Tax issues and developments

APPEA seeks a petroleum taxation system that encourages investment in oil and gas while also ensuring that the Australian community receives an appropriate return for the use of its resources. Governments must ensure that the burden of the overall tax take – including company income tax, resource taxes and indirect taxes (such as tariff and excise duties) – does not discourage investments in what would otherwise be commercially viable projects.

Resource taxation became a first-order political issue in 2010. APPEA has argued for a fairer and more workable petroleum tax system that lets the industry compete equally with other energy sources.

Subject to consideration by Parliament, the petroleum resource rent tax (PRRT) may be extended to include onshore oil and gas projects previously not covered by the regime. But much work remains to be done on finalising the details of an expanded PRRT. APPEA is arguing for a system that is fairer, less cumbersome and more responsive to smaller oil and gas companies' needs.

The likely extension of the PRRT regime creates new burdens for many oil and gas companies, but it also provides an opportunity to streamline the system, remove uncertainty and make the regime fairer and and more appropriate for the 21st Century.

In late 2009, the Australian Taxation Office released several discussion papers addressing important technical and administrative aspects of the PRRT regime. This was followed by the release of three draft rulings in June 2010 that sought to formalise a series of potentially complex treatments and administrative obligations on taxpayers.

APPEA has formally requested that these matters be referred to the Argus-Ferguson Committee, which is considering how to implement the new resource taxation provisions. The committee’s terms of reference include addressing compliance and administrative issues. APPEA has also asked the committee to consider concerns on how the PRRT could affect smaller projects’ viability.

APPEA also continues to seek tax-related exploration incentives. The preferred option remains a flow-through share scheme similar to the model that has stimulated resources exploration and production in Canada.