Chapter 6 of 7
The first crack
The 2023 deductions cap made the new LNG projects pay PRRT for the first time. Proof reform works, and proof it's too small.
$552mPRRT forced by the 2023 cap, 2024–25
What the cap is#
Since 1 July 2023, a big LNG project can use its deductions to cancel out no more than 90% of its revenue in any year (what the PRRT calls its assessable receipts). The last 10% is always taxable.
Before the cap, a project with a big enough pile of deductions could cancel out every dollar it earned, year after year, and pay no PRRT at all, even while making billions in cash. The cap doesn’t take any deductions away. It limits how many can be used each year, so some tax is paid along the way.
Every $1 of revenue a big LNG project earns from its gas
90c Deductions can cancel this part
10c Always taxable, at 40%
40% of 10c is 4c. So a capped project pays at least 4 cents of PRRT in every dollar of revenue, every year, however big its pile of deductions.
Think of it as gift cards that earn interest#
Imagine the taxman adds up everything a shop sold this year, and taxes whatever isn’t covered by the shop’s gift cards at 40%.
The shop has a drawer full of gift cards: one for every dollar it spent building the shop. Every year a card isn’t used, it grows by around 10%. That growth is uplift. The drawer fills faster than the shop can empty it, so every sale is always covered and the tax stays at zero for decades.
The cap is a new rule at the counter: gift cards can cover at most 90 cents of every dollar of sales. The last 10 cents is taxed, whatever is in the drawer. The cards aren’t confiscated. The ones the shop can’t use this year stay in the drawer for later.
Try it: slide the cap#
Drag the cap from none to 50% and watch what a typical LNG project pays, this year and over the next twenty. Then change the size of its deduction pool. The numbers are round and made up; the rules are the real ones.
90% cap: the law now
Years of building costs, grown by uplift. Big LNG projects carry tens of billions.
The project sells its gas
Revenue this year (assessable receipts)$10.0b
Minus this year's running costs$2.0b
Cash it actually made$8.0b
It brings its pile of deductions
Deduction pool carried in$60.0b
Plus this year's costs$2.0b
Deductions it could use$62.0b
Deductions cancel out revenue, up to the limit
Cancelled by deductions: $9.0bTaxable profit: $1.0b
Deductions used this year$9.0b
PRRT taxable profit$1.0b
The tax, and what rolls into next year
$400mPRRT: 40% of taxable profit
4% of revenue
Unused deductions carried forward$53.0b
Next year's pool, after uplift$58.0b
With no cap, this project pays no PRRT until year 12. With a 90% cap it pays at least $400m a year from year one. Over the whole life of a project the cap mostly changes when tax is paid, not how much: the deductions it holds back are used later. What it buys Australians is a share of the money now, instead of waiting 11 years, and before a project can close and claim decommissioning refunds.
Deduction pool, start of each year
PRRT paid each year
Show the year-by-year numbers
| Year | Pool, 90% cap | PRRT, 90% cap | Pool, no cap | PRRT, no cap |
|---|---|---|---|---|
| 1 | $62.0b | $400m | $62.0b | $0 |
| 2 | $60.0b | $400m | $58.9b | $0 |
| 3 | $57.7b | $400m | $55.6b | $0 |
| 4 | $55.2b | $400m | $51.9b | $0 |
| 5 | $52.4b | $400m | $47.9b | $0 |
| 6 | $49.2b | $400m | $43.5b | $0 |
| 7 | $45.7b | $400m | $38.7b | $0 |
| 8 | $41.8b | $400m | $33.4b | $0 |
| 9 | $37.4b | $400m | $27.6b | $0 |
| 10 | $32.6b | $400m | $21.3b | $0 |
| 11 | $27.2b | $400m | $14.4b | $0 |
| 12 | $21.3b | $400m | $6.8b | $1.3b |
| 13 | $14.8b | $400m | $2.0b | $3.2b |
| 14 | $8.1b | $768m | $2.0b | $3.2b |
| 15 | $2.0b | $3.2b | $2.0b | $3.2b |
| 16 | $2.0b | $3.2b | $2.0b | $3.2b |
| 17 | $2.0b | $3.2b | $2.0b | $3.2b |
| 18 | $2.0b | $3.2b | $2.0b | $3.2b |
| 19 | $2.0b | $3.2b | $2.0b | $3.2b |
| 20 | $2.0b | $3.2b | $2.0b | $3.2b |
Rough guide for the whole industry: in 2024–25 the 90% cap made LNG projects pay about $552m, which implies about $13.8b of capped revenue. At the same revenue, each 10 points off the cap adds about $552m a year. For comparison, the Parliamentary Budget Office estimated an 80% cap would raise about $5.6b to 2033–34. At a 90% cap: about $552m a year (the law now).
Illustrative round numbers, not a real project: $10b of revenue and $2b of running costs every year. Unused deductions grow by uplift at the long-term bond rate plus 5 points (9.5% a year at a 4.5% bond rate); deductions the cap holds back grow at the bond rate only. Simplified: real projects also add new spending, prices change, and decommissioning costs sit outside the cap.
What the cap covers, and what it doesn’t#
Covered
Projects that produce LNG, from 1 July 2023, or seven years after a project’s first production if that is later. It applies to each company’s share of each project, every year.
Not covered
Decommissioning (closing-down) costs, the starting base of older projects and resource tax expenditure can still be deducted in full. Projects that don’t produce LNG are outside the cap.
Held-back deductions
Not lost. They roll forward to later years and grow at the long-term bond rate, slower than normal uplift. So the cap mainly brings tax forward; it doesn’t cancel deductions.
What it did in 2024–25#
In 2024–25 the cap forced $1,381m of extra taxable profit: about $552m of PRRT, roughly three in every ten dollars of the $1.87b of PRRT assessed that year. In the same year, refunds for decommissioning (closing-down credits) reached $520m.
Show the data
| Year | PRRT paid | Of which forced by the 90% cap | Decommissioning refunds (closing-down credits) |
|---|---|---|---|
| 2020-21 | $931m | $9m | |
| 2021-22 | $2,004m | $56m | |
| 2022-23 | $1,868m | $46m | |
| 2023-24 | $1,471m | $225m | $253m |
| 2024-25 | $1,873m | $552m | $520m |
Source: ATO Taxation Statistics 2023-24, PRRT Table 5. Cap-forced PRRT estimated as 40% of the extra taxable profit the ATO attributes to the cap
Show the data
| Year | PRRT cash receipts |
|---|---|
| 1989-90 | $42m |
| 1990-91 | $293m |
| 1991-92 | $876m |
| 1992-93 | $1,389m |
| 1993-94 | $1,072m |
| 1994-95 | $865m |
| 1995-96 | $791m |
| 1996-97 | $1,308m |
| 1997-98 | $907m |
| 1998-99 | $419m |
| 1999-00 | $1,184m |
| 2000-01 | $2,379m |
| 2001-02 | $1,361m |
| 2002-03 | $1,712m |
| 2003-04 | $1,168m |
| 2004-05 | $1,459m |
| 2005-06 | $1,917m |
| 2006-07 | $1,510m |
| 2007-08 | $1,686m |
| 2008-09 | $2,184m |
| 2009-10 | $1,251m |
| 2010-11 | $806m |
| 2011-12 | $1,463m |
| 2012-13 | $1,817m |
| 2013-14 | $1,511m |
| 2014-15 | $1,870m |
| 2015-16 | $741m |
| 2016-17 | $981m |
| 2017-18 | $1,116m |
| 2018-19 | $1,053m |
| 2019-20 | $1,052m |
| 2020-21 | $786m |
| 2021-22 | $1,638m |
| 2022-23 | $2,287m |
| 2023-24 | $1,144m |
| 2024-25 | $1,420m |
| 2025-26 | $1,400m |
| 2026-27 | $1,900m |
| 2027-28 | $1,750m |
| 2028-29 | $1,550m |
| 2029-30 | $1,250m |
Source: PBO Historical Fiscal Data, 2026-27 Budget. Includes small Minerals Resource Rent Tax receipts in 2012-13 to 2014-15. Nominal dollars
How the cap works: Australian Taxation Office, “PRRT: government response to the review of the PRRT gas transfer pricing arrangements”. Figures: ATO Taxation Statistics and PRRT data, 2024–25.
What you can do
Ask your MP four questions#
It takes two minutes. Questions demand a reply, and every reply puts the PRRT back on the agenda in Canberra.
Take action