Australia: Proposed changes to petroleum resource rent tax regime
Significant changes to petroleum resource rent tax regime proposed
Significant changes to petroleum resource rent tax regime proposed
The Australian Government on 7 May 2023 proposed significant changes to the petroleum resource rent tax (PRRT) regime following its review of gas transfer pricing (GTP) arrangements.
Summary of proposed changes
- Deductions cap: Commencing from the later of 1 July 2023 or seven years after first production, deductions available in respect of liquefied natural gas (LNG) projects would be capped at 90% of the assessable receipts for the relevant income year.
- GTP changes: The proposals include a number of changes that seek to modernize the rules to reflect current commercial practices and broader principles. These measures are proposed to commence from 1 July 2024.
- Integrity and administrative changes: These include the ability to use substituted accounting periods, broadening of the functional currency rules, and introduction of a number of administrative discretions for the Commissioner of Taxation. The general anti-avoidance rule and the arm’s length rule would also be updated with effect from 1 July 2023 to reflect that they apply to the GTP regulations and to align with income tax rules.
- Exploration definition: Separately announced in the Federal Budget, a retrospective change to the definition of “exploration” for PRRT purposes would give effect to the Commissioner’s view in Taxation Ruling TR2014/9. This change is proposed to apply to expenditure incurred from 21 August 2013.
No changes have been proposed to the scope of the PRRT, which continues to apply solely to offshore oil and gas projects.
The proposals are subject to both a final consultation process commencing later this year on the specific design and implementation of the “deductions cap” and GTP changes (with a similar consultation on the remaining changes commencing in early 2024), and the government negotiating the passage of the Bill through the Senate.
KPMG observation
Industry participants will need to assess the effect of the changes quickly given the short timeframe to implementation and continue to actively participate in the consultation process to provide that the legislative form of these policy decisions offers confidence and certainty for the variety of different commercial arrangements in an industry that continues to evolve.
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