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  • VPN Federal Court Decision - customer contributions and gifted assets

    A decision impact statement is now available explaining the income tax treatment for transactions involving cash contributions and gifted assets from customers within the electricity industry, following the judgment handed down by the Full Federal Court of Australia in the case of Victoria Power Networks Pty Ltd v Commissioner of Taxation [2020] FCAFC 169External Link.

    About the judgment

    On 21 October 2020, the Full Court determined that if the electricity connection assets were:

    • option 1: constructed by the electricity distribution entity but paid for in part by the customer - then the customer contributions paid to the electricity distribution entity to construct connection works were ordinary assessable income (under s 6-5 of the ITAA 1997)
    • option 2: constructed by customers and ‘gifted’ or transferred to the electricity distribution entity - the Full Court found in favour of the taxpayer that the arm’s length value of these ‘transferred assets’ (under s 21A of the ITAA 1936) was the rebate amount paid by the electricity distribution entity to the customer (not the estimated cost of the construction).

    What to do if you're affected

    Affected taxpayers (i.e. electricity distribution entities and entities in similar regulated markets) with transactions of the second option type may now recognise the adjusted value of these transferred assets as a reduction in assessable income, and corresponding reduction in capital allowance deductions.

    If you need to amend a tax return, use the objections process. The facts and circumstances of your particular transaction and industry’s regulation may affect how this judgment applies to you.

    If you believe the decision may potentially impact you, we encourage you to contact us to assist you by:

    Last modified: 10 Mar 2021QC 65031