Regulatory tax approach review 2018

Post tax revenue model
Roll forward model
Date completed: 
17 December 2018
Date initiated: 
15 May 2018
Effective date: 
1 January 2019
General enquiries - Review of regulatory tax approach
AER reference: 


The estimate of expected tax payments is one component we consider when we set revenue allowances for regulated electricity and gas networks. These allowances are set using a ‘building block’ approach where revenue is expected to equal the total costs incurred by the regulated networks, including expected tax costs. The AER determines the expected cost of corporate tax in accordance with the relevant rules—that is, the National Electricity Rules (NER) and National Gas Rules (NGR). It is an incentive framework, so the energy networks retain the benefit (or detriment) where costs are lower (or higher) than expected. Changing the approach to estimating tax for regulated energy networks will therefore change the total revenue allowance for these businesses.

Preliminary advice from the Australian Tax Office (ATO) identified a number of drivers causing an apparent material discrepancy between the tax allowances set by the AER and the actual tax payments made to the ATO by the regulated networks.

The AER investigated the difference between tax allowances and tax payments, including using its information gathering powers. The AER also examined the drivers and considered how they might be addressed. Options included changes to how the AER regulates the tax aspects of its revenue determinations and/or changes to the NER and NGR.

We released a final report on 17 December 2018. The final report presents further analysis of the tax management practices of the regulated networks, and the AER's recommendations on changes to its regulatory tax approach.