On 2 November 2018, the Treasurer the Hon Josh Frydenberg MP released the Government’s final response to the Callaghan review on the Petroleum Resource Rent Tax (PRRT). The PRRT is a profits-based secondary tax that applies to onshore and offshore oil and gas production in Australia.


On 30 November 2016, the Treasurer the Hon Scott Morrison announced the independent expert Michael Callaghan AM PSM would lead a review into the design and operation of the Petroleum Resource Rent Tax, crude oil excise and associated Commonwealth royalties. The review aimed to analyse the reasons for the rapid decline of Australian PRRT revenues and provide advice on the extent to which they operate as intended, to help protect Australia’s revenue base and ensure that companies pay the right amount of tax on their activities.

On 28 April 2017, the Treasurer released the report of the Petroleum Resource Rent Tax review, pointing to findings that the decline in PRRT revenue did not, in itself, indicate the Australian community is being shortchanged in receiving an equitable return from the development of its resources, and that the scheme was not deterring investment.

The review recommended scheme changes such as uplift rates, transferability and order of claiming deductions. In addition, the review recommended minor changes that would apply to existing and new projects to improve the operation of the PRRT.

Government response

The changes, to be introduced from 1 July 2019, include:

  • Lower uplift rates: These changes will limit the scope for excessive compounding of deductions. For example the uplift rate on exploration expenditure will be reduced from Long Term Bond Rate (LTBR)+15 percentage points to LTBR+5. Existing investments will be respected. The new uplift rates and removal of onshore projects are expected to raise $6 billion over the next decade, to 2028-29.
  • Onshore projects removed from the PRRT regime: Since onshore projects were brought into the PRRT in 2012, no revenue has been collected and that was expected to remain unchanged into the future. In practice, it has been used to transfer exploration deductions to profitable offshore projects reducing PRRT payable. This change will simplify the system and strengthen its integrity.
  • Review of Gas Transfer Pricing Regulations: Treasury will commence a review into the regulations that determine the price of gas in integrated liquefied natural gas (LNG) projects for PRRT purposes, consulting with the industry and community.

The Callaghan Review also made a number of recommendations aimed at improving the efficiency and administration of the PRRT. The Government will consult on exposure draft legislation to allow legislation to be introduced next year.

(Source: Media release 2016, 2017, 2018 | Government response)


Further Reading

Budget Forum 2018: The Government Could Be Boosting the Budget Bottom Line with a Change to How It Taxes Gas, by Diane Kraal

Senate Inquiry into Corporate Tax Avoidance: Australia’s Offshore Oil and Gas Industry, by Diane Kraal

Comments are closed.