Government releases draft PRRT legislation
Treasury has released the first tranche of draft legislation for amendments to the petroleum resource rent tax.
Yesterday the government released a draft bill which will introduce a cap on the use of deductions to offset assessable income in relation to petroleum projects.
The deductions cap brings forward Petroleum Resource Rent Tax (PRRT) receipts from LNG projects which are yet to pay PRRT and ensures a minimum return to taxpayers from the offshore LNG industry.
The draft legislation follows the PRRT Review conducted by Michael Callaghan in 2017 and the review by Treasury into gas transfer pricing arrangements.
Currently, PRRT is imposed on the taxable profit of a person in relation to a petroleum project and year of tax. The taxable profit is the amount by which assessable receipts exceed deductible expenditure and transferable exploration expenditure.
The amendments cap the amount of deductible expenditure available in relation to an LNG project and a year of tax to offset assessable receipts derived in respect of that project and year of tax, the explanatory memorandum stated.
“The effect of the deductions cap is to bring forward PRRT collections from LNG projects, delivering both a timely and fairer return to the Australian public from their natural resources,” the EM said.
The deductions cap applies to a person in relation to a petroleum project and a year of tax if:
• The person derives assessable receipts;
• The person has no taxable profit;
• sales gas is produced from the petroleum recovered from the project; and
• The person regularly or consistently enters into arrangements, as a result of which it is intended that the sales gas be wholly or primarily produced into LNG.
Projects are excluded from the deductions cap in the first year of production or in any of the subsequent seven financial years.
Projects will also be excluded if a person incurs resource tax or starting base expenditure in the year of tax in relation to the project and if a person has exhausted their deductible expenditure in relation to the project.
When the deductions cap applies, the person will be taken to have a taxable profit of 10 per cent of the assessable receipts they derived in relation to the project and the year of tax.
Treasury Jim Chalmers said the amendments were a sensible change and have been worked through methodically to ensure that “offshore LNG pays more tax sooner”.
“We have taken a responsible, methodical approach to PRRT tax reform in order to fund our priorities whether it be strengthening Medicare and bulk billing, or providing cost‑of‑living relief for Australians. Our changes are considered, they're methodical and they're responsible, and they're all about getting a better return for Australians sooner,” said Dr Chalmers.
“Our model also best combines getting more revenue sooner with making sure that we can get that certainty of supply, and so we can also honour our international trading relationships as well.”
Labour will be seeking the support of the Senate for the implementation of the PRRT changes, which were previously announced before the Budget.
The draft deductions cap legislation is open for consultation until 15 September.
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