• Energy & Resources Working Group minutes - 24 March 2015

    Meeting details

    Venue:

    Melbourne ATO Office – Chenoweth / O’Connor Conference Room
    747 Collins Street
    Docklands VIC 3008

    Chair:

    Jeremy Hirschhorn
    Deputy Commissioner
    Public Groups

    Date:

    24 March 2015

    Attendees

    Organisation

    Name

    AMPLA

    Tim Kyle for Nick Heggart (by phone)

    APPEA

    Noel Mullen

    APPEA

    Michael Lawry

    APPEA

    Shaun Tubic

    APPEA

    Michael Fenner

    APPEA

    Stuart Brown

    APPEA

    Jason Mulgat

    APPEA

    Lynette Purcell

    CPA Australia

    Gordon Thring

    ICAA

    Sara Mattson for James Strong

    Institute of Public Accountants

    Basil Mistilis

    Institute of Public Accountants

    David Blake for Lance Cunningham

    AMEC

    David Ocello

    Law Council of Australia

    Grant Cathro

    Law Council of Australia

    Teresa Dyson (by phone)

    MCA

    James Sorahan

    MCA

    Ann-Maree Wolff

    MCA

    Anthea Forde

    MCA

    Andrew Warren

    The Tax Institute

    Craig Bowie

    ATO

    Jan Farrell

    ATO

    Mathew Umina

    ATO

    Patricia Sampathy

    ATO

    Glenn Davies

    ATO

    Brett Tyers

    ATO

    Domenic Vetere

    ATO

    Daniel Lee

    ATO

    Lorne Hunt

    ATO

    Evan Bitmead (by phone)

    ATO

    Simon Matthews (by phone)

    Apologies

    Organisation

    Name

    AMPLA

    Nick Heggart

    MCA

    Brett Mawby

    MCA

    Anthony Portas

    Institute of Public Accountants

    Lance Cunningham

    ICAA

    James Strong

    Treasury

    Brian McKay

    Department of Industry

    Joshua Reakes

    Minutes

    Item 1: Introductions

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    Item 2: Minutes from previous meeting and agenda items

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    Item 3: ATO involvement in recent and future meetings with industry and the tax profession

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    Past

    • Commissioner of Taxation, Chris Jordan, unveiled the “Reinventing the ATO” blueprint at The Tax Institute’s 30th National Convention last week
    • Jeremy Hirschhorn made a number of Part IVA presentations
    • Patricia Sampathy was a panel member at a Transfer Pricing session at BDO in February

    Future

    • Glenn Davies and Mathew Umina will be speaking at the MCA Tax Conference in Melbourne on 25-27 March 2015
    • Andrew Mills and Len Hertzman will be presenting at the International Fiscal Association Panel in Perth on 31 March 2015

    Item 4: Proposed structure of the Working Group and Terms of Reference

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    • The Energy & Resources Working Group is a group for the ATO to consult and co-design with resource industry associations and tax professional bodies on technical and administrative issues impacting both the mining and petroleum industries.
    • We’re proposing to reshape the Working Group to facilitate more meaningful consultation and discussions, with a focus on achieving outcomes
    • It is proposed that a work program be developed, a draft of which was provided and will be discussed at the next topic
    • As raised at the previous meeting, we’re looking to have a smaller membership from the next meeting going forward. We’ve spoken to a number of the representative bodies in this respect and will be speaking to the rest of you in due course. The ATO will also reduce its representation at these meetings and invite subject matter experts as required.
    • We’re proposing to have four face-to-face meetings annually, and requesting that members only commit to being a part of the Working Group if they are able commit to attending these meetings in person.
    • Smaller conversations will be held regarding specific topics, but these will organised be under the umbrella of the Working Group
    • We’re also seeking to improve our communications strategies, both with external members and within the ATO. This will include circulating discussion papers, and draft minutes in a more timely manner to enable members to consult with and seek feedback from their respective representative bodies.
    • In that respect, we’re also seeking feedback on the proposed confidentiality aspects governing the Working Group. We want representatives to be able to circulate documents to update members of their industry body or professional association, as well as for receiving feedback or comments.
    • We have prepared draft terms of reference and would appreciate feedback on that document, and the Working Group plan before then next meeting.

    Action item: Feedback sought on revised Terms of Reference, membership and ways to ensure that this Working Group remains relevant.
    Responsibility: Members

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    Item 5: E&R Work Program

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    • The ATO’s (draft) Energy and Resources Work Plan 2015 was discussed.
    • There was a lengthy discussion about the nature and rationale for the development of a tax navigation initiative, embracing forward compliance concepts.
      • In response to a question about this initiative the ATO confirmed that the initiative is not limited to LNG, but that a taxpayer in the LNG industry was in discussions with the ATO.
       
    • There was a broad level of agreement about the types of issues and their allocated priorities in the draft plan. However, the group made several specific comments.
    • The participants encouraged the development of ‘safe harbours’ wherever they could be incorporated e.g. in relation to project pools. People were encouraged to contribute their ideas for safe harbours.
    • APPEA representatives indicated they thought the effective lives review was important (e.g. coal seam gas assets), and should be done as a ‘whole’ and a bit later on rather than now. APPEA will approach the ATO regarding this, perhaps around the middle of the year.
    • PRRT onshore issues, including contributing to community infrastructure, were seen as significant.
    • Floating LNG issues were raised
    • Trading hubs were raised
    • Abandonment and decommissioning (e.g. Bass Strait) issues were seen to be a medium priority – especially for PRRT. It was important to have regard to the phase industry was in for the purposes of timing guidance material.
    • Mining capital expenditure was raised and that there was a level of misunderstanding about the way it was treated in the project pool provisions (e.g. individual asset depreciation was possible)

    Action item: Feedback sought on the draft Energy and Resources Work Plan 2015.
    Responsibility: Members

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    Item 6: Corporate Transparency Measure

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    Introduction

    • As a consequence of amendments to the tax law in 2013, the ATO is required to publish limited information about the tax affairs of large corporate taxpayers with effect from the 2013-2014 income year.
    • The measure was introduced by the previous government with the purpose of improving the transparency of the business tax system. The legislation was enacted on 29 June 2013 following public consultation.

    Reporting requirements

    • The measure applies in respect of corporate tax entities with a reported total income of $100 million or more. It also applies to entities with an MRRT or PRRT liability.
    • The following information is to be published:
      • for income tax information - entity name, Australian Business Number, total income, taxable income and income tax payable
      • for MRRT and PRRT information - entity name, Australian Business Number, MRRT or PRRT payable.
       
    • The information for publication must be taken from information provided by entities in their tax returns and, in some circumstances, amendments requested by entities.
    • The measure applies from the 2013–2014 income year (or Mineral Resource Rent Tax and Petroleum Resource Rent Tax years of tax).
    • The first publication is expected to be in December 2015 to enable inclusion of information about late balancing companies (that may not lodge their 2013-2014 returns until July 2015).

    Consultation process

    • Formal consultation started with the release of a consultation paper on the ATO website on 13 March 2015. The closing date for submissions is 10 April 2015.
    • We will consult through a working group comprising members of the Energy and Resources Working Group and the Large Business Liaison Group and other stakeholders, and seek their views on the issues raised in submissions.
      • You should have received an email inviting you to lodge a submission and seeking expressions of interest in joining the working group.
       
    • Implementation issues include:
      • how the information will be published, e.g. the format of the report
      • general explanatory guidance the ATO may provide at the time of publication to explain the context of the information, to reduce the scope for misinterpretation of the reported information
      • confirmation of data with impacted taxpayers
      • giving notice of publication to impacted taxpayers.
       
    • The information to be reported will be sourced in the first instance from entities’ tax returns. Information contained in amendments requested by entities may also be taken into account. Two options are proposed for reporting information in requested amendments:
      • option 1 - reporting amendments requested and processed before the cut-off date
      • option 2 - reporting amendments requested before the cut-off date but not processed if an entity requests this information to be published.
       

    Media reports

    • According to a number of media reports on 18 March 2015, the Government proposes to exclude private companies from the reporting requirement. This change would require amendments to the law to be passed by Parliament.

    Action item: Participation in the consultation process.
    Responsibility: Members / ATO

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    Item 7: Income tax – s40-80 interpretive issues

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    • There was a robust discussion about s40-80 issues, noting that the ATO had released at the previous meeting a paper for consideration. It was noted that the paper was a candid and open assessment of a number of the difficulties in this area of the law.
    • The ATO’s interpretation of ‘use’ was canvassed. There was a general view that the ATO’s view regarding ‘use’ would not give sensible outcomes in all cases, and that the ATO should consider providing a safe harbour which accommodated different approaches. Some considered that questions of ‘use’ might be fact specific, hence general guidance would not be helpful, though others saw benefit in the ATO having a particular view which would bind it, even if it accepted other approaches under a safe-harbour.
    • There was some concern that the ATO rewrote TR 98/23 without including all relevant s40-80 issues in the document. The ATO proposed to deal with some s40-80 issues in the rewrite, but address the ‘use’ and ‘use for E&P’ issues separately (e.g. via TD’s).
    • Concerns were raised about some of the usefulness of certain comments in TR 98/23 (e.g. paragraph 56) in a ‘first use’ context, especially in relation to mine site improvements.
    • The working group wanted a sub-group of the working group to continue developing this area in consultation – ATO to advise process and invite participants.

    Item 8: PRRT deductible expenditure guidance

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    • Last December we began consulting with industry on proposed guidance on the PRRT deductible expenditure provisions in s38 of the PRRTAA.
    • Section 38 is concerned with the deductibility of general project expenditure.
    • Broadly s38 is expressed not to cover items of “excluded” expenditure set out in s44 of the PRRTAA. Again, broadly, s38 permit deductibility of payments to the extent made by a person in carrying on or providing the operations, facilities and other things comprising a petroleum project.
    • Our consultation extends to providing clear guidance on the relationship between s38 (the general deductibility provisions) and other relevant part of the PRRTAA such as:
      • Section 19(4) – which describes what comprises “operations, facilities and other things” comprising a petroleum project [project activities]
      • Section 44 (referred to earlier) - sets out items of excluded expenditure not within the scope of s38
      • Sections 44(1)(j) and (k) - specifically payments of administrative or accounting costs (wages, salary, payments in respect of land or buildings). Historically deductibility of any portion of these costs has been the main area of contention between the ATO and industry.
       
    • Our initial consultation broached 2 possible approaches to these provisions.
      • First – A narrow(er) approach in which deductibility is confined to project activities broadly within the physical boundaries of the petroleum project and certain other activities having a direct and immediate connection to those activities.
      • An alternative approach (somewhat wider) – Where deductibility extends to payments made by a person in carrying on project activities outside of the physical boundaries of a petroleum project through there would still need to be a close connection between the payment and the physical activities involved.
       
    • Yesterday we engaged in a further round of discussion with industry who presented the ATO with a paper:
      • indicating a clear preference for Approach 2 (alternative)
      • setting out its view of how the relevant provisions operate and interact, and
      • providing an extensive batch of examples around which these views could be further explored.
       
    • Industry is also keen, as is the ATO, to explore the scope for safe harbours in our administration of these provisions.
    • There is still a bit of work to be done regarding the scope of the PRRTAA deductibility provisions, which unlike income tax is concerned with the narrower premise of taxable profit derived by a person in relation to a petroleum project (s 22) and not the entirety of a taxpayers business.
    • The next step in the consultation process is a workshop to work through the detail of how the law operates of itself and in the context of examples provided by industry.

    Item 9: RRT administration

    • Delivery of PRRT work program
    • PRRT electronic lodgement
    • MRRT reviews
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    Delivery of PRRT work program

    • Following the repeal of the MRRT we engaged in an internal review of the best locations from which to deliver the PRRT work program. After discussion with a number taxpayers likely to be impacted and the key industry body (APPEA), PRRT review and audit work teams are now primarily located in Perth with a smaller program of similar work carried out in Brisbane.
    • Consequently we no longer have an ATO PRRT review and audit team based in Melbourne, although advisors and taxpayers with a part presence in Melbourne continue to have access to officers in Melbourne with strong PRRT skills who can address urgent issues if required.

    PRRT electronic lodgement and other work processes

    • It is intended that PRRT electronic lodgement becomes compulsory as of 30 June 2016
    • The ATO published specifications on ato.gov.au in September 2014
    • This will be an integrated system that allows full transmission of returns, instalments, schedules and transfer notices.
    • We’re yet to receive any feedback from either software developers or taxpayers who have expressed an interest in developing software or interfaces to work with our Bulk Data Exchange’s File Transfer Facility
    • There is also a testing facility available via the Software Industry Liaison Unit (SILU) website on ato.gov.au
    • We’re encouraging any taxpayers and software developers to if possible, use the electronic lodgement platform for the 2015 annual return, and any quarterly instalment statements so that any issues may be identified prior to compulsory application of electronic lodgement in 2016.
    • All information available on the software developers section of ato.gov.au
    • We are also are looking at adopting more automated processes and procedures for PRRT administration, in line with other self-assessed taxes, and also as a transition to electronic lodgement.
    • The intent is to make better use of the PRRT functionality in the electronic platforms, such as the tax agent and taxpayer portals, and the Secure Messaging functions within these, as well as the electronic lodgement interface.
    • This will also involve channelling enquiries via KCMs and PRRT relationship managers, where applicable, rather than current channels.
    • Further details will be provided as plans are developed.

    MRRT reviews

    • We have commenced MRRT risk reviews covering previously flagged areas of focus such as the calculation of mining revenue and starting base allowance claims.
    • We have endeavoured to contact affected taxpayers as early as possible to give notice of these reviews.

    Item 10: Other business

    • Exploration Development Incentive
    • Next meeting date and location
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    Exploration Development Incentive

    • Following the discussion at the previous meeting, we have an update in respect of the EDI.
    • The incentive applies to disclosing entities under section 111AC of the Corporations Act 2001:
      • with no taxable income in the relevant lodgement year
      • that are exploring greenfields sites
      • that have not started resources production and are not connected or affiliated with an entity that has started resources production.
       
    • There are notifications and reports required to be submitted to the ATO in order to take part in this scheme, and we will publish information you will need to work out the amount of exploration credits you can distribute. Please have a look at the information that has just been published to Exploration Development Incentive.
    • If you would like to ask any questions about this measure after you have read the web information, please contact us by email: EDI@ato.gov.au

    Next meeting

    • Next meeting to be held in Perth, on 12 August 2015.

    Meeting close

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      Last modified: 22 Jan 2016QC 47667