Key News Summary – On 14.12.18, the Government release draft legislation to reform the PRRT, (i) lower the uplift rates from LIBOR+15% points that apply to certain categories of carried-forward expenditure, to LIBOR+5% points, from 1 July 2019; and (ii) remove onshore petroleum projects from the scope of the PRRT.


The PRRT is a profit-based cash-flow tax on petroleum production, designed to ensure the Australian community receives a fairreturn on the extraction of Australia’s finite petroleum resources while minimising disincentives for business to invest in the petroleum industry.

It is, in essence, a ‘super profits’ tax – a kind of income tax, where capital expenditure is not treated differently, except to have an ‘uplift’ factor applied to it, so as to give the taxpayer, a normal rate of profit on their deferred expenditure, before starting to impose the tax.

Section 22 of the Petroleum Resource Rent Tax Assessment Act 1987 (the Act) outlines the formula on which PRRT is payable. A person is subject to tax on the taxable profit they receive for a year of tax in relation to a petroleum project (section 21). The taxableprofit is the person’s assessable receipts (section 23) less the sum of theirdeductible expenditure (section 32) and exploration expenditure transferred to the petroleum project (Division 3A of Part V).

The Government initiated a Review of the Petroleum Resource Rent Tax, led by Michael Callaghan AM PSM, on 30 November 2016. The Government released the Review on 28 April 2017. On 2 November 2018, the Government released its final response to the Review (see

The Government is implementing its response to the Review in two tranches of legislation. The first tranche of legislation is contained in this Exposure Draft and will:

  • lower the uplift rates that apply to certain categories of carried-forward expenditure; and
  • remove onshore petroleum projects from the scope of the PRRT (see Chapter 2).

Lowering the up-lift rate is effectively giving the oil companies a lower rate of return, on their expenditure, before this tax applies.

For exploration expenditure incurred or transferred from 1 July 2019, the uplift rate will be LTBR+5 percentage points for ten years from the time the expenditure is incurred, with any remaining amount maintained in real terms by applying the GDP factor until the expenditure is deducted.

Where exploration expenditure incurred before 1 July 2019 is deducted within a petroleum project, the current uplift rate equal to the LTBR+15 percentage points (if it currently applies) will continue to apply until 1 July 2019. From that date, the uplift rate equal to the LTBR+5 percentage points will apply.

Comments were due by 15 January 2019.

[Treasury website: Consultation page, draft Bill, draft EM; LTN 242, 14/12/18; Tax Month – December 2018]

FJM 21.1.19

CPD comprehension questions

  1. What is the reduction in the uplift factor?
  2. When does this change start?
  3. What sort of tax is the PRRT?
  4. On what dates was the review initiated, the Government released the review, the Government announced its response, and the release of this draft legislation and the due date for comments.

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