Evolution of the Australian fiscal landscape and its impact on oil and gas investments in Australia

Abstract

The oil and gas industry is among the most regulated and highly taxed sectors of the Australian economy. In recent times, the industry has been confronted with ongoing tax reforms that significantly impact the after-tax economics of projects. Examples include the introduction of the carbon pricing mechanism, the extension of the Petroleum Resource Rent Tax (PRRT) to the onshore oil and gas sector, the decision in the Esso case impacting on PRRT taxpayers, amendments to R&D tax incentives and modifications to the taxation system affecting mobile employees. Although the Business Tax Working Group recently did not make any recommendations to broaden the tax base to fund a reduction in the company tax rate, the desire to undertake further reforms that may impact the sector remains. The year ahead will see implementation of further transfer pricing reforms, ongoing consultation and review regarding the definition of exploration expenditure, and increasing focus on corporate international tax reform in line with global trends. Any reform has the potential to have a material impact on the capital- and exploration-intensive oil and gas industry, which also relies heavily on capital funding from multinational investors. This extended abstract analyses the recent reforms and their impact on the oil and gas sector, provides an outlook of other relevant areas of potential fiscal change, and assesses what this might mean for the Australian oil and gas industry.