Energy and Resources Working Group key messages 20 November 2024

Findings reports

Top 100 income tax and GST assurance programs

The Australian Taxation Office (ATO) has published the findings report for the Top 100 income tax and GST assurance programs for income tax for the sixth year. This is the fourth year the ATO has included insights from the Top 100 GST assurance program. The findings report highlights that the assurance ratings for taxpayers in the Mining, Energy and Water (MEW) segment are consistent with those of the broader Top 100 population.

This year the Top 100 program has been enhanced to focus on working in real time with taxpayers, providing greater certainty for both the ATO and taxpayers. Taxpayers are encouraged to make pre-lodgment disclosures to enable early engagement on significant matters in real time.

Top 1,000 income tax and GST assurance programs

The Top 1,000 income tax and GST assurance programs findings report highlights that the assurance ratings for taxpayers in the MEW segment over the past 12 months are consistent with those of the broader Top 1,000 population.

As of 30 June 2024, the ATO undertook around 250 second time reviews, providing insights into the ongoing behaviours of the population with respect to both improvements to governance and overall assurance ratings. The work in bringing together last year’s findings report revealed the increase in the number of taxpayers in the Top 1,000 population.

Based on these observations, the ATO designed and implemented program improvements which were announced earlier this year.

Of note, over a third of the Top 1,000 taxpayers exceed $1 billion in turnover and are now classed as ‘significant taxpayers’ for the purpose of the Top 1,000 program. The remainder are classified as ‘general taxpayers’. The approach to assurance for these entities will differ based on whether the taxpayer is in the ‘significant’ or ‘general’ pool, and the assurance level previously obtained.

Public and multinational business advice and guidance program

The Public and multinational business advice and guidance program findings report highlights key findings about the nature of advice sought and offers insights into how taxpayers and their advisers can most effectively engage with the ATO when seeking advice. In the 2023–24 financial year, the proportion of favourable rulings issued remained consistent at around 80%.

Public and multinational business disputes and settlements 2023–24

This is the second year the ATO has published insights on settlements with public and multinational businesses. See, Public and multinational business disputes and settlements 2023–24.

The information in this report has been broadened to include information on disputes and expand on the information included in the ATO annual report. It outlines key findings and observations on income tax and GST disputes completed or undertaken in 2023–24 in relation to the:

audit program (audit data reflects compliance activity conducted by Public Groups)
independent reviews
objections
mutual agreement procedures
litigation
settlements.

The ATO continues to see a consistent number of audits each year. Around 65 to 70% of current income tax audits involve global profit shifting issues. Throughout the year, income tax assessments were issued to 124 public and multinational businesses raising $2.76 billion in liabilities. Of this, $2.5 billion was raised in respect of 24 different taxpayers following intensive audit and review activities. Separately, total liabilities for GST raised were approximately $363 million.

Transfer mispricing, mischaracterisation of business activities and capital flows and withholding tax avoidance issues are among some of the key profit shifting risks currently being investigated.

Thin capitalisation

The draft Practical Compliance Guideline PCG2024/D3 Restructures and the new thin capitalisation and debt deduction creation rules – ATO compliance approach generally focuses on risks with restructuring in response to the new thin capitalisation rules including the debt deduction creation rules. It responds to feedback provided during the consultation process that taxpayers need guidance on what restructuring is acceptable the ATO to facilitate the transition of taxpayers into the new rules.

PCG 2024/D3 includes a risk assessment framework for taxpayers to assess the overall level of risk associated with their restructuring. It is intended to be practical and to assist taxpayers who restructure to get into the low-risk zone. It also includes examples provided during consultation.

Reportable tax position schedule Category C disclosures

The reportable tax position (RTP) schedule gathers information on uncertain tax positions and arrangements of concern from the largest public and multinational companies. See, Findings report RTP – Public and multinational businesses.

Public and multinational business entities made over 4,200 disclosures in 2023. This has more than doubled over the 4 years from 1,940 disclosures in 2020. Lodgments with a Category C disclosure increased by 35% over the 4 years from 2020 to 2023.

Corporate tax transparency report 2022–23

Following a change in tax law in 2022, this is the first year that data on Australian-owned private companies with a total income between $100 million and $200 million is being published. See, Corporate tax transparency report 2022–23.

From the 2022–23 financial year, due to changes in legislation, the income thresholds and reporting requirements are now:

any corporate tax entity that has total income equal to or exceeding $100 million 
entities reporting petroleum resource rent tax payable.

MEW outperformed other segments of the economy. This industry segment makes up only 8.6% of the corporate tax transparency (CTT) population and has:

highest taxable income, with 52.7% of the total and has had the highest taxable income reported for all industry segments for the last 5 years
highest tax payable, with 55.9% of the total and has been the highest tax payable industry, with consistent growth yearly.

This year reported the highest recorded tax payable since CTT began reporting. The increase was primarily driven by the MEW segment with growth of $12.5 billion. In addition:

this growth was driven by the strong growth in some commodity prices and earlier interventions in the oil and gas sector resulting in additional collections flowing through the system
MEW has the highest reported tax payable of all industry segments, $54.7 billion, making up 56% of tax payable.

Looking at zero tax payable, over the last 3 years, MEW has had the highest proportion of entities with zero tax payable. However, this is declining, moving from 55% in 2021 to 46% in 2023.

Industry updates

Minerals Council of Australia

Cost escalations and immigration issues are affecting the industry. Mining is no longer as attractive to school leavers as it once was. The industry needs to focus on targeting school leavers.

Fuel tax credits remain vital to the industry. Often misrepresented in the media, the strong policy rationale that underpins the fuel tax credit scheme is also misunderstood by groups advocating for its abolition.

Australia’s total mineral exports are at a record high. It is expected that they will decrease in 2025. However, volumes will still be significant even with the reduction in exports.

Mining capital stock has plateaued. Australia’s capital stock is now growing at its lowest rate in 60 years, taking Australia from one of the best performing Organisation for Economic Co-operation and Development countries for annual private sector capital investment to one of the poorest over the last decade.

The length of time to gain government approvals continues to be an issue. There is some concern that Trump 2.0 could facilitate faster approvals in the United States leading to Australia being less competitive.

Australian Energy Producers

Global gas markets have stabilised following the disruptions caused by ongoing conflict in Ukraine. However, they remain fragile given ongoing geopolitical events and concerns about the security of supply.

Liquified natural gas (LNG) prices are expected to decline in coming years as high levels of investment in new supply from the United States and Qatar come on stream and outpace the growth in demand.

Off the back of softening LNG prices, Australia’s export earnings are forecast to fall to $69 billion in 2023–24 (from $92 billion in 2022–23) and to $60 billion in 2025–26 (Bureau of Energy and Resource Economics).

Domestically, gas supply shortfalls will emerge from 2025 in southern Australia, with supply gaps from 2028 in the absence of investment in new gas supply (Australian Energy Market Operator). This is primarily driven by the depletion of east coast gas supplies with the supply of gas falling more rapidly than demand.

Compensation payments for coal seam gas

Members discussed the application of Taxation Ruling TR 93/35 Income tax: capital gains: treatment of compensation receipts to payments in the hands of recipients paid to landowners for coal seam gas (CSG) access.

The ATO is currently considering the correct tax treatment for payments to landowners from resource companies for accessing land and or conducting CSG activities and broader guidance to the market on the tax treatment of CSG compensation payments.

Post meeting update: The ATO continues to work with internal technical experts to progress consideration of the correct tax treatment for payments to landowners from resource companies for accessing land and/or conducting CSG activities and the approach for providing broader guidance to the market.

Pillar Two

The Global Anti-Base Erosion (GloBE) and Domestic Minimum Tax (DMT) measure was announced as part of the 2023–24 Budget. It is effective from 1 January 2024 for both the Income Inclusion Rule and the DMT, and from 1 January 2025 for the Undertaxed Profits Rule.

Multinationals with annual reviews, as per their consolidated financial statements, of greater than EUR 750 million are in-scope of the measure.

Since the project commenced, implementation has focused on:

developing systems and data analytics capabilities to onboard data from the GloBE Information Return
developing domestic forms for the measure
establishing client engagement, verification, and assurance processes
information and communications to support the measure
consultation with the market
supporting Treasury with law design and passage of legislation.

Primary legislation was introduced to the House of Representatives on 4 July 2024 and to the Senate on 22 August 2024. Royal assent is pending. Subordinate legislation will follow, after the enactment of the primary legislation.

Post-meeting update: On 10 December 2024, primary legislation implementing the framework of the GloBE rules in Australia received royal assent. The primary legislation also makes consequential amendments. These amendments include provisions necessary for the administration of top-up tax within the existing tax administration framework, consistent with the GloBE rules.

On 23 December 2024, subordinate legislation containing the detailed computational rules was registered as a legislative instrument. This means the subordinate legislation is now in force, noting it is subject to the standard parliamentary process for legislative instruments, including a disallowance period. For more information, see Global and domestic minimum tax.

Through consultation, the ATO understands that:

taxpayers are at varying stages of readiness
the main issues for taxpayers are penalties, joint ventures and operations, and the new decline to rule provision.

The ATO is consulting and collaborating with digital service providers on the development of external software solutions to ensure products offered can adequately support those in-scope with their obligations. A risk-based approach is anticipated in the early years, with a focus on lodgments where Australia has taxing rights. Updates will be provided at key forums and events to encourage taxpayers’ readiness for Pillar Two.

Members are encouraged to direct any queries to the Pillar Two team at Pillar2Project@ato.gov.au

Petroleum resource rent tax

The Petroleum resource rent tax gap 2021–22 report provides the petroleum resource rent tax (PRRT) gap population and an overview of the latest estimates and trends. For 2021–22, there is an estimated PRRT gap of 2.1% or $43 million. This means the ATO expects to collect around 98% of PRRT that should be paid for 2021–22.

The PRRT data in the Corporate tax transparency report 2022–23 shows 11 entities in the 2022–23 PRRT transparency population, with total PRRT payable of $1,867.1 million. The decrease in PRRT payable reflects lower profitability with oil prices being the key driver.

PRRT deductions cap

The PRRT deductions cap is now law and applies from the later of 1 July 2023 or 7 years after the year of first production to PRRT projects that produce LNG, derive assessable petroleum receipts, or assessable tolling receipts and have no taxable profits. The calculation of PRRT payable can be complicated.

Taxpayers can apply to the ATO for a lodgment deferral for PRRT returns and instalment statements. Under the law, the ATO cannot defer due dates for payment. Where a PRRT lodgment is deferred, taxpayers still need to make payment by the due date.

PRRT anti-avoidance

Applicable from 1 July 2023, the government updated the PRRT general anti-avoidance rules to be in line with the income tax anti-avoidance rules, ensuring the anti-avoidance provisions operate consistently across PRRT and income tax.

Exploration for PRRT purposes

The government amended the PRRT legislation to clarify that ‘exploration for petroleum’ is limited to the ‘discovery and identification of the existence, extent and nature of the petroleum resource’ and does not extend to ‘activities and feasibility studies directed at evaluating whether the resource is commercially recoverable’. This amendment is effective from 21 August 2013.

The ATO’s view is set out in Taxation Ruling TR 2014/9 Petroleum resource rent tax: what does ‘involved in or in connection with exploration for petroleum’ mean?

Regulations 2024

Applicable from 1 July 2024, the Petroleum Resource Rent Tax Assessment Regulations 2024 (the 2024 regulations) reform the methodology used in the 2015 regulation to calculate the price of sales gas that is processed into LNG, including the following:

changes to advanced pricing arrangement rules
changes to comparable uncontrolled price rules
insertion of provisions for backfilling
making asset life formula elections irrevocable
equalising the upstream/downstream treatment in profit and loss situations
ensuring that tolling arrangements are expressly captured in the regulations.

The ATO is considering what guidance may be required in relation to the changes to the regulations. Members were invited to share their thoughts on what guidance may be required including topics, priorities, and preferred products.

PRRT compliance activity

The ATO takes a risk-based approach to PRRT compliance, engaging the largest taxpayers and operators to understand potential areas of risk. Work done in prior years is leveraged to build understanding and increase confidence that taxpayers are complying with their PRRT obligations.

The PRRT population will increase following introduction of the deductions cap. The ATO will apply a tailored program going forward due to limited resources.

Members discussed whether there will be any additional guidance to anti avoidance rules. The ATO confirms it intends to update Practice Statement Law Administration PS LA 2005/24 Application of General Anti-Avoidance Rules .

Members discussed time for lodgment and payment. They noted that there are several unenacted measures relating to PRRT, one of which includes substituted accounting periods.

Decommissioning

The ATO provided an update on the decommissioning discussion consultation paper in development. The paper covers:

the tax treatment of financial assurance fees
general deductibility of decommissioning costs
trailing liability – tax treatment.

It is anticipated that the paper, accompanied with a timeline and consultation plan, will be provided to subcommittee members for comment in the new year.

Members queried the ATO’s focus on types of decommissioning costs and evidence taxpayers can provide to satisfy the deducibility criteria. The ATO noted it depends on the specific facts and circumstances and nature of the expenditure. Generally, the ATO wants to understand the costs incurred and the specific provisions under which costs have been deducted including an explanation and evidentiary support regarding why the activities conducted satisfy the legislative provisions. Supporting evidence requested may include:

a list of any decommissioning works conducted to satisfy state or Commonwealth environmental legislation and the relevant legislative provision
project reports or other source documentation, for example, project proposal or project plan, that will support how the decommissioning work fits into broader business activities
consideration will be given to amendments to the Offshore Petroleum and Greenhouse Gas Storage Act 2006 (OPGGS Act).

From a PRRT perspective, Taxation Ruling TR 2018/1 Petroleum resource rent tax: character of expenditure incurred in relation to abandonment, decommissioning and rehabilitation activities undertaken on a part of a petroleum project sets out the Commissioner of Taxation’s view on the characterisation of abandonment, decommissioning and rehabilitation expenditure incurred on a part of a petroleum project being completely closed down.

Future made in Australia

The ATO referred to the consultation papers released by Treasury in summarising the key features of the Critical Minerals Production Tax Incentive PDF 389KBExternal Link and Hydrogen Production Tax Incentive PDF 419KBExternal Link; both part of the Future Made in Australia (FMIA) Bill 2024. If passed by parliament, each measure will be subject to co-administration by the ATO and another agency.

Noting the legislation is subject to passage by parliament, the ATO will consider forming a FMIA sub-committee of the Energy and Resources Working Group (ERWG) to engage collaboratively with relevant members to gain industry insights in designing the administration of the proposed measures.

Integrity declarations

Membership on ATO stakeholder relationships groups, such as the ERWG, is voluntary, and members are appointed without a procurement process. Integrity declarations are intended to ensure appropriate due diligence by the ATO.

The integrity declarations ask that members declare that they have complied with their personal tax obligations, maintained their entity's obligations, and raise any conflicts of interest. The ATO advised that the integrity declarations will be circulated with the key messages and invited feedback from members.

Attendees

Attendees list
Organisation	Members
ATO	Rebecca Saint (Chair), Public Groups
ATO	David Stevenson, Public Groups
ATO	Stan Spasojevic, Public Groups
ATO	Suzie Emery, Public Groups
Association of Mining and Exploration Companies	David Ocello
Association of Mining and Exploration Companies	Neil van Drunen
Australian Energy Producers	Wayne Calder
Deloitte	Jonathan Schneider
DLA Piper	Jun Au
EY	Jaime Hayes
KPMG	Carlo Franchina
Law Council of Australia	Craig Bowie
Minerals Council of Australia	Dominic Smith
Minerals Council of Australia	Premila Roe
Minerals Council of Australia	Ross Lyons
PwC	Mark Crossman
The Tax Institute	Catherine Dean
Treasury	Simon Winckler

Guest attendees

Guest attendees list
Organisation	Attendee
ATO	Harjit Singh, Tax Counsel Network
ATO	Jane Snowden, Public Groups
ATO	Louise Andolfatto, International Support and Programs
ATO	Matthew Persse, Public Groups
ATO	Michael Ingersoll, Public Groups
Department of Industry Science and Resources	Jen Simpson
Santos	Robyn Murphy
Treasury	Craig Merry
Treasury	Pianca Mulcahy

Apologies

Apologies list
Organisation	Member
Association of Mining and Exploration Companies	Warren Pearce
Australian Energy Producers	Janelle O’Hare
Australian Energy Producers	Marc Lewis
Australian Energy Producers	Therese Stephenson
Department of Industry, Science and Resources	Joshua Reakes
Energy and Resources Law	Nick Heggart
Institute of Public Accountants	Lance Cunningham