Category: 3. Business

The Australian Taxation Office (ATO) has released updated web guidance addressing the GST treatment of several key arrangements commonly encountered in the energy sector. The new guidance, released in December 2025, addresses three areas that have been the subject of ongoing industry enquiry and ATO compliance activity.

• Bundled Power Purchase Agreements (BPPAs); 
• Connection services – Gifted Assets; and
• Connection services – Agency arrangements (including Div 153-B).

Below, we summarise the key aspects of the new guidance and outline the practical implications for industry participants.

Commissioner’s View on GST treatment and attribution in BPPAs

(see full details)

Overview

1. The ATO has published guidance on BPPAs, consistent with the position previously communicated with MinterEllison and covered in the website article New ATO position on Bundled Power Purchase Agreements.

2. Specifically, the subset of power purchase agreements where a Generator ‘bundles’ the supply of green products (such as large-scale generation certificates) with the Contract for Difference (CfD), without receiving specific consideration for the green products in return.

3. As a preliminary point, the ATO’s guidance is based on specific private rulings issued on particular BPPA arrangements. The ATO acknowledges that there may be other types of BPPAs where the consideration for the green products is not received upfront. If the analysis of the agreement indicates separate consideration is payable, other than the entry into the CfD for the green products, the attribution of the GST payable on the supply of the green products may be different to what is described below.  The guidance requests that taxpayers further engage with the ATO on variations to BPPA arrangements.

4. The Commissioner’s position on the GST treatment of these standard BPPA arrangements can be summarised as follows:

Nature of the supplies

5. Under the BPPAs considered by the ATO, the:

a. Generator supplies:

i. a derivative when entering into the CfD; and

ii. green products (in return for non-monetary consideration from the Off-taker, being their entry into the CfD).

b. Off-taker supplies a corresponding derivative when they enter into the CfD.

6. The ATO considers the supply of the CfD is a derivative, and therefore an input-taxed financial supply, whilst the supply of green products is a taxable supply (where the Generator and Off-taker are located in Australia).

Attribution of GST

7. The attribution of the GST payable on the Generator’s taxable supply of green products is triggered in full, upfront, when the non-monetary consideration is received (being the initial entry into the CfD by the Off-taker).

8. Practically speaking, this means the Generator should issue a single tax invoice for the supply of all the green products expected to be transferred over the life of the BPPA upfront, and not include a GST component in any further invoices for either the CfD payments or the actual transfer of green products each month/period.

Valuation considerations

9. Valuing the CfD non-monetary consideration may be difficult. The ATO notes that you may choose to value the green products instead, although this may also be difficult given the quantum to be supplied over the contract period is unknown. When the parties are unrelated, the Generator may use a reasonable method that is agreed to with the Off-taker in determining the GST-inclusive market value of the green products, including valuation methodologies that are consistent with professional guidelines.

Limitations on claiming input tax credits under BPPAs

10. The ATO notes that an Off-taker generally has only 4 years after attribution to claim back any GST (as an input tax credit) on the supply of green products under the BPPA. This means that input tax credits may not be available for green products acquired more than 4 years after the BPPA was executed.

Recommendation

11. We recommend reviewing the GST treatment of any existing BPPA arrangements to ensure consistency with the ATO’s new guidance, and to confirm that the 4-year limitation period for claiming input tax credits will not adversely affect your position.

Connection Services – Gifted assets

(see full details)

Overview

12. The ATO has also published guidance on how GST applies to electricity connection services, with the aim of clarifying common misunderstandings observed during justified trust reviews.

13. In the course of providing electricity distribution services, Distributors are required to connect new Customers to the electricity network upon request from a Customer. For business Customers, there can be significant construction work required in order to connect the Customer’s business premises to the Distributor’s electricity grid network. While there are certain connection works that are required to be carried out by the Distributor for safety purposes, other works can be carried out / arranged by either the Distributor or the Customer, at the Customer’s discretion.

14. If the Customer chooses to arrange construction of the asset by a third party, notwithstanding that the Customer has incurred the cost for the construction of the relevant electricity assets required for the connection, the ownership of those assets is generally required by the relevant jurisdiction’s regulatory framework to be “gifted” to the Distributor for the purposes of safety and good asset management.

Implications for Distributors

15. Distributor may be liable for additional GST where they receive gifted assets from a Customer (in additional to monetary connection fees). The tax invoice issued by the Distributor should reflect both the monetary and non-monetary consideration (the gifted assets) received for the connection services.

Implications for Customers

16. GST-registered Customers may be liable for GST when they transfer gifted assets to a Distributor. The Distributor may request a tax invoice for the supply of the 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.

Recommendation

17. Parties who transfer or receive gifted assets should ensure that GST has been properly accounted for on these transactions.

Connection Services – Agency arrangements

(see full details)

Overview

18. In most Australian jurisdictions, regulations ensure that electricity Customers have a contract governing a Distributor’s supply of network connection services with the relevant Distributor. These typically take the form of “deemed’ contract which automatically arise by law when a Customer takes a supply of electricity. These are in addition to the contracts entered by Customers with their nominated electricity Retailer.  Retailers often collect the connection services charges from the Customers on the Distributor’s behalf, as they have an existing billing arrangement with Customers.

19. From a GST perspective, the connection service is a supply made by the Distributor to the Customer – the Retailer is not making this supply, and is not liable for the associated GST. Rather, any GST included by the Retailer on their invoice to the Customer for the connection services should be passed on to the Distributor, and reported by the Distributor on their BAS.

20. Noting the administrative difficulties in implementing this in practice, subdivision 153-B of the GST Act can simplify the GST obligations for the Distributor and Retailer by allowing them to enter into an arrangement where the Distributor is treated as if they had made a supply of connection services to the Retailer, and the Retailer is treated as if they have made a supply of connection services to the Customer.

Recommendation

21. Distributors and Retailers seeking to rely on subdivision 153-B should ensure that a written agreement is in place to support the arrangement.

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If you have any questions about how this new ATO guidance may affect your business, or require assistance reviewing your existing arrangements, please contact a member of our Energy or Tax team.

Pharmaceutical company Clinect has told us that Catapres (clonidine) 150 microgram (mcg) tablets will be in shortage from December 2025 to April 2026 due to manufacturing issues.

Catapres is the only brand of clonidine 150 mcg tablets supplied in Australia. However, we expect the following 3 brands of 100 mcg clonidine tablets to remain available during the shortage of Catapres 150 mcg tablets:

• Catapres 100 mcg
• APO Clonidine 100 mcg
• Clonidine Lupin 100 mcg.

To help patients have continuous access to the medicine, especially considering the holiday season, we have made a Serious Scarcity Substitution Instrument (SSSI) that starts on 22 December 2025 and ends on 28 April 2026. The SSSI allows a pharmacist to dispense an equivalent quantity of clonidine 100 mcg tablets, if appropriate, without a new prescription.

Clonidine tablets are used for essential hypertension and renal hypertension. The 100 mcg tablets are also used for menopausal flushing and migraine prophylaxis. Clonidine is also used off-label for various conditions including attention deficit hyperactivity disorder (ADHD), chronic pain and cancer pain.

For detailed information about the shortage, the SSSI and important factors when considering a substitution, visit About the shortage of Catapres (clonidine) 150 mcg tablets.

For more information about SSSIs see Substituting scarce medicines and Serious Scarcity Substitution Instruments (SSSIs).

The rapid growth of cryptocurrency markets has created new challenges for financial regulators and policymakers. With total crypto capitalisation in excess of $3 trillion, understanding how well these markets function has become essential for financial stability considerations. In this regard, a particularly puzzling feature has emerged over recent years: the persistent and large gap between crypto futures and spot prices, the so-called basis or crypto carry has been very large, at times exceeding 40% per annum. This raises important questions about crypto market efficiency, regulatory barriers, and the role of institutional capital in newly emerging asset classes.

The puzzle of crypto carry

In well-functioning markets, arbitrage activity typically eliminates persistent price differences between related securities. Yet pricing inefficiencies appear to be widespread across cryptocurrency markets. Makarov and Schoar (2020) document substantial arbitrage deviations in crypto assets and find that transaction costs alone cannot explain the magnitude of these spreads. Similarly, in cryptocurrency futures markets, the difference between futures and spot prices, known as carry or basis, has remained stubbornly large and volatile. This phenomenon is often portrayed in financial media as a risk-free arbitrage opportunity. However, our research demonstrates that this perception is misleading and that understanding why this carry persists offers valuable lessons for financial regulation and market design.

Figure 1 shows the time series of annualised crypto carry for bitcoin (BTC) and ether (ETH) for one-month and three-month futures contracts. Carry is persistent, shows large spikes and averages around 7-8% per year, depending on the asset and contract. On the face of it, crypto thus offers an 8% return per year that carries no price risk, as futures and spot prices converge at maturity.

Figure 1 The dynamics of crypto carry for bitcoin (BTC) and ether (ETH)

Notes: The figure shows the dynamics of crypto carry for BTC and ETH on the crypto-native exchange OKEx.
Sample: March 2019 to July 2024 for OKEx. The data on crypto derivatives come from Skew and Coinmetrics.

What drives crypto carry?

The textbook framework for futures pricing suggests that this futures-spot differential should reflect interest rate differentials, storage costs, and convenience yields. In commodities markets, for instance, convenience yields typically favour holding the physical asset due to its immediate availability for production or consumption (Gorton and Rouwenhorst 2006, Koijen et al. 2018). This serves as the starting point of our analysis.

Our empirical analysis in a recent paper (Schmeling et al. 2025) reveals that observable fundamental factors cannot explain the magnitude and volatility of crypto carry. Interest rate differentials between cryptocurrency lending markets and traditional finance are too small and stable to account for the large swings in crypto carry. Storage costs for digital assets are negligible. This leaves convenience yields as the primary driver. However, contrary to commodity markets, Figure 1 shows that cryptocurrencies exhibit the opposite pattern: a negative convenience yield, meaning investors prefer futures contracts over spot holdings. This resembles dynamics observed in some government bond markets, where balance sheet constraints make derivatives more attractive than the underlying securities (e.g. Duffie 2020, Schrimpf et al. 2020).

The key question therefore is: where do these large and negative convenience yields in crypto come from? Two key forces emerge from the data. First, we observe that smaller, trend-following investors generate substantial buying pressure in futures markets (see Figure 2). Using data from the Commodity Futures Trading Commission, we show that increases in net long positions by smaller traders (classified as ‘nonreportables’) are strongly associated with higher carry. These investors appear attracted to futures contracts because they offer leveraged exposure to cryptocurrency price movements with minimal upfront capital, particularly on unregulated exchanges where high leverage is possible.

Figure 2 The dynamics of positions in bitcoin futures on the Chicago Mercantile Exchange (CME) from different investor types

Notes: This figure shows the dynamics of positions in BTC futures on the CME from different types of investors, i.e. dealer intermediaries, institutional investors, leveraged funds, and nonreportables, respectively.

We provide causal evidence supporting this demand-driven explanation from the introduction of micro Bitcoin futures on the Chicago Mercantile Exchange (CME) in May 2021. These contracts, sized at one-fiftieth of standard Bitcoin futures, made it significantly easier for smaller investors to trade these contracts. Using a difference-in-differences analysis, we find that this introduction increased carry on the CME relative to other exchanges by approximately 11%, providing causal evidence that demand from smaller investors pushes up the basis.

Why don’t arbitrageurs close the gap?

If demand from smaller investors drives up futures prices relative to spot, sophisticated market participants should take advantage through cash-and-carry trades: buying spot cryptocurrency while simultaneously selling futures contracts. This strategy should lock in the price differential and eliminate the mispricing. So why doesn’t this happen on a sufficient scale?

The answer lies in regulatory barriers and margining frictions that create limits to arbitrage. Regulatory barriers have long restricted many institutional investors from holding spot cryptocurrencies in the first place, which makes executing a cash-and-carry trade impossible for them. Even those able to hold spot positions face a critical friction: the absence of cross-margining between spot and futures positions on regulated exchanges. On the CME, traders cannot post spot Bitcoin as collateral for futures positions but must instead pledge liquid assets in US dollars. This means arbitrageurs must effectively fund their positions twice, once for the spot purchase and again for futures margin requirements.

This friction exposes carry traders leaning against a wide basis to substantial risk. When futures prices rise before contract maturity, traders holding short futures positions face mark-to-market losses that can trigger forced liquidations before the spot and futures prices converge. Our analysis shows that with leverage of just ten times (far below the maximum offered on many exchanges), the futures leg of a cash-and-carry strategy would have faced liquidation in over half the months in our sample.

Empirically, we document that higher carry – futures bitcoin prices rising more than spot – significantly predicts liquidations of short futures positions. A 10% increase in standardised carry predicts a 22% increase in sell liquidations relative to total open interest over the following month. This confirms that what appears as a risk-free trade actually exposes arbitrageurs to considerable liquidation risk, limiting their willingness to deploy capital.

The importance of frictions and regulation: The spot exchange-traded fund natural experiment

The introduction of spot Bitcoin exchange-traded funds (ETFs) in January 2024 provides causal evidence on how reducing regulatory barriers affects price distortions. While the exchange-traded funds do not resolve the cross-margining friction itself, they allow institutional investors in traditional finance to more easily hold instruments tracking spot Bitcoin as part of cash-and-carry strategies.

Using a difference-in-differences analysis around the exchange-traded funds introduction, we find that crypto carry decreased by approximately three percentage points across all exchanges and by an additional five percentage points on the Chicago Mercantile Exchange (see Figure 3). These represent economically large reductions of 36% and 97% of mean carry, respectively. This finding demonstrates that regulatory barriers separating cryptocurrency markets from traditional finance have tangible effects on pricing efficiency.

Figure 3 The dynamics of basis around the introduction of the spot Bitcoin exchange-traded fund

Notes: The figure shows the dynamics of one-month BTC basis on CME (red) and the average basis on OKEx, Huobi, Deribit and Kraken (blue) around the introduction of the spot BTC ETF (marked with dashed vertical line).

Broader lessons

Our findings highlight several important broader implications. First, market segmentation driven by regulatory restrictions can create persistent pricing distortions even in fairly liquid markets. When sophisticated arbitrage capital cannot freely move between market segments, less sophisticated investors can drive prices away from fundamental values, potentially creating feedback loops during price booms. Second, establishing clear regulatory frameworks early in the development of new asset classes can promote healthier market dynamics. Rather than waiting for markets to mature before establishing clear rules, proactive regulation may prevent the buildup of structural inefficiencies.
More broadly, recent contributions emphasise that regulatory design and the growing integration of crypto into traditional finance, e.g. via stablecoins, tokenisation, and exchange-traded funds, can materially shape market functioning and pricing dynamics (Cecchetti and Schoenholtz 2025, Aldasoro et al. 2024, Claessens and Auer 2018). Third, our analysis demonstrates that cryptocurrency futures markets, dominated by smaller retail investors on the long side, behave differently from traditional commodity or financial futures markets where commercial entities and institutions play larger roles. Understanding these differences is essential for appropriate regulatory design.

References

Aldasoro, I, G Cornelli, L Gambacorta, M Ferrari Minesso and M M Habib (2024), “Stablecoins and money market funds: Less similar than you think”, VoxEU.org, 22 November.

Aquilina, M, J Frost and A Schrimpf (2024), “Decentralised Finance (DeFi): a functional approach”, Journal of Financial Regulation 10(1): 1–27.

Cecchetti, S and K L Schoenholtz (2025), “Crypto, tokenisation, and the future of payments”, VoxEU.org, 22 August.

Claessens, S and R Auer (2018), “Regulating cryptocurrencies: Assessing market reactions”, VoxEU.org, 9 October.

Duffie, D (2020), “Still the World’s Safe Haven?”, Hutchins Center Working Paper No. 62.

Gorton, G and K G Rouwenhorst (2006), “Facts and Fantasies about Commodity Futures”, Financial Analysts Journal 62(2): 47-68.

Koijen, R S, T J Moskowitz, L H Pedersen and E B Vrugt (2018), “Carry”, Journal of Financial Economics 127(2): 197-225.

Makarov, I and A Schoar (2020), “Trading and Arbitrage in Cryptocurrency Markets”, Journal of Financial Economics 135: 293-319.

Schmeling, M, A Schrimpf and K Todorov (2025), “Crypto Carry”, Working Paper.

Schrimpf, A, H S Shin and V Sushko (2020), “Leverage and Margin Spirals in Fixed Income Markets during the COVID-19 Crisis”, BIS Bulletin No. 2.