Embedded Electricity Networks – Tax Issues to Consider

So, when it comes to making key choices like installing an embedded network, make sure you read up and have all the facts. In this recent piece, Tony Nunes, Senior Client Director at prominent Sydney accountancy firm Kelly + Partners, shares an interesting perspective on tax considerations that may apply to embedded electricity networks and some important factors to be aware of if you have, or are considering having an embedded network installed – read his insights in the full article below.

Embedded electricity networks are becoming more and more common in strata buildings and are starting to spread to other services such as gas, hot water, air conditioning, internet access and storm water. In broad terms an embedded network is where there is a “parent” or “gate” meter between the infrastructure forming the national electricity grid and the meters of individual lot owners. This effectively creates a private network, known as an “embedded network”, through which an “embedded network operator”, acquires energy supplied by an authorised retailer and on-sells electricity to “embedded network customers”. Although there can several different configurations of an embedded network, in this article we will highlight some of the tax considerations that apply to an embedded electricity network that exhibits the following features:

1. The embedded network is a system where the Parent Meter measures all the electricity used by a body corporate complex.

2. The embedded network consists of each participating lot having its own meter which is read by a third party. The body corporate then bills the occupier of each lot for energy usage at an agreed rate which is generally comparable to the market though can be lower than what the occupier would pay on the open market.

3. The electricity is supplied to the lot occupier who has the obligation to pay for electricity used. The lot occupier could be a strata unit owner or, where the unit has been leased by the strata unit owner, a tenant.

4. In some cases, the body corporate incurs the capital expenditure in establishing the initial infrastructure of the embedded network and the body corporate provides the funding to the lot owner. The costs incurred by the body corporate may be recovered by an increased electricity charge. It is possible that repayments are made to a commercial finance arrangement from income generated from the embedded network.

5. The electricity meters are owned by the strata plan/lot owners and not by the electricity supplier.

6. The body corporate may levy the lot occupier a special administration fee for the management of the electricity accounts.

7. All unit owners must participate in the scheme once it has been approved by the body corporate.