A New Tax System (Indirect Tax and Consequential Amendments) Bill (No. 2) 1999

Revised Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

Chapter 13 - Amendment of the Petroleum Resource Rent Tax Assessment Act 1987

Outline of Chapter

13.1 This Chapter explains the amendments to PRRTAA necessary to ensure that GST is excluded from the tax base for calculating PRRT. The amendments are contained in Schedule 8 to this Bill.

Context of Reform

13.2 Participants in a petroleum project are liable for PRRT on taxable profits from the project. A taxable profit will result if project-related assessable receipts for a financial year exceed deductible expenditure. From 1 July 2000, the receipts derived and expenditure incurred may include GST. These amendments will ensure that GST components embedded in the receipts and expenditure will be excluded from the calculation of the taxable profit that is subject to PRRT.

Summary of amendments

Purpose of the amendments

13.3 The amendments to the PRRTAA will remove a distortion to the PRRT tax base that might otherwise arise as a consequence of the introduction of the GST.

Date of effect

13.4 The amendments will apply from 1 July 2000, the commencement of the GST.

Detailed explanation of amendments

13.5 The taxable profit of a person for a financial year in relation to a petroleum project is defined in Part V of the PRRTAA as the excess of the assessable receipts derived over deductible expenditure incurred (including any transferred amounts).

Excluding GST components from assessable receipts

13.6 The calculation of amounts that are included in the defined categories of assessable receipts are to exclude amounts corresponding to any GST, or increasing adjustments (representing additional GST liability), that would otherwise be included in those amounts. [Item 15, new subsection 22B(1)]

13.7 An amount equal to the GST component of the sale price of property, or any increasing adjustment relating to the sale, is similarly excluded in calculating the assessable receipt [item 15, new subsection 22B(2)] . An amount equal to the input tax credit entitlement, or any decreasing adjustment (representing reduced GST liability), relating to sale expenses is also to be excluded from that calculation [item 15, new subsection 22B(3)] .

Excluding GST components from deductible expenditure

13.8 Expenditure or liabilities incurred that are included in the defined categories of deductible expenditure are to exclude amounts corresponding to any input tax credit entitlement, or decreasing adjustment, relating to that expenditure or liability. [Item 16, new section 31B]

Excluded expenditure

13.9 The list of excluded expenditure in section 44 of the PRRTAA will be amended to put beyond doubt that payments of GST are within the category of excluded expenditure. [Items 17 and 18, new paragraph 44(i)]

Defined terms

13.10 The amendments refer to terms that have particular meanings in the GST Act. These meanings will be adopted by including the relevant terms in the list of defined terms in section 2 of the PRRTAA. [Items 3 to 9]

13.11 One of the defined terms to be inserted in section 2 is market value [item 14] . This term will account for the input tax credit that a person would be entitled to if they had acquired the property at the time the market value is determined. This reflects the net impact on an entity's resources if it acquired the property. The consideration given would be offset by the input tax credit the entity would be entitled to.

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