Following the Chevron decision some better news emerged for taxpayers in the Petroleum industry last week.
The Government released the Callaghan Report into the Petroleum Resource Rent Tax, crude oil excise and other Commonwealth royalties recommending that any adverse changes should be prospective. The review also made several recommendations that would be seen as a positive for taxpayers. Whilst stopping short of accepting the recommendations, the Federal Government has confirmed that no changes will be made in the upcoming Budget and that a further consultation period will run until August. Treasury will provide a further report by the end of September.
The specific recommendations of the Report are as follows. Recommendation 1 only relates to “new projects” whilst the other recommendations relate to both old and new projects:
- Recommendation 1: Highlights several areas to be considered for amendment. These include uplift rates; ordering of deductions; transferability of expenditure and gas pricing arrangements in integrated projects. However, as noted, it is not proposed that these changes apply to existing projects.
- Recommendation 2: Proposes to strengthen the integrity rules for the starting base available for onshore projects as at 1 July 2012 (such that the base cannot effectively be transferred to new projects commenced after this date).
- Recommendation 3: Notes that the current enquiry into the legislative framework for decommissioning projects in Commonwealth waters should consider the PRRT impact of any requirements imposed. That is, through the PRRT deduction for such expenditure (and also the income tax equivalent) the Commonwealth Government is effectively funding part of the decommission expenditure and this should be taken into account in setting the appropriate policy.
- Recommendation 4: Proposes that decommissioning costs on a partial close down of a project should have the same treatment as a complete close down. A recognised glitch based on the current ATO view of the law that can distort taxpayer behaviour. At this stage, however, there was no word on the inability of a taxpayer to claim a credit for closing down expenditure against PRRT paid by previous owners in relation to the project – a current design feature that can discourage transfers of late life projects.
- Recommendation 5: Proposes an annual return be lodged for PRRT purposes from the time that a taxpayer starts to hold an exploration permit (currently such a return is only required once a production licence is in force and the taxpayer starts deriving assessable receipts).
- Recommendation 6: Proposes to fix the known anomalies where a production licence reverts to a retention licence.
- Recommendation 7: Proposes that the Commissioner have the discretion to treat independent petroleum operations within a single production licence as separate projects.
- Recommendations 8 to 11: Propose a single return for all offshore project interests held by a taxpayer; substituted accounting periods for PRRT (to allow alignment with income tax); functional currency elections for “multiple entry” consolidated groups; and a Commissioner power to waive annual returns where clear a project will not pay PRRT.
- Recommendation 12: Proposes that the PRRT anti-avoidance rule be brought into line with recent changes to the income tax anti-avoidance rule.
It will be interesting to see what come of these recommendations in the final report.