisions identified in the Ruling section apply to the defined class of entities that participates in the scheme to which this Product Ruling relates. 2. All legislative references in this Product Ruling are to the Income Tax Assessment Act 1997 unless otherwise indicated. The terms defined in the documents listed in paragraph 17 of this Product Ruling have been capitalised. 3. In this Product Ruling the scheme involves participation in an Enova Solar Garden Project (Enova Project), as a Solar Gardener, by a customer of Enova Energy Pty Ltd (Enova Retail), including the receipt of a credit on the cost of electricity supplied to the Solar Gardener over the term of the Enova Project. 4. This Product Ruling does not address: Class of entities 5. This part of the Product Ruling specifies which entities can rely on the Ruling section of this Product Ruling and which entities cannot rely on the Ruling section. In this Product Ruling, those entities that can rely on the Ruling section are referred to as a Solar Gardener. 6. The class of entities that can rely on the Ruling section of this Product Ruling consists of those entities that: 7. The class of entities that can rely on the Ruling section of this Product Ruling does not include entities that: Superannuation Industry (Supervision) Act 1993 8. This Product Ruling does not address the provisions of the Superannuation Industry (Supervision) Act 1993. The Commissioner gives no assurance that the scheme is an appropriate investment for a superannuation fund. The trustees of superannuation funds are advised that no consideration has been given in this Product Ruling as to whether investment in this scheme may contravene the provisions of the Superannuation Industry (Supervision) Act 1993. Qualifications 9. The class of entities defined in this Product Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 17 to 21 of this Product Ruling. 10. If the scheme actually carried out is materially different from the scheme that is described in this Product Ruling, then this Product Ruling:

Class of entities or scheme: 5. This part of the Product Ruling specifies which entities can rely on the Ruling section of this Product Ruling and which entities cannot rely on the Ruling section. In this Product Ruling, those entities that can rely on the Ruling section are referred to as a Solar Gardener. 6. The class of entities that can rely on the Ruling section of this Product Ruling consists of those entities that: 7. The class of entities that can rely on the Ruling section of this Product Ruling does not include entities that: | Superannuation Industry (Supervision) Act 1993: 8. This Product Ruling does not address the provisions of the Superannuation Industry (Supervision) Act 1993. The Commissioner gives no assurance that the scheme is an appropriate investment for a superannuation fund. The trustees of superannuation funds are advised that no consideration has been given in this Product Ruling as to whether investment in this scheme may contravene the provisions of the Superannuation Industry (Supervision) Act 1993. | Qualifications: 9. The class of entities defined in this Product Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 17 to 21 of this Product Ruling. 10. If the scheme actually carried out is materially different from the scheme that is described in this Product Ruling, then this Product Ruling: 11. This Product Ruling applies prospectively from 14 July 2021, the date it is published. It therefore applies only to the specified class of entities that enter into the scheme from 14 July 2021 until 30 June 2024, being its period of application. This Product Ruling will continue to apply to those entities even after its period of application has ended for the scheme entered into during the period of application. 12. However, the Product Ruling only applies to the extent that there is no change in the scheme or in the entity's involvement in the scheme. | Changes in the law: 13. Although this Product Ruling deals with the income tax laws enacted at the time it was issued, later amendments may impact on this Product Ruling. Any such changes will take precedence over the application of this Product Ruling and, to that extent, this Product Ruling will have no effect. 14. Entities that are considering participating in the scheme are advised to confirm with their taxation adviser that changes in the law have not affected this Product Ruling since it was issued. | Note to promoters and advisers: 15. Product Rulings were introduced for the purpose of providing certainty about tax consequences for entities in schemes such as this. In keeping with that intention, the Commissioner suggests that promoters and advisers ensure that participants are fully informed of any legislative changes after the Product Ruling has issued. 16. Subject to paragraph 4 of this Product Ruling and the assumptions in paragraph 21 of this Product Ruling: 17. The scheme that is the subject of this Product Ruling is identified and described in the following: Note: Certain information has been provided on a commercial-in-confidence basis and will not be disclosed or released under Freedom of Information legislation. 18. For the purposes of describing the scheme to which this Product Ruling applies, there are no other agreements, whether formal or informal, and whether or not legally enforceable, which a Solar Gardener or any associate of a Solar Gardener will be a party to, which are a part of the scheme. 19. All Australian Securities and Investments Commission requirements are, or will be, complied with for the term of the agreements. | Overview: 20. Following is a summary of the scheme: | Assumptions: 21. This Product Ruling is made on the basis of the following necessary assumptions: Commissioner of Taxation 14 July 2021 | Solar Garden Array Electricity Supply Credit not assessable to Solar Gardener: 22. Under Division 6, assessable income consists of both ordinary income and statutory income to the extent the ordinary or statutory income is not exempt income or non-assessable non-exempt income. 23. Section 6-5 includes income according to ordinary concepts (ordinary income) in assessable income. The assessable income of an Australian resident includes the ordinary income they derived directly or indirectly from all sources during the income year (subsection 6-5(2)). 24. Subsection 6-5(4) provides that in working out whether an amount of ordinary income has been derived, and (if so) when, it will be taken to be received as soon as it has been applied or dealt with in any way on behalf of or as directed by the taxpayer. 25. Statutory income is an amount included in assessable income by a statutory provision (subsection 6-10(2)). Subsection 6-10(3) provides that an amount that would otherwise be statutory income of a taxpayer but for the fact that it is not received becomes statutory income of the taxpayer as soon as it is applied or dealt with in any way on behalf of or as directed by the taxpayer. 26. Any reduction in expenditure to be incurred by the Solar Gardener in respect of electricity to be used at the relevant property, as a result of having been provided the Solar Garden Array Electricity Supply Credit pursuant to the Solar Gardener Agreement, will not be an amount paid or credited to the Solar Gardener, nor an amount which is applied or dealt with on behalf of the Solar Gardener or as the Solar Gardener directs. 27. As the Solar Garden Array Electricity Supply Credit will not be received by, or credited to the Solar Gardener (either directly or as deemed by subsection 6-5(4) or subsection 6-10(3)), it will not constitute ordinary or statutory income derived by the Solar Gardener and will not be subject to tax pursuant to Division 6. | Application of the capital gains tax provisions to the Solar Gardener: 28. Under subsection 108-5(1) a CGT asset is any kind of property or a legal or equitable right that is not property. The rights of the Solar Gardener under the Solar Gardener Agreement (including the right to the Solar Garden Array Electricity Supply Credit) are legally enforceable rights and therefore, in their totality, a CGT asset according to the definition in subsection 108-5(1). 29. Where the term of the Solar Gardener Agreement expires, the Solar Gardener's ownership of the contractual rights under the Solar Gardener Agreement will also expire. This expiry will give rise to a CGT event C2 (paragraph 104-25(1)(c)). Where the Solar Gardener Agreement is terminated pursuant to its terms, or the Solar Gardener decides to discontinue as a party to the Solar Gardener Agreement, the Solar Gardener's ownership of the contractual rights under the Solar Gardener Agreement will be discharged or satisfied. This discharge or satisfaction of the contractual rights will also give rise to a CGT event C2 (paragraph 104-25(1)(b)). 30. The Solar Gardener will make a capital gain from this CGT event if the capital proceeds from the ending of the Solar Gardener's ownership of the asset are more than the asset's cost base or, alternatively, a capital loss from this CGT event if those capital proceeds are less than the asset's reduced cost base (subsection 104-25(3)). 31. Generally (and subject to specific exceptions), where no capital proceeds are received from a CGT event the market value substitution rule under subsection 116-30(1) will apply to include the market value of the CGT asset that is the subject of the event (as at the time of the event) as the amount received. One exception to the application of the market value substitution rule under subsection 116-30(1) is where the relevant event is CGT event C2 which happens as a consequence of the expiry of a CGT asset (subparagraph 116-30(3)(a)(i)). 32. As the Solar Gardener will not receive any capital proceeds from the ending of their contractual rights under the Solar Gardener Agreement, they will therefore be taken to have received the market value of those rights [5] as at the time of the ending pursuant to the market value substitution rule under subsection 116-30(1) where the ending happens by discharge or satisfaction under either of the circumstances contemplated by paragraph 29 of this Product Ruling. Where, however, the rights have ended by expiry under the circumstance contemplated by paragraph 29 of this Product Ruling, the market value substitution rule under subsection 116-30(1) will not apply (and the capital proceeds of the Solar Gardener will be nil). 33. As no money or property will be, or is required to be, paid or given by the Solar Gardener in respect of their acquisition of the contractual rights under the Solar Gardener Agreement, the first element of the cost base or reduced cost base of those rights will be nil pursuant to subsections 110-25(2) and 110-55(2). None of the modifications to the general rules about cost base and reduced cost base (as set out in Division 112) apply in relation to the Solar Gardener's acquisition of the rights. 34. Pursuant to subsection 108-20(1), any capital loss made from a personal use asset is disregarded. Under subsection 118-10(3), any capital gain made from a personal use asset is disregarded if the first element of the asset's cost base is $10,000 or less. 35. Section 108-20 defines a personal use asset as a CGT asset that is used or kept mainly for the personal use or enjoyment of the taxpayer having made the capital loss, or their associate, and does not include a collectable or land, a stratum unit or a building. 36. The Federal Court in Favaro, Gerald Antonio & Anor v Commissioner of Taxation [1996] FCA 877 considered the term 'personal use' in the definition of personal use asset (as referred to in former section 160B of the ITAA 1936) and stated: 37. The word 'contradistinction' means distinction by contrast (Moore B (ed.) Australian Oxford Dictionary, 2nd edition, Oxford University Press, Melbourne). Therefore, an asset that is not used for business or profit making purposes is, by default, used or kept mainly for personal use and enjoyment. The two categories are mutually exclusive. 38. It follows that where the contractual rights under the Solar Gardener Agreement of a Solar Gardener will not be used for business or profit making purposes, those rights will be a personal use asset. Any capital loss made by such a Solar Gardener from the CGT event C2 referred to in paragraph 29 of this Product Ruling will be disregarded under subsection 108-20(1), and any capital gain made by such a Solar Gardener from that event will be disregarded under subsection 118-10(3) as the first element of the cost base of the asset will be less than $10,000. | Part IVA - anti-avoidance: 39. Provided that the scheme ruled on is entered into and carried out in the manner described in the scheme documentation and in the Scheme section of this Product Ruling, it is accepted that Part IVA of the ITAA 1936 will not apply. 40. The following is a detailed contents list for this Product Ruling: © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). Not previously issued as a draft

Ruling: This Product Ruling has been given on the basis that the entity(s) that applied for the Product Ruling, and their associates, will abide by strict terms of use. Any failure to comply with the terms of use may lead to the withdrawal of this Product Ruling. 1. This Product Ruling sets out the Commissioner's opinion on the way in which the relevant provisions identified in the Ruling section apply to the defined class of entities that participates in the scheme to which this Product Ruling relates. 2. All legislative references in this Product Ruling are to the Income Tax Assessment Act 1997 unless otherwise indicated. The terms defined in the documents listed in paragraph 17 of this Product Ruling have been capitalised. 3. In this Product Ruling the scheme involves participation in an Enova Solar Garden Project (Enova Project), as a Solar Gardener, by a customer of Enova Energy Pty Ltd (Enova Retail), including the receipt of a credit on the cost of electricity supplied to the Solar Gardener over the term of the Enova Project. 4. This Product Ruling does not address: | Class of entities: 5. This part of the Product Ruling specifies which entities can rely on the Ruling section of this Product Ruling and which entities cannot rely on the Ruling section. In this Product Ruling, those entities that can rely on the Ruling section are referred to as a Solar Gardener. 6. The class of entities that can rely on the Ruling section of this Product Ruling consists of those entities that: 7. The class of entities that can rely on the Ruling section of this Product Ruling does not include entities that: | Superannuation Industry (Supervision) Act 1993: 8. This Product Ruling does not address the provisions of the Superannuation Industry (Supervision) Act 1993. The Commissioner gives no assurance that the scheme is an appropriate investment for a superannuation fund. The trustees of superannuation funds are advised that no consideration has been given in this Product Ruling as to whether investment in this scheme may contravene the provisions of the Superannuation Industry (Supervision) Act 1993. | Qualifications: 9. The class of entities defined in this Product Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 17 to 21 of this Product Ruling. 10. If the scheme actually carried out is materially different from the scheme that is described in this Product Ruling, then this Product Ruling:


Appendix: Solar Garden Array Electricity Supply Credit not assessable to Solar Gardener: 22. Under Division 6, assessable income consists of both ordinary income and statutory income to the extent the ordinary or statutory income is not exempt income or non-assessable non-exempt income. 23. Section 6-5 includes income according to ordinary concepts (ordinary income) in assessable income. The assessable income of an Australian resident includes the ordinary income they derived directly or indirectly from all sources during the income year (subsection 6-5(2)). 24. Subsection 6-5(4) provides that in working out whether an amount of ordinary income has been derived, and (if so) when, it will be taken to be received as soon as it has been applied or dealt with in any way on behalf of or as directed by the taxpayer. 25. Statutory income is an amount included in assessable income by a statutory provision (subsection 6-10(2)). Subsection 6-10(3) provides that an amount that would otherwise be statutory income of a taxpayer but for the fact that it is not received becomes statutory income of the taxpayer as soon as it is applied or dealt with in any way on behalf of or as directed by the taxpayer. 26. Any reduction in expenditure to be incurred by the Solar Gardener in respect of electricity to be used at the relevant property, as a result of having been provided the Solar Garden Array Electricity Supply Credit pursuant to the Solar Gardener Agreement, will not be an amount paid or credited to the Solar Gardener, nor an amount which is applied or dealt with on behalf of the Solar Gardener or as the Solar Gardener directs. 27. As the Solar Garden Array Electricity Supply Credit will not be received by, or credited to the Solar Gardener (either directly or as deemed by subsection 6-5(4) or subsection 6-10(3)), it will not constitute ordinary or statutory income derived by the Solar Gardener and will not be subject to tax pursuant to Division 6. | Application of the capital gains tax provisions to the Solar Gardener: 28. Under subsection 108-5(1) a CGT asset is any kind of property or a legal or equitable right that is not property. The rights of the Solar Gardener under the Solar Gardener Agreement (including the right to the Solar Garden Array Electricity Supply Credit) are legally enforceable rights and therefore, in their totality, a CGT asset according to the definition in subsection 108-5(1). 29. Where the term of the Solar Gardener Agreement expires, the Solar Gardener's ownership of the contractual rights under the Solar Gardener Agreement will also expire. This expiry will give rise to a CGT event C2 (paragraph 104-25(1)(c)). Where the Solar Gardener Agreement is terminated pursuant to its terms, or the Solar Gardener decides to discontinue as a party to the Solar Gardener Agreement, the Solar Gardener's ownership of the contractual rights under the Solar Gardener Agreement will be discharged or satisfied. This discharge or satisfaction of the contractual rights will also give rise to a CGT event C2 (paragraph 104-25(1)(b)). 30. The Solar Gardener will make a capital gain from this CGT event if the capital proceeds from the ending of the Solar Gardener's ownership of the asset are more than the asset's cost base or, alternatively, a capital loss from this CGT event if those capital proceeds are less than the asset's reduced cost base (subsection 104-25(3)). 31. Generally (and subject to specific exceptions), where no capital proceeds are received from a CGT event the market value substitution rule under subsection 116-30(1) will apply to include the market value of the CGT asset that is the subject of the event (as at the time of the event) as the amount received. One exception to the application of the market value substitution rule under subsection 116-30(1) is where the relevant event is CGT event C2 which happens as a consequence of the expiry of a CGT asset (subparagraph 116-30(3)(a)(i)). 32. As the Solar Gardener will not receive any capital proceeds from the ending of their contractual rights under the Solar Gardener Agreement, they will therefore be taken to have received the market value of those rights [5] as at the time of the ending pursuant to the market value substitution rule under subsection 116-30(1) where the ending happens by discharge or satisfaction under either of the circumstances contemplated by paragraph 29 of this Product Ruling. Where, however, the rights have ended by expiry under the circumstance contemplated by paragraph 29 of this Product Ruling, the market value substitution rule under subsection 116-30(1) will not apply (and the capital proceeds of the Solar Gardener will be nil). 33. As no money or property will be, or is required to be, paid or given by the Solar Gardener in respect of their acquisition of the contractual rights under the Solar Gardener Agreement, the first element of the cost base or reduced cost base of those rights will be nil pursuant to subsections 110-25(2) and 110-55(2). None of the modifications to the general rules about cost base and reduced cost base (as set out in Division 112) apply in relation to the Solar Gardener's acquisition of the rights. 34. Pursuant to subsection 108-20(1), any capital loss made from a personal use asset is disregarded. Under subsection 118-10(3), any capital gain made from a personal use asset is disregarded if the first element of the asset's cost base is $10,000 or less. 35. Section 108-20 defines a personal use asset as a CGT asset that is used or kept mainly for the personal use or enjoyment of the taxpayer having made the capital loss, or their associate, and does not include a collectable or land, a stratum unit or a building. 36. The Federal Court in Favaro, Gerald Antonio & Anor v Commissioner of Taxation [1996] FCA 877 considered the term 'personal use' in the definition of personal use asset (as referred to in former section 160B of the ITAA 1936) and stated: 37. The word 'contradistinction' means distinction by contrast (Moore B (ed.) Australian Oxford Dictionary, 2nd edition, Oxford University Press, Melbourne). Therefore, an asset that is not used for business or profit making purposes is, by default, used or kept mainly for personal use and enjoyment. The two categories are mutually exclusive. 38. It follows that where the contractual rights under the Solar Gardener Agreement of a Solar Gardener will not be used for business or profit making purposes, those rights will be a personal use asset. Any capital loss made by such a Solar Gardener from the CGT event C2 referred to in paragraph 29 of this Product Ruling will be disregarded under subsection 108-20(1), and any capital gain made by such a Solar Gardener from that event will be disregarded under subsection 118-10(3) as the first element of the cost base of the asset will be less than $10,000. | Part IVA - anti-avoidance: 39. Provided that the scheme ruled on is entered into and carried out in the manner described in the scheme documentation and in the Scheme section of this Product Ruling, it is accepted that Part IVA of the ITAA 1936 will not apply.


What this Ruling is about | NOT LEGALLY BINDING SECTION: | If this Ruling applies to you, and you correctly rely on it, we will apply the law to you in the way set out in this Ruling. That is, you will not pay any more tax or penalties or interest in respect of the matters covered by this Ruling. | Potential participants must form their own view about the commercial and financial viability of the product. The Commissioner recommends a financial (or other) adviser be consulted for such information. | This Product Ruling provides certainty for potential participants by confirming that the tax benefits set out in the Ruling part of this document are available, provided that the scheme is carried out in accordance with the information we have been given, and have described below in the Scheme part of this document. If the scheme is not carried out as described, participants lose the protection of this Product Ruling. | ... the expression 'personal use' is used in s 160B of the ITAA in contradistinction to use for business or profit making purposes. | Appendix 2 - Detailed contents list


Related rulings: PR 2021/7
Legislative references: ITAA 1936 former 160B ITAA 1936 Part IVA ITAA 1997 Div 6 ITAA 1997 6-5 ITAA 1997 6-5(2) ITAA 1997 6-5(4) ITAA 1997 6-10 ITAA 1997 6-10(2) ITAA 1997 6-10(3) ITAA 1997 104-25 ITAA 1997 104-25(1)(b) ITAA 1997 104-25(1)(c) ITAA 1997 104-25(3) ITAA 1997 108-5(1) ITAA 1997 108-20 ITAA 1997 108-20(1) ITAA 1997 110-25(2) ITAA 1997 110-55(2) ITAA 1997 Div 112 ITAA 1997 116-20(1) ITAA 1997 116-30(1) ITAA 1997 116-30(3)(a)(i) ITAA 1997 116-30(3A) ITAA 1997 118-10(3) ITAA 1997 Div 230 SISA 1993 TAA 1953
Other references: Moore B (ed.) (2004) Australian Oxford Dictionary, 2nd edition, Oxford University Press, Melbourne