SMEs’ Obligation under Australia’s Renewable Energy Target (RET) Scheme

What is the MRET scheme?

Under the Renewable Energy (Electricity) Act 2000 (the Act), the Mandatory Renewable Energy Target (MRET) was established as a means of incentivising Australian businesses to buy renewable-sourced electricity as a percentage of their annual electricity usage. This percentage is specified yearly for liable small- to medium businesses (SMEs).

Who is liable?

A liable entity is an individual householder or company who makes a relevant acquisition of electricity, a relevant acquisition being defined – for small-scale technology users, generally – as acquiring electricity from the Australian Energy Market Operator (AEMO) for own use on site (wholesale).

In other words, a company becomes liable upon making its first purchase of electricity from the grid or electricity sourced directly from the point of generation. A company is thereafter required to report its relevant acquisitions annually in an energy acquisition statement.

What is the SRES scheme?

The small-scale renewable energy scheme (SRES), for small-scale technology installations like rooftop solar, solar hot water systems, small-scale wind operations, requires liable entities to purchase renewable energy to meet a nominal percentage target of gigawatt hours (GWh) of electricity annually under the SRES. (Note that the target for liable entities – generally commercial in nature – under the large renewable energy target (LRET) is 33,000 GWh of electricity annually from renewable sources).

The reason, under the Act, for specifying a fixed amount of electricity being sourced is to provide certainty. It is expected that together these targets – SRES and LRET – will exceed the set target for renewable energy consumption in Australia.

Electricity fed in to the grid is indistinguishable as having been generated by conventional or renewable sources. Therefore, the scheme allows for the trading of renewable energy certificates – known as small-scale technology certificates (STCs) under the SRES – to be purchased by liable entities to demonstrate that renewable energy was generated by liable entities.

How to purchase STCs?

STCs are awarded for the generation of electricity from small-scale renewable energy systems. When a liable entity under the SRES purchases STCs, the number of certificates is predetermined, meaning a company is buying its STCs upfront to cover the expected generation of renewable electricity over the lifetime of the technology, up to 15 years.

There is a benefit to the pre-purchase. It is possible for individual householders or companies to assign their STCs to the installing company of their technology system and, in return, receive a lower installation cost.

The trading of STCs can be done through the STC Clearing House for $40 each, a price cap, or through an open market, usually at a lower negotiated price. Registration with the REC Registry is necessary to proceed with creating STCs.

What is the REC Registry?

The Renewable Energy Certificates (REC) Registry is an online portal where the details and history of each REC created is recorded.

STCs must be created by a REC Registry account holder before they can be bought, sold or traded.

An account must be held on the REC Registry before being allowed to create new certificates or to view existing certificates. To apply for an account, visit REC Registry - Start applying for an account (rec-registry.gov.au). Fees may apply.

Is GST paid on STCs?

The purpose of the SRES is to incentivise individual householders and businesses to install small-scale renewable energy systems. No GST is paid on fees for registering on the REC Registry nor when a STC is created.

Subsequent sales, purchases and transfers of STCs may incur GST.

Help is available from YML Group

Contact our Chartered Accountants to help you navigate your path to securing STCs under the SRES. We have the expertise to help your business benefit from this scheme.

How can YML help?

Talk to our YML Chartered Accountants Team today to see how YML Group can assist your STCs. For more information, view our website and contact us on (02) 8383 4400 or by using our Contact Us page on our website.                            

Watch Out! You may be liable for a maximum criminal penalty of $13,200 if you have not acquired your Director ID Number by now.

Introduced in 2021, the Australian federal government’s Director Identification Number (DIN) scheme is designed to reduce illegal and unfair corporate activities, such as the creation of ‘dummy’ directors and company ‘phoenixing’.

The DIN is a unique 15-digit numerical identifier that remains with a director for a lifetime, including when a director changes companies.

Currently, despite acquiring a DIN as a company director being a legal requirement, the ATO reports that of the estimated 2.5 million company directors in Australia, over 1 million have yet to apply for their DIN. Are you one of these people?

Mandatory registration of all Australian company directors requires company directors to apply online by first registering for myGovID. This identity validation process is essential and must be done directly and personally by each individual director. Thereafter, applying for the DIN can be done via myGov. It is a free application.

It is important to remember that company directors must apply for a DIN themselves and not use a proxy. (See below for Steps to apply for a DIN)

Offences and penalties for late or non-acquisition of a DIN

ASIC enforces the legislative requirement of a DIN on directors. To avoid a substantial financial penalty for refusal or failure to obtain a DIN, you must reach out to the ABRS. Here are the four offences and their associated penalties that are upheld by ASIC under the Corporations Act 2001:

From 1 December 2022 the ATO will be taking a reasonable approach towards those directors who have intent to apply and with good reason have missed the deadline. “However,”, as stated by ABSR Deputy Registrar Karen Foat, "if we are reaching out to people and trying to support people to apply, and we find that people are deliberately not meeting those obligations, then that's when penalties can apply."

Steps to apply for a DIN

The ABRS directs you firstly to the myGovID app and then to apply through myGov. If you already have a myGovID, you can head straight to myGov. If you don’t have a myGovID, you can set one up. Use this link to learn how: How to apply for your Director ID (mcusercontent.com)

Another way to apply, if you live in Australia, is to call the ABRS and apply directly. You will be asked to verify your identity using your tax file number (TFN) and at least one identity document, as well as answer some questions. To call the ABRS, use this link: Contact us | Australian Business Registry Services (ABRS)

Am I a company director?

YML Group has the expertise to determine your company position status and to guide you through your DIN application.

There is no time to delay any further. If you are a company director, apply NOW for your DIN.

How can YML help?

Talk to our YML Chartered Accountants Team today to see how YML Group can assist you with acquiring a DIN. For more information, view our website and contact us on (02) 8383 4400 or by using our Contact Us page on our website.                            

Transferring asset ownership to a SMSF is an in specie contribution

In specie is from Latin and means ‘specified in its actual form’. Therefore, a business or a related party or individual transferring an ATO-approved asset – shares, property or managed funds – to a SMSF, without first selling the underlying investment, is, in fact, making an in specie contribution.

In general, contributions to superannuation funds may incur taxation liabilities, so what is the benefit of transferring an asset in specie?

What is the benefit of an in specie transfer?

The most likely benefit is reduced tax payable on the transfer of an asset. Where a cash transfer is not possible in to a SMSF, then an in specie transfer can reduce the amount of income tax and capital gains tax (CGT) which would be incurred on any prior sale of an asset.

For example, if a SMSF member transfers real estate property to their member account, the SMSF will need to take in to consideration the transfer cost consequences as the beneficial ownership of the asset will change upon transfer. No longer would the individual (outside of the context of SMSF membership) benefit from owning the property, rather it would be the SMSF as the entity owner of the property benefiting.

Once an in specie contribution has occurred – a SMSF member has transferred ownership of an asset they own to their member account – the increase in the capital value of the SMSF is considered a contribution by the SMSF member. As the SMSF member has thereby disposed of an asset, any financial gain realised by the SMSF member may be subject to CGT. However, there is a benefit to transferring commercial property used in an SMSF member’s own business where a concessional contribution may be relevant.

Non-concessional contribution (NCC) and concessional contribution (CC) caps will determine how the market value of an in specie transfer will be divided between members of a SMSF. For example, a married couple’s commercial property in specie transfer amount will be considered in relation to each party’s non-concessional cap (up to $300,000 each over three years), so as to avoid exceeding any caps which would result in tax payable.

What should be considered before transferring in specie?

Before transferring an asset, the specific circumstances of the transfer need to be considered, such as:

• what the trust deed says about allowing in specie transfers,
• whether the asset’s market value will exceed a SMSF member’s contributions limit,
• what CGT consequences exist for the individual disposing of an asset,
• what amount of commercial property stamp duty is payable, and
• whether the SMSF member wishes to retain an asset in a SMSF for a long period of time (as contributions transferred in to a SMSF are difficult to remove prior to retirement phase).

Guidance from YML’s Super Solutions can help you make these assessments of your in specie transfers, as well as help ensure that full compliance with both the ATO and the receiving SMSF is fulfilled by all involved parties.

What about moving assets out in specie?

Assets can be transferred out of SMSF member accounts upon retirement age being reached. A common practice is for an SMSF member to buy a property for future use in retirement. Whilst still working, an SMSF member transfers the retirement property in specie to their SMSF member account and upon retirement, the property is taken as a lump sum in specie transfer, rather than as an SMSF asset sale requiring the SMSF member to fund a purchase price.

Is an in specie transfer difficult to do?

The decision to transfer in specie to a SMSF is a complex decision and to avoid complications around the process, seeking guidance from expert financial advisers such as YML is encouraged prior to commencing an in specie transfer.

How can YML help?

Talk to our YML Super Solutions Team today to see how YML Group can assist you with your SMSF in specie transfers. For more information, view our website and contact us on (02) 8383 4444 or by using our Contact Us page on our website.