News, views and more

When acquiring a renewable energy project, understanding the GST implications is crucial to ensure you are claiming the maximum GST credits while staying compliant with the ATO.

The structuring of the acquisition, including the roles of various entities, play a key part in determining GST eligibility and potential liabilities. The following simplified post-acquisition structure will be used to highlight these issues, focusing on how tax considerations can impact both the project and its stakeholders.

Example Structure – Post-acquisition

Structural Overview 

• All ownership interests are 100% unless stated otherwise.
• The development assets relating to a renewable energy project are owned by ProjectCo Trust.
• HoldCo undertakes Due Diligence to determine the feasibility of the project.
• HoldCo acquires 100% interest in ProjectCo Trust under a Unit & Share purchase agreement (USPA).
• HoldCo establishes FinCo to borrow funds which are on-lent to ProjectCo to fund the construction of the renewable energy Project.

1. ABN & GST Registration Eligibility Requirements

For Holdco, Project Co, and Finco, determining their eligibility for ABN and GST registration is essential. Generally, if these entities are carrying on an enterprise, they should be eligible to register for GST. Activities such as managing the project or providing loans to subsidiaries typically qualify as carrying on an enterprise. However, the mere passive holding of shares or units does not constitute carrying on an enterprise for GST purposes.

• HoldCo – Generally not eligible for an ABN or GST.
• ProjectCo – Eligible to register for both ABN and GST.
• FinCo – Eligible to register for both ABN and GST.

2. GST on the Purchase of Shares/Units in a Project

The purchase of shares or units in a project is generally not subject to GST as it is considered an input taxed financial supply. This means that no GST should be payable on the subscription of units in the trusts involved in the project. However, this also implies that the entities involved would not be entitled to any GST credits for costs incurred in relation to the acquisition.

3. Claiming GST Credits On Due Diligence Costs

Due diligence costs related to the acquisition of a project can be complex. If these costs are incurred by a GST-registered entity and are related to carrying on its enterprise, GST credits may be claimable. However, if the costs are related to input taxed supplies, such as the acquisition of shares, GST credits may not be fully recoverable. If HoldCo is registered for GST, an analysis of the Financial Acquisition Threshold (FAT) should be undertaken to determine GST recoverability. Conversely, if HoldCo incurs due diligence costs and is not registered for GST, it would not be able to claim GST credits on those costs.

4. Due Diligence Costs Incurred by Project Co on Behalf of HoldCo

If ProjectCo incurs due diligence costs on behalf of HoldCo, and HoldCo is not eligible to claim GST on these costs, Division 72 of the GST Act may apply. Under Division 72, ProjectCo would be deemed to make a taxable supply to HoldCo and would need to remit GST on that supply. However, HoldCo would not be able to recover any GST on that supply, resulting in additional GST costs for the project.

5. ATO Compliance Focus: Taxpayer Alert TA 2010/1

The ATO has issued Taxpayer Alert TA 2010/1, highlighting compliance risks associated with GST and acquisitions. This alert focuses on arrangements where entities attempt to claim GST credits on costs related to input taxed supplies, such as the acquisition of shares. It's essential to be aware of the ATO's focus areas to ensure compliance and avoid potential issues. Regularly reviewing GST registrations, ITC claims, and inter-entity transactions can help mitigate compliance risks.

WLM can help

With extensive experience in assisting asset managers on key GST considerations related to the acquisition of renewable energy projects, WLM is well-equipped to provide the guidance you need.

If you require assistance with navigating GST implications or ensuring ATO compliance with structuring advice, reach out to WLM today