CONTINUEThis site uses cookies. By continuing to browse this site you are agreeing to our use of cookies. Find out more.
  1. Front Page
  2. News By Topic
  3. Australia To Amend PRRT After Court Ruling

Australia To Amend PRRT After Court Ruling

by Mary Swire, Tax-News,com, Hong Kong

19 December 2012

The Australian government has announced amendments to the Petroleum Resource Rent Tax (PRRT) in response to the possible implications of a recent Federal Court case.

The case, Esso Australia Resources Pty Ltd v Commissioner of Taxation, decided in favour of the Commissioner. However, according to the Treasury, the Court's decision impact statement, released on October 5, creates uncertainty about the ability of PRRT taxpayers to deduct legitimate expenditures.

Treasurer Wayne Swan, in a joint release with Martin Ferguson, the Minister For Resources And Energy, and the Assistant Treasurer David Bradbury, said that applying the Court's interpretation in full could have significant financial implications for the industry, resulting in many taxpayers being unable to deduct legitimate expenditures.

The Court's impact statement indicated that contract liabilities cannot be apportioned under the PRRT and so are only deductible if they are incurred wholly in relation to the relevant project. Further, it suggested that the extent to which a contract liability is deductible will be determined by "looking through" to what the contractor actually spends the contract payments on, rather than by reference to the nature of the activity or service contracted.

The aim of the government's planned amending legislation is to remove this uncertainty. The reforms will maintain the policy intent of the PRRT and largely re-affirm the Australian Taxation Office's (ATO's) historic application of the PRRT law to contract arrangements. The legislation will nonetheless reflect the substance of the Court's decision that a taxpayer cannot derive a tax advantage via contract arrangements with related parties.

The capacity for taxpayers to apportion expenditure will be restored, and PRRT taxpayers will be allowed to deduct expenditure incurred under contract for project services or operations where the taxpayer is unrelated to the contractor. However, the requirement to look through arrangements in circumstances where the taxpayer contracts with a related entity or with an operationally related entity will be preserved. Look through will not apply for unrelated subcontractor costs.

"These amendments will ensure that the PRRT continues to operate as a profits-based tax as intended and continues to strike the right balance between providing industry with certainty and simplicity regarding its tax affairs, while also ensuring that adequate revenue safeguards are in place," Swan, Ferguson and Bradbury said.

The government will consult with the industry to ensure the amendments achieve the desired outcome and avoid any unintended consequences.

TAGS: court | Energy | tax | business | law | Australia | ministry of finance | tax authority | legislation | tax reform | legislation amendments | services

To see today's news, click here.


Tax-News Reviews

Cyprus Review

A review and forecast of Cyprus's international business, legal and investment climate.

Visit Cyprus Review »

Malta Review

A review and forecast of Malta's international business, legal and investment climate.

Visit Malta Review »

Jersey Review

A review and forecast of Jersey's international business, legal and investment climate.

Visit Jersey Review »

Budget Review

A review of the latest budget news and government financial statements from around the world.

Visit Budget Review »

Stay Updated

Please enter your email address to join the mailing list. View previous newsletters.

By subscribing to our newsletter service, you agree to our Terms and Conditions and Privacy Policy.

To manage your mailing list preferences, please click here »