What are connection services?
In this guidance we use the term connection services to describe the initial connection to an electricity distribution network and the ongoing connection service.
Under the regulatory frameworks governing electricity connection services, distributors must connect new customers to the electricity distribution network upon request. For business customers, this process may involve substantial construction work to establish a connection between the customer’s premises and the distributor’s electricity distribution network.
Certain connection activities must be performed by the distributor for safety reasons. However, other tasks classified as ‘contestable works’ may be undertaken or arranged by either the distributor or the customer, at the customer’s discretion. This could include the construction of the electricity assets needed to connect to the electricity distribution network. The customer may perform the construction themselves or engage a third party to construct the required electricity assets (transferred assets).
Transferred assets and initial connection services
The regulatory framework generally mandates that ownership of electricity assets is transferred to the distributor prior to connection. These transferred assets are often supplied to the distributor for no monetary consideration (despite the cost of the assets being funded by the customer). This is sometimes referred to as ‘gifted assets.’
How GST on transferred assets applies to electricity distributors
Electricity distributors should be aware that additional GST can be payable where non-monetary consideration (that is, the gifted assets) is provided by a customer in return for the supply of network connection services in addition to monetary consideration provided. The tax invoice issued by the distributor should reflect both the monetary and non-monetary consideration (for example, the transferred gifted assets) for the connection services.
How GST on transferred assets applies to customers
GST-registered customers should be aware that GST can be payable on the transfer of gifted assets to the distributor. The distributor may request a tax invoice be provided for the supply of the transferred gifted assets made to them. The consideration for this supply will be the GST-inclusive value of the portion of the connection services for which no monetary consideration was provided.
If you're unsure about how GST applies to your individual circumstances, you can:
- request an early engagement discussion, or
- apply for a private ruling.
For more information on non-monetary consideration, see Goods and Services Tax Ruling GSTR 2001/6 Goods and services tax: non-monetary consideration.
Connection services and agency arrangements
Initial and ongoing connection services in the electricity market can be supplied directly from the distributor to customers, bypassing the retailer. Notwithstanding this, the retailer is often the party that has a direct billing arrangement with customers. This means the retailer may issue the invoice to the customer and collect payment for the:
- retailer's supply of electricity
- connection services supplied by the distributor.
This can cause confusion in relation to GST obligations. Where the connection service is between the distributor and the customer, the retailer is not making this supply for GST purposes and hasn't acquired anything from the distributor for the connection services. The retailer is not liable for the GST and is not entitled to any GST credits for the connection service. Any GST included by the retailer on their invoice to the customer for the connection services should be reported by the distributor on their BAS, as they made the supply of the connection services.
Simplifying GST obligations using Subdivision 153-B
Subdivision 153-B of the GST law can simplify the GST obligations for the distributor and retailer by allowing them to enter into an arrangement where the retailer is treated as a separate supplier or acquirer.
If a Subdivision 153-B written arrangement is validly in place, the distributor is treated as if they'd made a supply of connection services to the retailer. The retailer is treated as if they've made a supply of connection services to the customer. Their GST obligations then follow the invoicing, with the retailer:
- charging GST as if they'd made the supply to the customer
- able to claim GST credits for creditable acquisitions from the distributor.
In the absence of a valid Subdivision 153-B written arrangement, you should take care to ensure GST is charged for the supplies made which may not align with invoicing arrangements.
If you are unsure about how GST applies to your individual circumstances, you can:
- request an early engagement discussion, or
- apply for a private ruling.
For more information, see Goods and Services Tax Ruling GSTR 2000/37 Goods and services tax: agency relationships and the application of the law.