Explanatory Memorandum
(Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)Chapter 7 - Consequential and other amendments - Schedule 6
Outline of chapter
7.1 This chapter outlines the provisions in Schedule 6 to the Petroleum Resource Rent Tax Assessment Amendment Bill 2011 (Main Bill) and explains the consequential and other amendments arising as a result of the Main Bill and the three imposition Bills.
7.2 All legislative references throughout this chapter are to the Main Bill unless otherwise indicated.
Part 1 - Amendments related to the Clean Energy package
Section 28 (Assessable miscellaneous compensation receipts) - sale of free carbon units
7.3 Liquefied natural gas producers will be eligible to receive free emission units under the Clean Energy package as part of the Jobs and Competitiveness program.
7.4 It is necessary to ensure that the free carbon emission units issued are used for the appropriate purpose, which is to shelter trade-exposed industries during the first three years of the carbon pricing mechanism, given that they are constrained in their capacity to pass on these costs in a global market.
7.5 If the project has already taken steps to reduce their emissions and have included the associated costs as deductible expenditure under the Petroleum Resource Rent Tax (PRRT), these free emission units will not be required, and will be sold or will be used in acquitting non-project emissions. Therefore, the gain or deemed gain should be a PRRT project assessable receipt.
7.6 Any subsequent sale of these free emission units issued to a PRRT taxpayer in relation to their PRRT project interest, will be recognised as a miscellaneous compensation receipts. The treatment is different to units purchased and sold by PRRT taxpayers, where the revenue is recognised as incidental production receipts. This is because the allocation of free emission units may not be linked to incurring any eligible real expenditure. [Schedule 6, item 1]
Section 44 (Excluded expenditure) - non-deductibility of unit shortfall charge under the Clean Energy Bill 2011
7.7 The unit shortfall charge is incurred by an entity in relation to its obligations under the Clean Energy Bill 2011. The unit shortfall charge is classified as excluded expenditure under the PRRT conditional to the passage of the Clean Energy package in the Parliament.
7.8 The unit shortfall charge is made non-deductible to ensure that entities liable to the charge, bear the full cost of the unit short fall charge and do not have an incentive to defer their emissions liability. [Schedule 6, item 2]
Part 2 - Amendments related to repeal of an Act
Repeal of the Petroleum Resource Rent Tax Act 1987
7.9 The Petroleum Resource Rent Tax Act 1987 will be repealed and replaced with three imposition Acts. [Schedule 6, items 3 and 4]
Transitional measures in the Petroleum Resource Rent Tax Assessment Amendment Bill 2011
7.10 As a result of the introduction of the three imposition Bills, any transitional payments made by a PRRT taxpayer to meet their PRRT liability under the Petroleum Resource Rent Tax Act 1987 will be taken to have discharged their liability to pay tax imposed by the three imposition Bills. [Schedule 6, item 5]
Part 3 - Other amendments
Changes to the Excise Tariff Act 1921
7.11 Currently, the Petroleum Resource Rent Tax Assessment Act 1987 (the PRRTAA 1987) only applies to offshore areas. This means that the excise law definition of Resource Rent Tax area applies only to relevant offshore areas, and not to onshore areas nor, by specific exclusion, to the North West Shelf permit area.
7.12 As a result, items 20 and 21 of the Schedule to the Excise Tariff Act 1921 operate to exclude these Resource Rent Tax areas (which are already subject to the PRRT) from the excise regime.
7.13 The existing crude oil excise arrangements are not intended to be disturbed by the extension of the PRRT to all Australian oil and gas projects from 1 July 2012. These arrangements will continue to apply once the projects become subject to the PRRT, with the excise paid being creditable against the PRRT.
7.14 To ensure this outcome, the definition of 'Resource Rent Tax area' in subsection 3(1) of the Excise Tariff Act 1921 has been amended to exclude any onshore oil and gas project area, in addition to the existing exclusion applied to the North West Shelf exploration permits. [Schedule 6, item 7]
7.15 This will mean that the onshore oil and gas projects liable to pay the PRRT will continue to be subject to the excise regime. This amendment merely maintains the status quo under the Excise Tariff Act 1921 .
Changes to the Crimes (Taxation Offences) Act 1980
7.16 The definition of 'Petroleum Resource Rent Tax' under the Crimes (Taxation Offences) Act 1980 will now be imposed by the three imposition Acts as assessed under the PRRTAA 1987. [Schedule 6, item 6]
7.17 'Petroleum resource rent tax' is now taken to be a tax imposed by 'any of the following:
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- the Petroleum Resource Rent Tax (Imposition - General) Act 2011 ;
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- the Petroleum Resource Rent Tax (Imposition - Customs) Act 2011 ; or
- •
- the Petroleum Resource Rent Tax (Imposition - Excise) Act 2011 ,
as assessed under the Petroleum Resource Rent Tax Assessment Act 1987'.
Changes to the Income Tax Assessment Act 1997
7.18 Similar to the amendments to the Crimes (Taxation Offences) Act 1980 , the definition of 'Petroleum Resource Rent Tax' in subsection 995-1(1) of the Income Tax Assessment Act 1997 will be amended to mean 'tax imposed by any of the three imposition Acts' as described in paragraph 1.17, under the PRRTAA 1987. [Schedule 6, item 8]
Petroleum Resource Rent Tax Assessment Act 1987
7.19 Section 2 (definition of 'tax') of the PRRTAA 1987 will be amended to mean 'a tax imposed by any of the following:
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- the Petroleum Resource Rent Tax (Imposition - General) Act 2011 ;
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- the Petroleum Resource Rent Tax (Imposition - Customs) Act 2011 ; or
- •
- the Petroleum Resource Rent Tax (Imposition - Excise) Act 2011'.
[Schedule 6, item 9]
7.20 Subsection 98B(3) is also amended to change the definition of 'instalment transfer tax' to be a tax imposed by the Petroleum Resource Rent Tax (Imposition - General) Act 2011 . [Schedule 6, item 12]
Section 31A (assessable tolling receipts) - correcting a technical omission
7.21 The PRRTAA 1987 was amended in 2003 to insert the assessable tolling receipts category to provide an equitable and uniform treatment of partial use situations. To correct a previous omission, a reference to assessable tolling receipts has been inserted in section 31. [Schedule 6, item 10]
7.22 The PRRTAA 1987 will now allow assessable tolling receipts to be derived prior to the commencement of the project.
Section 34A (Class 2 augmented bond rate general expenditure) - correcting a technical omission
7.23 The reference to 'section 48' in paragraphs 34A(1)(b), 2(b) and (c) and 3(b) has been replaced by 'Division 5'. [Schedule 6, item 11]
7.24 Paragraphs 34A(1)(b), (2)(b) and (c), and (3)(b) refer to Class 2 augmented bond rate general expenditure as any amount taken by subsection (4) or section 48 to be Class 2 augmented bond rate general expenditure. The reference to 'section 48' has been updated to 'Division 5' to bring it into line with the references in sections 33 to 35 of the PRRTAA 1987. Division 5 deals with the transfer of entitlements to assessable receipts.
7.25 Section 48A was inserted in 1993; however, the references in section 34 were not updated at that time. This omission has been corrected by omitting the reference to 'section 48' and substituting it for 'Division 5'.