House of Representatives

Explanatory Memorandum

(Circulated by authority of the Assistant Treasurer and Minister for Financial Services, the Hon Stephen Jones MP)

Chapter 5: Petroleum resource rent tax deductions cap

Outline of chapter

5.1 Schedule 5 to the Bill amends the PRRTA Act to effectively cap the availability of deductible expenditure incurred by a person in relation to a petroleum project for a year of tax. The changes will mean the offshore LNG industry pays more tax sooner.

5.2 The deductions cap applies to a person if certain conditions are met, including that the person is not taken to have a taxable profit under subsection 22(1) or (2) of the PRRTA Act. A person to whom the deductions cap applies will be taken to have a taxable profit of 10 per cent of their assessable receipts derived in relation to the project in the year of tax, with PRRT being payable on this amount of deemed taxable profit. That person will be taken to incur augmented denied deductible expenditure on the first day of the next financial year.

5.3 Schedule 5 to the Bill partially implements the Petroleum Resource Rent Tax – Government Response to the Review of the PRRT Gas Transfer Pricing arrangements measure announced in the 2023-24 Budget.

5.4 All legislative references in Schedule 5 are to the PRRTA Act unless otherwise specified.

Context of amendments

5.5 On 2 November 2018, the former Government announced its final response to the PRRT Review conducted by Michael Callaghan AM PSM (Callaghan Review) in 2017. As part of its response, the former Government asked Treasury to lead a review of the Gas Transfer Pricing arrangements (Treasury Review), which determine the value of sales gas for PRRT purposes in integrated LNG projects.

5.6 Schedule 5 implements Recommendation 1c of the Treasury Review to introduce a deductions cap by limiting deductible expenditure to the value of 90 per cent of PRRT assessable receipts in respect of each LNG project in the relevant years of tax.

5.7 Currently, PRRT is imposed on the taxable profit of a person in relation to a petroleum project in a year of tax. The taxable profit is the amount by which assessable receipts exceed deductible expenditure and transferable exploration expenditure.

5.8 The amendments cap the amount of deductible expenditure available in relation to an LNG project in a year of tax to offset assessable receipts derived in respect of that project in the year of tax. The effect of the deductions cap is to bring forward PRRT collections from LNG projects, delivering both a timely and fairer return to the Australian public from their natural resources. The measure will provide industry and investors policy certainty to allow the sufficient supply of domestic gas and will ensure Australia remains a reliable international energy supplier and investment partner.

Summary of new law

5.9 The deductions cap applies to a person in relation to a petroleum project in a year of tax if certain conditions are met, including that the person is not taken to have a taxable profit under subsection 22(1) or (2) of the PRRTA Act. When the deductions cap applies, the person will be taken to have a taxable profit, and a denied deduction amount, of 10 per cent of the assessable receipts they derived in relation to the project in the year of tax (the assessable year). A person has an alternative taxable profit calculation if they have an interest in a Greater Sunrise project.

5.10 If a person has a denied deduction amount in relation to a project in the assessable year, they will be taken to incur an augmented denied deduction expenditure amount on the first day of the financial year following the assessable year. The augmentation rate is the long-term bond rate for the assessable year plus 1.

5.11 From 1 July 2024, the PRRT instalments regime will start to apply to a person in a year of tax in relation to a petroleum project that was subject to the deductions cap measure in the financial year immediately preceding the year of tax.

Detailed explanation of new law

Taxable Profit

5.12 The deductions cap applies to a person in relation to a petroleum project, which is not an excluded project, in a year of tax if:

•

the person derives assessable petroleum or tolling receipts;

•

the person has no taxable profit (other than due to the application of the deductions cap);

•

sales gas is, or will be, produced from some or all of the petroleum recovered from the project; and

•

the person regularly or consistently carries out arrangements, as a result of which it is intended that sales gas, which may or may not be from the project referred to above, is to be wholly or primarily processed into LNG. [Schedule 5, item 3, subsection 22(3) of the PRRTA Act]

5.13 Projects are excluded from the deductions cap:

•

in the first financial year when assessable petroleum receipts are derived in relation to the project, or in any of the subsequent seven financial years; or

•

if a person incurs resource tax or starting base expenditure in the year of tax in relation to the project; or

•

if a person has exhausted their deductible expenditure in relation to the project. [Schedule 5, item 3, subsection 22(5) of the PRRTA Act]

5.14 Closing-down expenditure is expenditure incurred in closing-down a petroleum project. If, in relation to a project and year of tax, a person incurs closing-down expenditure under section 39 of the PRRTA Act, that person will typically not derive assessable petroleum receipts. Therefore, as the deductions cap only applies to a person who derives assessable petroleum or assessable tolling receipts in relation to a petroleum project in a year of tax, the deductions cap will generally not apply to a person who incurs closing-down expenditure in relation to a project and year of tax.

5.15 In relation to a project in a year of tax, if a taxpayer has no taxable profit because the sum of the deductible expenditure incurred by the person and transferred exploration expenditure equals or exceeds the assessable receipts derived by the person, the person will be taken to have a taxable profit in relation to the project in the year of tax. This deemed taxable profit is an amount equal to 10 per cent of the assessable receipts derived by the person in relation to the project in the year of tax. This is also the denied deduction amount. This amount is equal to the amount of deductions that are taken to have been denied in order to produce the resulting deemed taxable profit. [Schedule 5, item 3, subsection 22(3) of the PRRTA Act]

5.16 For a Greater Sunrise project, an alternative calculation is required. Where a person has no taxable profit in relation to a Greater Sunrise project under the existing taxable profit calculations in a year of tax, that person will be taken to have a taxable profit equal to 10 per cent of the assessable receipts derived by a person from a Greater Sunrise project multiplied by an apportionment percentage figure. The resulting amount is also the denied deduction amount for the Greater Sunrise project. For these purposes, the apportionment percentage figure has the meaning given by section 2C of the PRRTA Act. [Schedule 5, items 1, 2 and 3, section 2 and subsections 2C(3) and 22(4) of the PRRTA Act]

Example 5.1

Deemed Taxable Profit - Sale of Sales Gas (subsection 22(3) of the PRRTA Act)

Ash Co has an interest in the Banksia petroleum project. The project extracts and refines petroleum to produce sales gas. Ash Co regularly enters into contracts with other parties, being Cedar Co, Dogwood Co and Eucalypt Co, each of whom have a one-third interest in the Fig petroleum project, for the sale of Ash Co's sales gas. These arrangements form a core part of Ash Co's business and all of the parties to the arrangements intend for the sales gas to be wholly or primarily processed into LNG.

In the 2023-24 year of tax, Ash Co derives assessable petroleum receipts from the petroleum project. The arrangements with Cedar Co, Dogwood Co and Eucalypt Co extend across the 2023-24 year of tax.

Ash Co is not taken under subsections 22(1) or (2) of the PRRTA Act to have a taxable profit in relation to its petroleum project and the relevant year of tax. None of the exclusions in subsection 22(5) of the PRRTA Act apply.

Ash Co is subject to the deductions cap and is taken to have a taxable profit under subsection 22(3) of the PRRTA Act in relation to the Banksia petroleum project in the 2023-24 year of tax equal to 10 per cent of the assessable receipts derived by Ash Co in the 2023-24 year of tax. The resulting amount is also the denied deduction amount for the project in the 2023-24 year of tax.

Cedar Co, Dogwood Co and Eucalypt Co are each not taken, under subsections 22(1) or (2) of the PRRTA Act, to have a taxable profit in relation to each of their respective interests in the Fig petroleum project and none of the exceptions in subsection 22(5) of the PRRTA Act apply.

Cedar Co, Dogwood Co and Eucalypt Co are each taken to have a taxable profit under subsection 22(3) of the PRRTA Act in relation to their respective interests in the Fig petroleum project in the 2023-24 year equal to 10 per cent of the assessable receipts they each derived from the Fig petroleum project. The resulting amount for each of Cedar Co, Dogwood Co and Eucalypt Co is also the denied deduction amount for each of them in the 2023-24 year of tax.

Example 5.2

Taxable Profit - Tolling Arrangements for the Liquefaction of Sales Gas (subsection 22(3) of the PRRTA Act)

The Kurrajong petroleum project has infrastructure that recovers and refines petroleum. Kurrajong Co holds an interest in the Kurrajong petroleum project. The Kurrajong petroleum project does not have any further processing or liquefaction infrastructure.

Kurrajong Co enters a tolling arrangement with Grevillea Co, an LNG producer who owns nearby onshore processing and liquefaction facilities. The parties to the arrangement intend for Kurrajong Co's sales gas to be wholly or primarily produced into LNG. Kurrajong Co enters into such arrangements with Grevillea Co on a regular and consistent basis.

In the 2023-24 year of tax, as a result of the arrangements, Kurrajong Co derives assessable petroleum receipts in relation to the Kurrajong petroleum project and Grevillea Co derives assessable tolling receipts in relation to the Grevillea petroleum project. The arrangements between Kurrajong Co and Grevillea Co extend across the 2023-24 year of tax.

Kurrajong Co and Grevillea Co are each not taken under subsections 22(1) or (2) of the PRRTA Act to have a taxable profit in relation to their respective petroleum projects and the relevant year of tax. None of the exclusions in subsection 22(5) of the PRRTA Act apply to either Kurrajong Co or Grevillea Co.

Kurrajong Co and Grevillea Co each satisfy the requirements in subsection 22(3) of the PRRTA Act. Kurrajong Co and Grevillea Co are each subject to the deductions cap in relation to their respective projects in the 2023-24 year of tax.

Each of Kurrajong Co and Grevillea Co are taken to have a taxable profit under subsection 22(3) of the PRRTA Act equal to 10 per cent of the assessable receipts derived in relation to their respective projects in the 2023-24 year of tax. The resulting amounts are also the denied deduction amounts for their respective projects in the 2023-24 year of tax.

Example 5.3

Taxable Profit – Entering into Arrangements on a Regular or Consistent Basis (subsection 22(3) of the PRRTA Act)

Bottlebrush Co holds an interest in the Bottlebrush petroleum project. The project recovers petroleum and processes it into sales gas. Bottlebrush Co typically sells 100 per cent of its project sales gas into the domestic market to be used without any further processing.

Occasionally, Macadamia Co, a local 9Mtpa LNG producer, has a shortfall in their sales gas supply. If the spot price is suitable and Bottlebrush Co has surplus sales gas after meeting its existing, ongoing domestic sales contracts, Bottlebrush Co will enter into a short-term sales agreement with Macadamia Co to sell 0.5TJ of sales gas, which Macadamia Co converts into LNG.

The parties to the arrangement intended that the sales gas be wholly or primarily processed into LNG. However, the sale of sales gas to LNG producers is not something that Bottlebrush Co does on a consistent or regular basis.

2024-25 Year of Tax

In the 2024-25 year of tax, Bottlebrush Co and Macadamia Co enter into a single contract for the sale and purchase of sales gas, which is processed into LNG. The transaction was a small part of the Bottlebrush petroleum project's undertakings that year, the relevant share of which was also a small part of Bottlebrush Co's assessable receipts in that year of tax.

Bottlebrush Co and Macadamia Co are each not taken under subsections 22(1) or (2) of the PRRTA Act to have a taxable profit in relation to their respective petroleum projects and the relevant year of tax.

For Bottlebrush Co, the requirement in paragraph 22(3)(e) of the PRRTA Act is not met. Bottlebrush Co will not satisfy subsection 22(3) of the PRRTA Act, and therefore, will not be taken to have a taxable profit in relation to the project. Bottlebrush Co will not be subject to the deductions cap in the 2024-25 year of tax.

Macadamia Co satisfies the requirements in subsection 22(3) of the PRRTA Act and none of the exclusions in subsection 22(5) of the PRRTA Act apply to the Macadamia petroleum project. Macadamia Co is subject to the deductions cap in relation to the Macadamia petroleum project in the 2024-25 year of tax.

Macadamia Co is taken to have a taxable profit under subsection 22(3) of the PRRTA Act in relation to the Macadamia petroleum project and the 2024-25 year of tax equal to 10 per cent of the assessable receipts derived by Macadamia Co. The resulting amount is also the denied deduction amount for the project in the 2024-25 year of tax.

2025-26 Year of Tax

During the 2025-26 year of tax, the Bottlebrush petroleum project makes a 10PJ per annum discovery and develops the gas field. Bottlebrush Co enters into a 20-year sales and purchase agreement with Macadamia Co to convert the sales gas into LNG.

For the 2025-26 year of tax, Bottlebrush Co and Macadamia Co are each not taken under subsections 22(1) or (2) of the PRRTA Act to have a taxable profit in relation to their respective petroleum projects and the relevant year of tax. All of the requirements under subsection 22(3) of the PRRTA Act are now met for each of Bottlebrush Co and Macadamia Co and none of the exclusions in subsection 22(5) of the PRRTA Act apply to either petroleum project.

Therefore, Bottlebrush Co and Macadamia Co are each taken to have a taxable profit under subsection 22(3) of the PRRTA Act equal to 10 per cent of the assessable receipts derived in relation to their respective petroleum projects and the 2025-26 year of tax. The resulting amounts are also the denied deduction amounts for their respective projects in the 2025-26 year of tax.

Augmented denied deductible expenditure

5.17 In relation to a project and year of tax, the denied deduction amount is 10 per cent of the assessable receipts derived by the person. The denied deduction amount is uplifted by the long-term bond rate plus 1. The uplifted denied deduction amount in relation to a year of tax (the assessable year) is taken to be incurred on the first day of the next financial year as augmented denied deductible expenditure. [Schedule 5, items 3 and 5, subsections 22(3) and 35F(2) of the PRRTA Act]

5.18 Additionally, augmented denied deductible expenditure incurred by a person in relation to a petroleum project in a financial year includes any augmented denied deductible expenditure amounts transferred under Division 5 of Part V of the PRRTA Act, which deals with the transfer of entitlements to assessable receipts. [Schedule 5, item 5, subsection 35F(1) of the PRRTA Act]

5.19 The augmented denied deductible expenditure amount arises if the sum of:

•

the person's deductible expenditure incurred in relation to the project in the assessable year; and

•

the amount of exploration expenditure transferred to the person's project in relation to the assessable year

equals or exceeds the assessable receipts derived by the person for the project and the assessable year. [Schedule 5, item 5, subsection 35F(2) of the PRRTA Act]

5.20 The augmented denied deduction amount is calculated by multiplying the long-term bond rate, in relation to the assessable year, plus 1 by so much of the excess as does not exceed the sum of:

•

the augmented denied deductible expenditure incurred by the person in relation to the project in the assessable year; and

•

the denied deduction amount. [Schedule 5, item 5, subsection 35F(2) of the PRRTA Act]

5.21 The augmented denied deductible expenditure rules operate in relation to combined projects in the same way as they do for single projects, except for the financial year in which the project combination certificate in relation to the project comes into force. For that year, each amount taken to be augmented denied deductible expenditure, including because of transfer of those amounts under Division 5, incurred by the person in relation to the pre-combination projects in the financial year is included in the sum of denied deductible expenditure for the combined project. [Schedule 5, item 5, subsection 35F(1) of the PRRTA Act]

5.22 Incorporating augmented denied deductible expenditure, the order in which classes of deductible expenditure are offset against assessable receipts is as follows:

•

Class 1 ABR general expenditure

•

Class 1 ABR exploration expenditure

•

Class 2 uplifted general expenditure (previously class 2 ABR general expenditure)

•

Class 1 GDP factor expenditure

•

Class 2 uplifted exploration expenditure (previously class 2 ABR exploration expenditure)

•

Class 2 GDP factor expenditure

•

Resource tax expenditure

•

Starting base expenditure

•

Augmented denied deductible expenditure

•

Closing-down expenditure. [Schedule 5, items 4 and 5, subsection 32(fd) and section 35F of the PRRTA Act]

Example 5.4

Augmented Denied Deductible Expenditure (section 35F)

Saturn Co is an interest holder in the Jupiter petroleum project which produces LNG.

Saturn Co first derived assessable petroleum receipts in relation to the petroleum project in the 2017-18 year of tax.

2017-18 to 2024-25 years of tax

For the first year of tax in which assessable petroleum receipts are derived and the subsequent 7 years of tax, Saturn Co is excluded from being taken to have a taxable profit under subsection 22(3) of the PRRTA Act for the project in the year of tax because of paragraph 22(5)(a) of the PRRTA Act.

2025-26 year of tax

In the 2025-26 year of tax, Saturn Co derives assessable petroleum receipts of $100 million and incurs deductible expenditure of $200 million. Saturn Co is not taken under subsections 22(1) or (2) of the PRRTA Act to have a taxable profit in relation to the project in the 2026 year of tax, and none of the exclusions in subsection 22(5) of the PRRTA Act apply.

However, because Saturn Co derives assessable petroleum receipts in relation to the Jupiter petroleum project in the 2025-26 year of tax, Saturn Co is taken under subsection 22(3) of the PRRTA Act to have a taxable profit in relation to the project in the 2025-26 year of tax. Saturn Co's deemed taxable profit will be equal to 10 per cent of the assessable receipts it derived from the Jupiter petroleum project in the 2025-26 year of tax (i.e. $10 million). Saturn Co will also have a denied deduction amount of $10 million for the 2025-26 year of tax. Saturn Co was not taken to have incurred, at the start of the 2025-26 year of tax, any augmented denied deductible expenditure under subsection 35F(2) or Division 5 of the PRRTA Act.

The amount of augmented denied deductible expenditure is worked out in accordance with the formula set out in subsection 35F(2) of the PRRTA Act.

Saturn Co's excess of deductible expenditure and transferred exploration expenditure over assessable receipts for the 2025-26 year of tax (the assessable year) is $100 million, being

•

$200 million (the deductible expenditure incurred by Saturn Co in the assessable year), plus

•

$0 (the total transferred exploration expenditure under sections 45A and 45B of the PRRTA Act in the assessable year) less

•

$100 million (assessable receipts derived in the assessable year).

For the purposes of subsection 35F(2) of the PRRTA Act, the available excess is $10 million, being the sum of:

•

$0 (so much of the excess ($100 million) as does not exceed the augmented denied deductible expenditure incurred by Saturn Co in the assessable year ($0)) and

•

$10 million (the denied deduction amount).

Assuming that the LTBR (the long-term bond rate in relation to the assessable year plus 1) is 10 per cent, the augmented denied deductible expenditure taken to be incurred on the first day of 2026-27 year of tax is $11 million ($10 million x 1.10).

2026-27 year of tax

In the 2026-27 year of tax, Saturn Co acquires an additional interest in the Jupiter project from Mars Co. In addition, Saturn Co derives $100 million of assessable receipts and incurs $200 million of deductible expenditure, which includes $90 million of augmented denied deductible expenditure, comprised of the following:

•

$11 million (augmented denied deductible expenditure taken to have been incurred on the first day of the 2026-27 year of tax under subsection 35F(2) of the PRRTA Act) plus

•

$79 million (augmented denied deductible expenditure transferred to Saturn Co from Mars Co under Division 5 of the PRRTA Act).

Saturn Co is not taken to have a taxable profit under subsections 22(1) or (2) of the PRRTA Act and none of the exclusions in subsection 22(5) of the PRRTA Act apply. The deductions cap applies to Saturn Co in the 2026-27 year of tax, and Saturn Co is taken under subsection 22(3) of the PRRTA Act to have a taxable profit, and a denied deduction amount, of $10 million.

The amount of augmented denied deductible expenditure is worked out in accordance with the formula set out in subsection 35F(2) of the PRRTA Act.

Saturn Co's excess of deductible expenditure and transferred exploration expenditure over assessable receipts for the 2026-27 year of tax (the assessable year) is $100 million, being;

•

$200 million (the deductible expenditure incurred by Saturn Co in the assessable year, which includes $79 million of augmented denied deductible expenditure transferred to Saturn Co under Division 5 of the PRRTA Act), plus

•

$0 (the total transferred exploration expenditure under sections 45A and 45B of the PRRTA Act in the assessable year) less

•

$100 million (assessable receipts derived in the assessable year).

For the purposes of subsection 35F(2) of the PRRTA Act, the available excess is $100 million, being the sum of:

•

$90 million (so much of the excess ($100 million) as does not exceed the augmented denied deductible expenditure incurred by Saturn Co in the assessable year ($90 million)) and

•

$10 million (the denied deduction amount).

Assuming that the LTBR is 10 per cent, the augmented denied deductible expenditure, which is taken to be incurred on the first day of the 2027-28 year of tax, is $110 million ($100 million x 1.10).

2027-28 year of tax

In the 2027-28 year of tax, Saturn Co derives $100 million of assessable receipts and incurs $150 million of deductible expenditure, which includes $110 million of augmented denied deductible expenditure taken to have been incurred on the first day of the 2027-28 year of tax under subsection 35F(2) of the PRRTA Act.

Saturn Co is not taken to have a taxable profit under subsections 22(1) or (2) of the PRRTA Act and none of the exclusions in subsection 22(5) of the PRRTA Act apply. The deductions cap applies to Saturn Co in the 2027-28 year of tax, and Saturn Co is taken under subsection 22(3) of the PRRTA Act to have a taxable profit, and a denied deduction amount, of $10 million.

The amount of augmented denied deductible expenditure is worked out in accordance with the formula set out in subsection 35F(2) of the PRRTA Act.

Saturn Co's excess of deductible expenditure and transferred exploration expenditure over assessable receipts for the 2027-28 year of tax (the assessable year) is $50 million, being;

•

$150 million (the deductible expenditure incurred by Saturn Co in the assessable year), plus

•

$0 (the total transferred exploration expenditure under sections 45A and 45B of the PRRTA Act in the assessable year) less

•

$100 million (assessable receipts derived in the assessable year).

For the purposes of subsection 35F(2) of the PRRTA Act, the available excess is $60 million, being the sum of:

•

$50 million (so much of the excess ($50 million) as does not exceed the augmented denied deductible expenditure incurred by Saturn Co in the assessable year ($110 million)) and

•

$10 million (the denied deduction amount).

Assuming that the LTBR is 10 per cent, the augmented denied deductible expenditure, which is taken to be incurred on the first day of the 2028-29 year of tax, is $66 million ($60 million x 1.10).

2028-29 year of tax

In the 2028-29 year of tax, Saturn Co derives $100 million of assessable receipts and incurs $66 million of deductible expenditure, all of which is augmented denied deductible expenditure taken to have been incurred, under subsection 35F(2) of the PRRTA Act, on the first day of the 2028-29 year of tax.

Saturn Co is taken to have a taxable profit of $34 million under subsection 22(1) of the PRRTA Act. The deductions cap measure does not apply to Saturn Co in the 2028-29 year of tax because not all of the conditions in section 22(3) of the PRRTA Act are met.

2029-30 year of tax

In the 2029-30 year of tax, Saturn Co derives $100 million of assessable receipts and incurs $250 million of general project expenditure.

Saturn Co is not taken to have a taxable profit under subsections 22(1) or (2) of the PRRTA Act.

However, the deductions cap does not apply to Saturn Co in the 2029-30 year of tax or any subsequent year due to the exclusion in subsection 22(5)(c) of the PRRTA Act.

Exclusions

5.23 There are various projects that do not fall within the scope of the deductions cap.

5.24 Projects are excluded from the operation of the deductions cap in a year of tax if that year is when the person first derives assessable petroleum receipts in relation to the project, or if it is one of the subsequent seven financial years. This exclusion is designed to minimise the impacts of the substantial upfront payments on project economics. [Schedule 5, item 3, paragraphs 22(3)(g) and 22(5)(a) of the PRRTA Act]

5.25 Projects are also excluded from the deductions cap if a person incurs resource tax expenditure or starting base expenditure in relation to the project in the year of tax. [Schedule 5, item 3, paragraphs 22(3)(g) and 22(5)(b) of the PRRTA Act]

5.26 Projects are also excluded from the deductions cap once a person has exhausted their deductible expenditure. This includes where amounts have been transferred to other projects under sections 48 or 48A of the PRRTA Act. [Schedule 5, item 3, paragraphs 22(3)(g) and 22(5)(c) of the PRRTA Act]

Example 5.5

Starting Base Expenditure Exclusion (paragraph 22(5)(b))

Lilly Pilly Co has an interest in a petroleum project. The petroleum project extracts and refines petroleum to produce sales gas which is intended to be converted into LNG.

In the 2023-24 year of tax, Lilly Pilly Co derives $100 million of assessable receipts from the petroleum project and incurs deductible expenditure (including starting base expenditure of $1 billion).

Lilly Pilly Co will not be taken to have a taxable profit for the petroleum project and year of tax under subsection 22(3) of the PRRTA Act because the exclusion in paragraph 22(5)(b) of the PRRTA Act applies.

Instalments

5.27 PRRT liability taken to be incurred as a result of the deductions cap is to be paid in instalments. Such instalments apply to all persons who, in relation to a project, have a taxable profit under subsections 22(3) or (4) of the PRRTA Act in the previous year of tax. [Schedule 5, item 7, subsection 97(1BA) of the PRRTA Act]

5.28 In relation to a project and instalment period, a person's notional tax amount is the amount of tax that would be payable on the amount worked out by subtracting previous period receipts from current period receipts, and multiplying the difference by 0.1. [Schedule 5, item 7, subsection 97(1BA) of the PRRTA Act]

5.29 Current period receipts, for projects that are not a Greater Sunrise project, are the assessable receipts derived by a person in relation to the project in the current instalment period. [Schedule 5, item 7, subsection 97(1BA) of the PRRTA Act]

5.30 An instalment period is defined in section 2 of the PRRTA Act, in relation to an instalment of tax in a year of tax, as being the period commencing at the beginning of the year of tax and ending at the end of the month preceding that in which the instalment is due and payable.

5.31 Current period receipts for the Greater Sunrise project are the assessable receipts derived by a person in relation to the project in the current instalment period multiplied by the apportionment percentage figure for the current instalment period. [Schedule 5, item 7, subsection 97(1BA) of the PRRTA Act]

5.32 Previous period receipts will be equal to zero if the current instalment period is the first instalment period in the year of tax or otherwise equal to the current period receipts for the instalment period that ended most recently before the end of the instalment period. [Schedule 5, item 7, subsection 97(1BA) of the PRRTA Act]

5.33 If any current period receipts were determined under special calculation provisions, those amounts are to be disregarded, and the amount worked out in accordance with the regulations is to be included. [Schedule 5, item 7, subsection 97(1BB) of the PRRTA Act]

5.34 The PRRT instalment regime, as it relates to the deductions cap, will apply to a person in relation to a project, or a Greater Sunrise project, and in relation to a year of tax beginning on or after 1 July 2024. [Schedule 5, item 18]

Example 5.6

Fig Co has an interest in the Fig LNG project.

The 2023-24 year of tax

In the 2023-24 year of tax, in relation to the Fig project, Fig Co incurred deductible expenditure of $500 million and derived $100 million of assessable receipts.

As all of the conditions under subsection 22(3) of the PRRTA Act are met and none of the exclusions in subsection 22(5) of the PRRTA Act apply, Fig Co is taken to have a taxable profit under subsection 22(3) of the PRRTA Act in relation to the Fig project in the 2023-24 year of tax.

Subsection 97(1BA) of the PRRTA Act does not apply to the 2023-24 year of tax.

The 2024-25 year of tax

The price of LNG in the 2024-25 year of tax has tripled as there is a global shortage due to supply disruptions overseas.

However, for the 2024-25 year of tax, Fig Co is required to work out its notional tax amount under subsection 97(1BA) of the PRRTA Act because it was taken under subsection 22(3) of the PRRTA Act to have a taxable profit in relation to the project in the previous financial year, the 2023-24 year of tax.

At the end of the 2024-25 year of tax, Fig Co is taken to have a taxable profit under subsection 22(1) of the PRRTA Act. The instalments worked out under subsection 97(1BA) of the PRRTA Act in the 2024-25 year of tax are recognised as credits when Fig Co's annual PRRT return is lodged.

For the 2024-25 year of tax, Fig Co works out its notional tax amount for each instalment period as follows:

30 September 2024 instalment

For the three months to 30 September 2024, Fig Co incurred $440 million of deductible expenditure and derived $450 million of assessable receipts.

Fig Co's notional taxable amount is $45 million (($450 million current period receipts less $0 previous period receipts) x 0.1). Fig Co's notional tax amount is $18 million ($45 million x 0.4).

Fig Co lodges a PRRT quarterly instalment on 21 October 2024 and pays the PRRT instalment of $18 million on that date.

31 December 2024 instalment

For the six months to 31 December 2024, Fig Co incurred $800 million of deductible expenditure and derived $1.2 billion of assessable receipts.

Fig Co's notional taxable amount is $75 million (($1.2 billion current period receipts less $450 million previous period receipts) x 0.1). Fig Co's notional tax amount is $30 million ($75 million x 0.4).

Fig Co lodges a PRRT quarterly instalment on 21 January 2025 and pays the PRRT instalment of $30 million on that date.

31 March 2025 instalment

For the nine months to 31 March 2025, Fig Co incurred $1 billion of deductible expenditure and derived $2.4 billion of assessable receipts.

Fig Co's notional taxable amount is $120 million (($2.4 billion current period receipts less $1.2 billion previous period receipts) x 0.1). Fig Co's notional tax amount is $48 million ($120 million x 0.4).

Fig Co lodges a PRRT quarterly instalment on 21 April 2025 and pays the PRRT instalment of $48 million on that date.

The 2025-26 year of tax

For the 2025-26 year of tax, Fig Co is required to work out its notional tax amount under subsection 97(1A) of the PRRTA Act because the deductions cap measure did not apply to it in the 2024-25 year of tax as it was taken under subsection 22(1) of the PRRTA Act to have a taxable profit in relation to the project in the 2024-25 year of tax.

Consequential amendments

5.35 Schedule 5 makes a number of consequential amendments to Schedule 1 to the PRRTA Act.

5.36 The notional tax amount provisions for working out current period liability are amended to include augmented denied deductible expenditure. [Schedule 5, item 6, paragraph 97(1A)(b) of the PRRTA Act]

5.37 The notional tax amount provisions dealing with combined projects are amended so that, for combined projects, references to the project in subsection 97(1BA) are read as including references to pre-combination projects in relation to the project. [Schedule 5, item 8, subsection 97(1C) of the PRRTA Act]

5.38 The Commissioner may determine the notional tax amount of a person in an instalment period in accordance with the general formula or determination. [Schedule 5, item 9, subsection 97(2) of the PRRTA Act]

5.39 The definition of notional taxable profit is amended to give effect to the amendments in the schedule. [Schedule 5, items 10-13, 16 and 17, clauses 5, 9, 14, 19 and 27 of Schedule 1 to the PRRTA Act]

5.40 Changes have been made to Schedule 1 so that denied deductible expenditure cannot be transferred under sections 45A or 45B. [Schedule 5, items 14 and 15, clause 14 of Schedule 1 to the PRRTA Act]

Commencement, application, and transitional provisions

5.41 The amendments commence on the first 1 January, 1 April, 1 July or 1 October to occur after the day the PRRTA Act receives the Royal Assent.

5.42 The amendments to the PRRTA Act made by this Schedule, other than the amendments to the instalment provisions made by items 5 to 7, apply in relation to assessable receipts derived by a person in relation to a project, or a Greater Sunrise project, and in relation to a year of tax beginning on or after 1 July 2023, whether or not assessable receipts were also derived by a person in relation to the project and an earlier year of tax. To avoid doubt and for the purposes of the exclusions in paragraph 22(5)(a) or subparagraph 22(5)(c)(ii) of the PRRTA Act, the financial years referred to in those paragraphs include financial years before 1 July 2023. [Schedule 5, item 18]

5.43 Instalment provisions, as they relate to the deductions cap, apply in relation to a petroleum project and in relation to a year of tax beginning on or after 1 July 2024. [Schedule 5, item 18]