Global Daily Tax News, Australia Amends PRRT Law After Shell Judgment, (Aug 5, 2024)

The Australian Taxation Office has noted a recent legislative change clarifying the tax treatment of "exploration" and "mining, quarrying, and prospecting rights" (MQPR).

In response to the decision of the Full Federal Court in Commissioner of Taxation v. Shell Energy Holdings Australia Limited [2022] FCAFC 2, the Government has amended the petroleum resource rent tax (PRRT) regime to clarify that "exploration for petroleum" is limited to the "discovery and identification of the existence, extent, and nature of the petroleum resource" and does not extend to "activities and feasibility studies directed at evaluating whether the resource is commercially recoverable."

The amendments contained in the Treasury Laws Amendment (Delivering Better Financial Outcomes and Other Measures) Act 2024 received Royal Assent on July 9, 2024.

The ATO said the Commissioner of Taxation's administrative treatment and written binding advice as set out in Taxation Ruling TR 2014/9, which applies from August 21, 2013, is currently being updated to reflect the amendments in the Bill. The amendments will apply to all expenditure incurred from August 21, 2013.

The measure will also clarify that MQPRs cannot be depreciated for income tax purposes until they are used (not merely held) and will limit the circumstances in which the issue of new rights over areas covered by existing rights lead to tax adjustments.

The amendments apply in respect of all MQPRs that were acquired or started to be used after the date of the announcement, 7:30 pm AEST on May 9, 2023.