PETROLEUM RESOURCE RENT TAX ASSESSMENT AMENDMENT BILL 2006

This bill principally amends the Petroleum Resource Rent Tax Assessment Act 1987, to implement a range of changes and improvements to Australia’s primary offshore petroleum taxation system. The changes will take effect from 1 July 2006.

The petroleum resource rent tax, or PRRT, is a tax on net income derived from all petroleum projects in Commonwealth offshore areas excluding the North West Shelf project area. It is assessed on a project basis and the liability to pay PRRT is imposed on a taxpayer in relation to its interest in the project. This liability is based on the project receipts less project expenditures.

Undeducted exploration expenditure is allowed to be transferred from a non-paying PRRT project to a PRRT paying project, provided that continuity of ownership of both projects is maintained.

The amendments reduce compliance costs, improve administration and remove inconsistencies in the Petroleum Resource Rent Tax Assessment Act 1987.

Furthermore, the changes are consistent with the Government’s overall approach to taxation reform directed at simplifying Australia’s taxation system and making the Australian taxation system internationally competitive.

Schedule 1 of the bill requires taxpayers to transfer and deduct transferable exploration expenditure when calculating their PRRT quarterly tax instalment.

Currently, PRRT taxpayers can only transfer and deduct exploration expenditure at the end of the year of tax. Consequently, companies often ‘overpay’ PRRT in the first three instalment quarters, only to receive an adjustment for this overpayment in the fourth quarter. Taxpayers do not receive interest compensation on these ‘overpayments’, and as such forgo the time value of money.

An interest charge will be applied at the end of the year of tax if any unusable amounts of transferable exploration expenditure are claimed in the quarterly instalments. The interest charge is designed to recoup the time value of money associated with the delay in the payment of tax.

Schedule 2 of the bill allows internal corporate restructuring within company groups to occur without losing the ability to transfer exploration expenditure between the petroleum projects of group members.

This measure removes a taxation distortion in the PRRT which prevents a company group from adopting the most efficient corporate structure. This taxation distortion results in company groups maintaining inactive companies, merely to protect their future ability to transfer unused exploration expenditure. The amendments will only apply to internal corporate restructures that occur on or after 1 July 2006.

Allowing internal corporate restructuring to occur under the PRRT without incurring a tax penalty is consistent with the approach adopted for income tax purposes.

Schedule 3 of the bill allows the present value of expected future expenditures to close down an infrastructure facility associated with a particular petroleum project to be deductible against the PRRT receipts of this project. This change is made to the extent that these costs are currently not recognised for PRRT purposes.

This change removes a taxation impediment preventing existing project infrastructure to be used efficiently. The efficient use of existing infrastructure will enable the optimal development of Australia’s limited petroleum resources.

Schedule 4 of the bill introduces the self assessment regime for PRRT taxpayers as it generally applies under income tax. This change will result in PRRT taxpayers being able to fully self assess their PRRT liability.

Further, it enables PRRT taxpayers to obtain legally binding rulings from the Australian Taxation Office in relation to PRRT matters. At present they can only obtain administratively binding advice. This change provides greater certainty for PRRT taxpayers.

The Government has recently implemented a number of reforms to the income tax self assessment regime. These reforms arose from the Government’s Review of Aspects of Income Tax Self Assessment. Schedule 4 of the bill introduces these changes, where applicable, into the PRRT regime.

Schedule 5 of the bill introduces several unrelated amendments to the PRRT. There are three primary amendments.

First, payments of fringe benefits tax will be a deductible expense for PRRT purposes, provided such payments are not indirect costs which are excluded expenditures for PRRT purposes. Deductibility of payments of fringe benefits tax for PRRT purposes is consistent with the income tax treatment of these payments. Second, vendors disposing of an interest in a petroleum project will be required to provide a transfer notice to the purchaser of this project, setting out relevant information such as the amount of undeducted expenditure available.

This measure is designed to overcome the information asymmetry that exists between parties to a PRRT transaction, and is expected to ease compliance costs for the purchaser. Finally, the lodgement period for PRRT annual returns will be extended from 42 days to 60 days. This measure will ease compliance costs for PRRT taxpayers.

Full details of the measures in the bill are contained in the explanatory memorandum.

PETROLEUM RESOURCE RENT TAX (INSTALMENT TRANSFER INTEREST CHARGE IMPOSITION) BILL 2006

This bill is a companion bill to the Petroleum Resource Rent Tax Assessment Amendment Bill 2006.

The purpose of this bill is to ensure constitutional validity of the ‘instalment transfer interest charge’. This charge is designed to recoup the time value of money associated with transfer of exploration expenditure in working out a quarterly instalment of tax that is subsequently reversed. It relates to the measure contained in Schedule 1 to the Petroleum Resource Rent Tax Assessment Amendment Bill 2006.

Full details of the measure in this bill is contained in the explanatory memorandum already presented.

AUSTRALIAN RESEARCH COUNCIL AMENDMENT BILL 2006

The Australian Research Council Amendment Bill 2006 amends the Australian Research Council Act 2001 to implement changes to the governance arrangements of the Australian Research Council (ARC). These changes form part of the Government’s response to the recommendations of the Review of the Corporate Governance of Statutory Authorities and Office Holders conducted by Mr John Uhrig.

The assessment of the ARC against the recommendations of the Uhrig Review found that the functions of the ARC are best suited to the executive management template. The bill will enhance the ARC’s governance arrangements to make it fully consistent with this template. This includes retiring the ARC Board and transferring the majority of the Board’s functions and responsibilities to the CEO of the ARC.

The retirement of the ARC Board will remove the potential for confusion between the responsibilities of the ARC Board and those of the CEO. It will allow the ARC to act quickly in identifying and funding high quality research. It will ensure that the chief executive has both full power to act and full responsibility for the activities and operations of the ARC.

The ARC will remain a prescribed agency under the Financial Management and Accountability Act (1997). In keeping with the Government’s Knowledge and Innovation policy announcement of 2001, the ARC will remain a statutory agency separate from my department.

The ARC will retain the peer review arrangements of its College of Experts. The 75 members of the College of Experts, and the thousands of Australian and International readers who commit their time to peer review, perform a vital function. Their contribution to the national innovation system will continue.

These enhancements to the ARC’s governance arrangements will be complemented by other changes. I will issue a statement of expectations to the ARC’s chief executive officer to outline the Government’s current objectives relevant to the authority, as well as any broad expectations that I have for the ARC. This will include the timeframe for announcing the outcomes of the grant processes for the ARC’s two major programs (Discovery and Linkage). The ARC CEO will reply with a statement of intent, outlining how the ARC proposes to meet my expectations.

The ARC’s statement of intent will not replace its strategic planning processes, which will continue to cover a rolling triennium. Rather, the statement of intent will allow the ARC to give me an indication of how it proposes to respond to my specific concerns. These documents will be made public.

The CEO will receive input on research matters directly from an Advisory Committee, which I will create under the new provisions of the Act. The Committee will have a broad membership and will focus on providing strategic advice about the ARC’s operations. The Committee will not look at individual grant applications.

This will be the responsibility of the College of Experts, which will make recommendations directly to the ARC CEO, who will in turn provide the Minister with advice. This will expedite the ARC’s funding processes, provide greater certainty to researchers about the future of their ARC funding and allow the ARC to respond quickly and flexibly to emerging priorities.

I commend the bill to the Senate.