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Back in June 2017 we examined the final report of the Government’s review of the design and operation of the Petroleum Resource Rent Tax (PRRT) (the Callaghan Review). Following the Government’s interim response to the report in 2017, the Government has now released its final response to the recommendations made by the Callaghan Review proposing a number of changes to the PRRT system.
The main changes
The Government has announced a number of changes which will impact both new and existing projects from 1 July 2019. The main changes announced are:
Broadly, the uplift rate for exploration expenditure incurred or transferred from 1 July 2019, will be reduced to the Long Term Bond Rate (LTBR) + 5% (for 10 years from the time the expenditure was incurred, after which the GDP deflator will apply to maintain, in real terms, the remaining amount).
Exploration expenditure incurred before 1 July 2019 (and which is deducted in the same project) will be uplifted at the rate of LTBR + 5% (down from 15%) from 1 July 2019.
It appears that the uplift rate for general expenditure for projects with pre 1 July 2019 production licences will be unaffected, although projects with post 1 July 2019 production licences will have an uplift rate of LTBR + 5% for 10 years from the financial year in which the project first earns assessable petroleum receipts, after which the uplift rate will be the LTBR.
However, contrary to the recommendation of the Callaghan Review, the Government will not require deductions to be ordered to ensure the ones with the highest uplift are used first. The ability to transfer exploration expenditure between new and existing projects will also remain.
The Commonwealth Government has forecast that the changes will raise approximately AU$6 billion over the next 10 years.
The other recommendations which the Government has accepted include granting the Commissioner the discretion to:
It is envisaged that the legislation will set out the criteria which the Commissioner must take into account when exercising his discretions.
Alignment between income tax and PRRT
Finally, the Government has accepted a number of recommendations to more closely align the PRRT regime with the income tax regime, including:
Where to from here?
Although the Government has now provided its final response on the Callaghan Review, there remains some ongoing uncertainty. Significantly, the Government’s response does not offer any additional clarity around the status of the current gas transfer pricing arrangements for integrated LNG projects, with the Government announcing that Treasury has been instructed to commence a review of those arrangements over the next 12 to 18 months.
More generally, the Government’s responses are of a general nature only and, as always, the devil lies in the detail. The Government intends to draft exposure draft legislation, which will be released for consultation, with a view to introducing legislation to give effect to the announced changes sometime next year.
 New PRioRTies? Final report on the design and operation of the Petroleum Resource Rent Tax , available at https://www3.jws.com.au/en/acumen/item/963-new-priorties-final-report-on-the-design-and-operation-of-the-petroleum-resource-rent-tax
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