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  • Petroleum resource rent tax system

    Petroleum resource rent tax (PRRT) revenues are highly variable due to commodity and project development cycles. This means that PRRT revenue is particularly sensitive to commodity prices, exchange rates and development costs. Revenues are further affected by key design features of the PRRT. The tax will only arise when a project has:

    • recovered all eligible outlays associated with the project, including eligible exploration expenditure transferred from other projects
    • achieved a threshold rate of return on the outlays.

    Additionally, resource tax expenditure such as state, territory and federal royalties and excise are deductible in order to prevent double taxation. This means that projects tend to pay no PRRT for some years even after production has commenced.

    As a result, current PRRT collections arise mainly from more mature projects that have recovered all eligible outlays, such as the Bass Strait project. A number of other Australian gas and petroleum projects – such as Gorgon – have only recently commenced production. They would not be expected to pay PRRT for some time because of the significant development outlays which must first be recouped.

    Note that amounts reported in this estimate are rounded to the nearest $ million.

    Table 1 shows the tax collections for PRRT for 2013–14 to 2016–17 including the number of entities paying PRRT and the amount paid.

    Table 1: Number of entities paying PRRT and amounts paid from 2013–14 to 2016–17

    Financial year

    Entities paying PRRT
    (no.)

    PRRT payable
    ($m)

    2013–14

    12

    1,827

    2014–15

    13

    1,244

    2015–16

    9

    944

    2016–17

    14

    1,008

    Note: The variation in the PRRT paid compared to Taxation Statistics and the Report of Entity Tax Information is due to data being extracted at different points in time.

    The PRRT gap estimate does not compare PRRT revenue to potential revenue under an alternative policy. Our estimate is based on the law as it stands. Importantly, analyses which simply apply royalty rates to production fail to take into account that marginal projects may not have ever commenced under a royalty regime. These analyses also assume a significant change to the tax regime applicable when the underlying investments were made.

    In October 2014, the Senate referred an inquiry into corporate tax avoidance to the Senate Economics References Committee. In December 2016, the committee broadened the scope of the inquiry to include Australia’s offshore oil and gas industry. It asked for submissions on the treatment and/or payment of royalties, the PRRT, deductions, and other taxes. The ATO made a submission to this inquiry.

    In November 2016, the Australian Government commissioned an independent review into the operation of the PRRT, crude oil excise and associated Commonwealth royalties led by Michael Callaghan AM. The ATO made a public submission to the review.

    In 2017, the Treasurer released the final report of the independent review.

    In November 2018 the Australian Government released its final response to the independent review, with changes introduced from 1 July 2019.

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      Last modified: 17 Oct 2019QC 57597