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, introduced a cap on the use of deductions to offset assessable PRRT income of certain liquefied natural gas (LNG) producers under the PRRT. The deductions cap was introduced at Schedule 5 of the Treasury Laws Amendment (Tax Accountability and Fairness) Bill 2023. The deductions 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 deductions cap limits deductible expenditure to the value of 90% of each taxpayer’s PRRT assessable receipts for each project interest in the relevant financial year and applies after mandatory transfers of exploration expenditure. The amounts that are unable to be deducted because of the deductions cap will be carried forward and uplifted at the government long-term bond rate.
The deductions cap applies to PRRT projects that produce LNG and meet specific conditions. Projects will not be subject to the deductions cap until 7 years after the year of first production or from 1 July 2023, whichever is later. The deductions cap does not apply to certain classes of deductible expenditure in the PRRT such as closing-down expenditure, starting base expenditure and resource tax expenditure. For more information about the PRRT deductions cap, see Petroleum resource rent tax deductions cap.
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 to accommodate emerging developments in LNG project structures including tolling arrangements, better reflect the contributions and risks of the notional entities that comprise the LNG value chain, align the PRRT regulations with current transfer pricing practices and provide appropriate integrity rules for the regime.
For our latest information on these changes, see PRRT updates.