AUSTRALIA: GENERAL METADATA

Data documentation

General notes

The fiscal year in Australia runs from 1 July to 30 June. Following OECD convention, data are allocated to the starting calendar year so that data covering the period July 2005 to June 2006 are allocated to 2005.

Australia being a federal country, the data also cover the following states and territories: the Australian Capital Territory (ACT), New South Wales (NSW), the Northern Territory (NT), Queensland (QLD), South Australia (SA), Tasmania (TAS), Victoria (VIC), and Western Australia (WA).

Certain features of Australia’s tax system that indirectly support the production of fossil fuels apply to the mining sector as a whole. While the OECD’s approach to support for fossil fuels stresses the importance of specificity [1], the present inventory considers those measures that apply to mining in general to be specific enough to warrant their inclusion in the database. In the absence of data on the actual sector distribution of the usage of these measures, as in other countries, the OECD has estimated based on relative levels of output or exploration expenditure the share of the usage that relates to fossil-fuel extraction, as opposed to the share relating to the extraction of other minerals (e.g. gold or zinc). This estimation should not be interpreted, however, as reflecting the views of the responsible governments. [2]

Because 90% of Australia’s power generation uses fossil fuels (and coal in particular), and taking into account the fact that the country does not trade electricity with other economies, measures directly supporting the use of electricity in Australia are here treated as indirect support for fossil fuels.

Since Victoria is the only state where recoverable brown coal reserves are available, all state-level measures in place in other states and benefitting coal have been allocated to hard coal only. [ABS Mineral Account (1996) and Minerals Council of Australia (2015) Coal Hard Facts]

Notes relating to Producer Support Estimates

The offshore extraction of oil and natural gas in Australia is subject to a particular tax regime combining a resource tax and the regular corporate income tax. The former, the Petroleum Resource Rent Tax (PRRT), was introduced with the Petroleum Resource Rent Tax Assessment Act of 1987. It is project-based and applies to taxable profits at the rate of 40%. [3] Rules under the PRRT allow for the full deduction of exploration, development, and decommissioning expenditures in the year in which they are incurred. Financing costs are, however, not deductible for PRRT purposes. Unclaimed deductions can be carried forward and compounded every year at varying rates. Some of these deductions can also be transferred to other projects within the same company or group.

The general corporate income-tax rate in Australia is 30% and deductions are allowed for PRRT and royalty payments, business expenses, and exploration costs incurred for mining (including coal) and oil and gas extraction. Some expenses related to mine rehabilitation and the decommissioning of offshore platforms are also deductible for income-tax purposes. Because the tax is not ring-fenced, losses from one project can be deducted against the profits of another.

The immediate write-off of expenditures of a capital nature (including exploration and development expenditures) is normally considered under the tax systems of many countries to amount to a preferential tax treatment. The reason is that in calculating taxable profits in most income-tax systems, capital expenses are amortised over the period to which they contribute to earnings. Allowing these types of expenditure to be written-off in full in the year in which they are incurred therefore provides companies with a benefit akin to a zero-interest loan from the government since it delays the collection of taxes. A present-value calculation would thus show a positive transfer from the government to the companies benefitting from such provisions.

However, when combined with a provision preventing companies from deducting interest costs and other financing charges, the immediate write-off of expenditures of a capital nature may not be considered preferential tax treatment. This is because this particular combination of tax provisions may approximate what is known as "cash-flow" taxation. Cash-flow tax systems can be theoretically equivalent to the more common imputed-income tax systems where the objective is to levy a neutral business tax. For that reason, measures such as the expensing of exploration and development costs may not be preferential tax provisions in the particular case of Australia’s PRRT. [4]

In recent years, the Australian Government has enacted legislation that modified the country’s resource-taxation regime considerably. Changes include the extension of the PRRT regime to most onshore and offshore oil and natural-gas projects, and the introduction and subsequent repeal of the short-lived Mineral Resource Rent Tax (MRRT), which only applied from 2012 through 2013 and sought to tax the profits from the extraction of coal and iron ore at a 30% rate.

Footnotes

[1] Article 2 of the WTO’s Agreement on Subsidies and Countervailing Measures (SCM) also stresses the importance of "specificity" in determining whether a particular measure falls under the scope of the agreement.

[2] An estimated allocation based on gross-output shares or exploration expenditure by mineral is used here to provide readers with a sense of the magnitudes involved. Since these allocations are not from government sources and are based on general volume and value ratios, they might not always correlate well with actual distributions, if such information were available. These assumptions have been made by the OECD and should not be interpreted as reflecting the views of the responsible government.

[3] Some offshore areas like the North West Shelf were, until recently, still subject to the previous royalty and crude-oil excise regime, or to production-sharing contracts. However, legislation enacted by the Australian Government now provides for the extension of the PRRT regime to all onshore and offshore oil and gas projects by 1 July 2012, with the exception of the Joint Petroleum Development Area in the Timor Sea which remains subject to production-sharing contracts with Timor-Leste under the Timor Sea Treaty.

[4] See Box 5 in OECD (2015).