Government strengthens anti-avoidance rules for resources sector
The government is consulting on new amendments that will bring the anti-avoidance rules for the resources sector in line with those for income tax.
Treasury has released a further set of amendments as part of its response to the Treasury Gas Transfer Pricing Review, which makes amendments to the anti‑avoidance rules in the Petroleum Resource Rent Tax Assessment Act 1987.
The amendments bring the rules in line with the general anti-avoidance rules in the Income Tax Assessment Act 1936.
The general anti-avoidance rules were updated in 2013. This was to address weaknesses that were revealed due to several unfavourable court cases, where taxpayers successfully argued that a tax benefit was not obtained on the basis that without the scheme, they would not have entered into an arrangement that attracted tax, the Draft Explanatory Memorandum stated.
These amendments will also be made to the PRRTA Act to ensure the same argument cannot be used and to ensure consistency between the ITAA 1936 and the PRRTA Act, the EM said.
The government is also consulting on legislation that addresses issues from the Full Federal Court’s decision in Commissioner of Taxation v Shell Energy Holdings Australia Limited [2022] FCAFC 2, previously announced in last year’s budget.
Treasurer Jim Chalmers said the amendments will ensure PRRT and income tax legislation operate as intended by clarifying that exploration for petroleum excludes feasibility studies.
“The amendments also tighten the treatment of mining, quarrying and prospecting rights for income tax depreciation purposes,” said Dr Chalmers.
Under the changes, the meaning of the phrase ‘exploration for petroleum’ in the PRRTAA will exclude activities engaged in to determine how to recover petroleum or whether the recovery of petroleum is commercially viable, economically feasible or technically feasible.
It will also limit when the first use of a mining, quarrying or prospecting right occurs by specifying that ‘first use’ starts when an activity that is authorised by the mining right is undertaken, and not just when the MQPR begins to be held.
It will also clarify that an income tax balancing adjustment does not occur concerning a new MQPR in circumstances where the new right or rights are granted over an area that is merely a subset of the area governed by an existing MQPR.
The Treasurer said the proposed changes will ensure that all big companies pay their fair share of tax, delivering a fairer return to the Australian people from the resources they own, providing certainty to industry and ensuring Australia remains a reliable trade and investment partner.
“The resources sector makes a substantial contribution to Australia’s national economic prosperity, including through investment, jobs, energy supply and corporate and other taxes, and these changes will ensure this continues,” said Dr Chalmers.
“The reforms will deliver a fairer return to the Australian people from the resources they own, provide certainty to industry and ensure Australia remains a reliable investment partner.”
Draft legislation for consultation and feedback is available on Treasury’s website until 9 February 2024.
The government said it will consult on draft legislation implementing the remaining elements of its response to the Gas Transfer Pricing Review in early 2024.
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