PRRT reforms ‘strike a fine balance’, says RSM
Proposed reforms to the Petroleum Resource Rent Tax (PRRT) regime have been welcomed as an effective and balanced approach by accounting firms.
Changes to the Petroleum Resource Rent Tax (PRRT) regime are significantly less severe than anticipated by the resources sector and are unlikely to damage the industry, according to two mid-tier accounting firms.
On Sunday, the government announced a raft of reforms to Australia’s Petroleum Resource Rent Tax (PRRT) regime, the most significant being a cap that will limit the proportion of PRRT assessable income that can be offset by deductions to 90 per cent.
“Whilst the PRRT reform is arguably less modest than some stakeholders were expecting, it arguably strikes a fine balance between ensuring a minimum return to the community from the offshore LNG industry and not deterring further investment in existing and new LNG projects,” said RSM national tax technical director Liam Telford.
Uplift rates will be less favourable under the reforms, with the new changes set to preclude the ‘excessive’ compounding of deductions and reduce the risk of diminishing net PRRT receipts. Certain classes of deductible expenditure are excluded from the cap.
The new measures will also amend the PRRT legislation to clarify the scope of the term ‘exploration for petroleum’ and income tax legislation to clarify that mining, quarrying and prospecting rights (MQPR) cannot be depreciated until they are first used.
Income tax legislation will also be amended to clarify that mining, quarrying and prospecting rights (MQPR) cannot be depreciated until they are first used (rather than merely held).
Mr Telford said the proposals put forward by the government have been a relief to the resources industry with the Greens party previously pushing for significant reforms that would generate $94.5 billion in tax revenue from the industry over the next decade.
“It was significant reform that involved basically wiping out carry forward deductions. There is currently a balance of around $284 billion in these carry forward deductions,” he said.
The Greens also proposed applying a flat 10 per cent royalty, which would have been far less palatable for resources companies, according to Mr Telford.
Grant Thornton tax partner Vince Tropiano said the government was faced with a difficult balance in reforming taxes in this area.
“There can be political difficulties in making changes to tax but the view seems to be that industry hasn’t been too damaged by what’s been announced and it won’t impact on their investments,” said Mr Tropiano.
“So in terms of generating revenue, these measures seem to work,” he said.
The Greens party hit out at the proposed changes earlier this week, describing the reforms as “less than the bare minimum”.
Senator Nick McKim said the Labor party had collaborated too closely with the gas industry.
“This is a rerun of Wayne Swan’s Mining Tax,” said Senator McKim.
“Labor has again designed tax changes in consultation with the resources sector so that the extra tax goes down if profits go up.”
The Australian Petroleum Production and Exploration Association said the release of the measures provided greater certainty for the industry to consider the future investment required to maintain both domestic and regional gas supply security for its customers.
“The changes aim to get the balance right between the undeniable need for a strong gas sector to support reliable electricity and domestic manufacturing for decades to come and the need for a more sustainable national budget,” said APPEA chief executive Samantha McCulloch.
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