IN JUST OVER A WEEK A 13.9% LEVY WILL BE INTRODUCED BY WESTERN POWER TO COVER THEIR INCOME TAX LIABILITY FOR INFRASTRUCTURE ASSETS THAT ARE GIVEN TO THEM FOR FREE. THE ROLE OF WESTERN POWER IS TO TRANSPORT ENERGY AND DEVELOPERS ROUTINELY BUILD AND GIFT TO WESTERN POWER THE INFRASTRUCTURE THEY NEED TO SERVICE ELECTRICITY USERS, OR PAY A CASH CONTRIBUTION. THIS NEW LEVY WILL IMPACT ON THE COST OF RESIDENTIAL LAND, INCREASING THE PRICE BY HUNDREDS AND EVEN THOUSANDS OF DOLLARS IN SOME INSTANCES.
Western Power receives assets valued at approximately $67 million each year, for free, from developers and other major businesses connecting to the network. In total Western Power receives $186.4 million in Capital Contributions in the form of a cash payment or gifted assets.
From the 1 May Western Power will start charging companies that give them these Capital Contributions 13.9% of the value of the contribution to cover their $26m income tax liability.
Under the National Tax Equivalent Regime, which has the objective of promoting competitive neutrality, Western Power’s assessed income tax is paid to the State Government, not to the Federal Government.
The impact on home buyers is not proportional to the price of the housing lot; it is dependent on the value of the energy infrastructure which is contributed to Western Power.
The cost impact per lot is likely to be from $500 – $1500 which will triple when holding costs, stamp duty and mortgage interest are included.
No other state or territory in Australia has implemented the recovery of the income tax liability on assets that are gifted to a utility from those that make the gift.
In 2013 Western Power reported a net after tax profit of $191.4 million in 2013, a 21% increase. Their debt increased by $650 million, taking the total figure to $6.5 billion. Payments to the State Government, including tax and dividend, increased 20% to $102 million.
The Minister for Energy should instruct Western Power not to pass this tax liability back to new home buyers (via developer charges) and commission a review of the impact on housing affordability and the broader state economy, including major projects which could become unviable.
In a nutshell this means is that new home buyers pay for their power infrastructure which is given to Western Power, then pay more cash to cover the tax. This remains the worst policy decision that I have seen in twenty years.