Energy and Resources Working Group key messages 11 November 2022

Welcome and ATO Updates

Findings report Top 100 income tax and GST programs

• The report explains the key findings and observations from the Top 100 income tax and GST assurance programs for the income year ended 30 June 2022.
• Our results to date demonstrate that most large businesses do, and want to do, the right thing. We have a high level of willing participation in the large corporate groups. This is shown by 4 out of 5 Top 100 taxpayers having obtained either a high or medium overall assurance rating.

Findings report – Top 1,000 income tax and GST assurance programs

• The report presents key findings on our income tax and GST assurance reviews completed to 30 June 2022.
• We have seen a positive shift in the market’s perception of justified trust and the ‘currency’ associated with our assurance ratings is becoming highly regarded.

Reportable tax position schedule

• The reportable tax position schedule gathers information on uncertain tax positions from the largest public and multinational companies and includes disclosures of arrangements considered to pose a systemic risk to the corporate tax base.
• The report shows a high level of lodgment compliance and increase in disclosures over the past 3 years due to improvements in processes, increase in questions and changes made to the schedule over the period.

Public Groups and International Advice and Guidance program

• This report includes insights drawn from the work completed through the program over the 2019–20 to 2021–22 financial years.
• This report outlines  
  • insights on how taxpayers and their advisers can most effectively engage with us when applying for rulings or otherwise seeking advice and guidance
  • our key observations and findings about the nature of the advice sought by public and multinational business taxpayers and which advisers are involved.
   

Industry

Australian Petroleum Production & Exploration (APPEA)

Prices

• Brent $93.47 down from $100 per barrel
• European winter expected to increase demand
• Pre Covid-19, $60 to $80 per barrel
• During Covid-19, you could get less than $20 for a period of time
• Estimated that 85 to 90% of east coast gas is subject to long term contracts
• Spot market, that is Wallumbilla is shallow and can be highly volatile
• Asian market driving the price down
• 2022 quarter 3 data indicate average domestic $8 to $13 per KJ
• Liquefied natural gas between $20 and $30 per gigajoule in quarter 3.

Supply

• Gas shortfall not expected until 2023
• Solar down and coal outages cause shock to the energy system early in 2022
• Significant spending of $9 trillion on broader infrastructure is needed
• Shifting to electric vehicle (EV) network raises housing infrastructure and the ability to manage extra energy infrastructure questions.

Low emission technology

• $20 billion invested on low emission technology including Carbon Capture and Storage (CCS), solar farms and hydrogen
• Sixty projects in conception phase
• Sixty-one CCS being commissioned around the world but none in Australia
• Investment uncertain because of carbon price.

Minerals Council of Australia (MCA)

Contribution by Australian Mining

• $2.4 trillion of export revenue from 2013–22, source Australian Bureau of Statistics (ABS) Trade.
• 21% Gross Domestic Product growth from 2012–21, ABS National Accounts.
• $143 billion of company tax from 2011–12 to 2020–21, EY Tax and Royalties paid report.
• $112 billion of royalties paid from 2011–12 to 2020–21, EY report.
• $24 billion of exploration expenditure from 2012–21, ABS.
• $254 billion of capex from 2012–21, ABS.
• 54,000 new jobs created from 2011–20, ABS.
• 35% increase in females employed from 2013–22, ABS.

Key tax messages

• Australia has third highest company tax rate in Organisation for Economic Co-operation and Development (OECD), well above the OECD average of 26.3% (includes the United Kingdom at 25%).
• Australia’s Marginal Effective Tax Rate (METR) is 28.1% compared to the gross domestic product weighted OECD average of 23.8% (Mintz + Bazel report).
• An internationally competitive business tax system is important to attract new investment. Private sector capital investment is an essential component of Australia’s opportunity for productive growth.
• Stability and certainty are important when evaluating investment risk.

State and Territory taxes are important

• NT royalty regime is complex, high rates and poorly administered
• Qld royalty rates on coal highest in the world
• Payroll tax increases to fund special programs
• Moves to replace stamp duty with land tax
• EV taxes at State level – Fuel tax at Federal level
• Goods and services tax allocation formula and WA floor compromises outcomes
• Meaningful tax reform will require agreement from States.

Other key policy matters for mining

• Climate and energy reforms. Massive investment in renewable projects, new technology solutions, safeguard mechanism.
• Environmental assessments and approvals. Review of Environmental Protection and Biodiversity Conservation Act 1999. Federal/State interplay.
• Indigenous partnerships and native title. Improve Indigenous Land Use Agreements process and agreements through native title regime.
• Talent and skills shortage. Modernise apprenticeships. Allocate university places. Promote modern mining/innovation/opportunities

Association of Mining and Exploration Companies (AMEC)

Mineral exploration companies

• Between 2 to 10 employees
• No revenue or earnings, only expenditure
• Invest their own money and raise private capital ($5 to10 million) from speculative investors
• Targeted exploration, hoping to make a discovery.

Project developers

• Will need to raise significant private capital and take on massive debt equity to build the project.
• Large, growing, temporary construction workforce, and also recruiting permanent operations workforce.
• No revenue, only expenditure.

Mining companies

• Operating an already developed project
• Focused on achieving cost efficiencies and greater productivity, as well as maintenance
• Exploring for extensions to the deposit to secure, expand or extend life of mine
• Hopefully strong revenue streams, paying down debt, paying royalties and tax, and dividends.

Non-tax issues

• Jobs, growth, and a lack of employees
• Inflation
• Post-covid policy catch up
• Environmental, Social and Governance expectations of financiers
• The Joint Ore Reserve Committee update 2023
• Industrial Relations and Work Health Safety reforms
• Land access framework reform, Diversification, and co-existence
• Environmental regulatory reform
• Aboriginal Cultural Heritage reforms, Juukan, Kelaray decision, Timber Creek
• Climate Change responses (National Greenhouse and Energy Reporting, Australian carbon credit units, Environment Protection Authority responses and Sectoral Emissions Reduction Strategies)
• Increased tenure uncertainty in Western Australia via Forrest and Forrest.

Taxes and royalties

• Royalty rates and regimes in Qld, NT, and WA
• Junior mineral exploration incentive
• Changes to the WA stamp duty concession
• Research and development tax incentive.

Division 31 Deduction for entering into a conservation covenant

The consultation commenced on 15 Feb 2022 and concluded on 29 April 2022

The Commissioner’s view, as expressed in the consultation paper, will be published on ato.gov.au in early 2023.

The Energy and Resources Working Group (ERWG) secretariat will circulate link to the web-guidance to the ERWG members.

Decommissioning

A decommissioning sub-committee to be established in early 2023.

The sub-committee will focus on exploring the decommissioning tax related issues, including income and petroleum resource rent tax issues arising from complying with the Department of Industry, Science and Resources (DISR) decommissioning framework.

It is anticipated that the sub-committee will comprise of members from Treasury, DISR and the working group members with the right skills who are committed to active participation and co-design of guidance.

Application of PRRT to a tolling arrangement

Petroleum Resource Rent Tax Assessment Regulation 2015 (PRRT Regulation) website guidance entitled Tolling Arrangement and the PRRT Regulation published in August 2022, following a short consultation with The Australian Petroleum Production and Exploration Association (APPEA) members.

Consultation with the APPEA members continues.

Other public guidance

Capital labour

Draft Taxation Ruling TR 2019/D6 Income tax: application of paragraph 8-1(2)(a) of the Income Tax Assessment Act 1997 to labour costs related to the construction or creation of capital asset is expected to be issued in early 2023.

Delays in finalising the ruling have been associated with ongoing ATO consultation on a proposed compliance approach.

Earnout and deferred consideration arrangements

Website guidance on when earnout and deferred consideration arrangements may be subject to the Taxation of Financial Arrangements provisions in Division 230 of the Income Tax Assessment Act 1997 is expected to be published in early 2023.

Intellectual property migration

We have decided to make further changes to Draft Practical Compliance Guideline PCG 2021/D4 Intangible Arrangements based on the feedback received through the consultation process and internal review. We anticipate undertaking targeted consultation with stakeholders who provided submissions.

Shell decision impact statement

Decision Impact Statement Commissioner of Taxation v Shell Energy Holdings Australia Limited was published on 31 January 2023.

The Commissioner’s view expressed in Taxation Ruling TR 2014/9 Petroleum resource rent tax: what does 'involved in or in connection with exploration for petroleum' mean? remains in place.

Action item	Shell decision impact statement
Due date	TBA
Responsibility	Jonathan Chamarette
Action item details	Consider the working group members’ request for further information on the PRRT update Impact of Shell decision.

Future ERWG

The members’ views on the composition and structure of the working group will be sought. Their views on diversifying the membership by introducing a presence of the tax profession and co-chairs.

We anticipate the changes will provide a more effective forum for gaining insights into current and emerging tax technical and administrative matters, and enable more collaboration, consultation, and co-design of industry specific advice.

Attendees

Attendees List

Organisation	Attendee
ATO	Bradley Wheatland, Public Groups and International
ATO	John Churchill, Office of the Chief Tax Counsel
ATO	Jonathan Charmarette, Public Groups and International
ATO	Nat Chirathamjaree, Public Groups and International
ATO	Stan Spasojevic, Public Groups and International
Association of Mining and Exploration Companies	David Ocello
Association of Mining and Exploration Companies	Neil van Drunen
Australian Petroleum Production & Exploration Association	Janelle O’Hare
Australian Petroleum Production & Exploration Association	Simon Staples
Australian Petroleum Production & Exploration Association	Therese Stephenson
Chartered Accountants Australia and New Zealand	Mark Crossman
Energy and Resources Law	Nick Heggart
Law Council of Australia	Craig Bowie
Minerals Council of Australia	Anthony Portas
Minerals Council of Australia	Dominic Smith
Minerals Council of Australia	Premila Roe
Minerals Council of Australia	Ross Lyons
The Tax Institute	Catherine Dean

Apology

Apologies list

Organisation	Apologies
ATO	Rebecca Saint (Chair), Public Groups and International
Association of Mining and Exploration Companies	Warren Pearce
Australian Petroleum Production & Exploration Association	Marc Lewis
Department of Industry, Science and Resources	Joshua Reakes
Institute of Public Accountants	Basil Mistilis
Institute of Public Accountants	Lance Cunningham
Treasury	Simon Winckler

Key topics discussed at the Energy and Resources Working Group meeting 11 November 2022.