Petroleum Resource Rent Tax – Government response to the Review of the PRRT Gas Transfer Pricing Arrangements

On 7 May 2023, the Government announcedExternal Link changes to the Petroleum Resource Rent Tax (PRRT). The changes respond to the Treasury Gas Transfer Pricing (GTP) ReviewExternal Link.

The Government, in response to the Review, will introduce a cap on the use of deductions to offset assessable PRRT income of liquefied natural gas (LNG) producers under the PRRT. The cap will bring forward PRRT receipts from LNG projects which are yet to pay PRRT and ensure a greater return to taxpayers from the offshore LNG industry.

The cap will limit deductible expenditure to the value of 90 % of each taxpayer’s PRRT assessable receipts for each project interest in the relevant income year and apply after mandatory transfers of exploration expenditure. The amounts that are unable to be deducted because of the cap will be carried forward and uplifted at the Government long-term bond rate.

The cap will only apply to PRRT projects that produce LNG. Projects will not be subject to the cap until 7 years after the year of first production or from 1 July 2023, whichever is later. The cap will not apply to certain classes of deductible expenditure in the PRRT such as closing-down expenditure, starting base expenditure and resource tax expenditure.

The Government will also make a number of supporting changes to the GTP arrangements. From 1 July 2023, the Government will update the PRRT anti-avoidance rules to clarify their application to the Petroleum Resource Rent Tax Assessment Regulation 2015. From 1 July 2024, the Government will modernise the PRRT for emerging developments in LNG project structures, better reflect the contributions and risks of the notional entities that comprise the LNG value chain, align the regulations with current transfer pricing practices and provide appropriate integrity rules for the regime.