Treasury confirms companies would be able to claim tax deduction for expenses incurred from cleaning up pollution

This article is more than 3 years old

This article is more than 3 years old

Australian taxpayers will be forced to subsidise the clean-up costs of oil spills in the Great Australian Bight thanks to the terms of the controversial petroleum resource rent tax.



Treasury officials have confirmed that oil companies would be able to claim a tax deduction under the PRRT for expenses incurred cleaning up oil spills.

Different “uplift rates” would apply to clean-up costs depending on whether the spills resulted from exploration or production activity.

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In response to a question from Greens senator Peter Whish-Wilson during Senate estimates last year, treasury officials have confirmed that clean-up costs for oil spills from exploration wells would be classified as “exploration expenditure” under the PRRT regime.

It means the costs of cleaning up oil spills from exploration wells would be tax deductible, and could be held over and “uplifted” into future years at an annual rate of 17.5%.

“If there was a problem with an exploration well requiring remediation expenditure, to the extent that the expenditure had a close or quite direct connection with the physical activities of the petroleum project, it would be considered exploration expenditure for petroleum resource rent tax purposes and would be available to be carried forward and uplifted,” a treasury official said.

The Australian Taxation Office has independently confirmed that the cost of cleaning up oil spills from production wells – different from exploration wells – could be uplifted by 8% a year, according to Footprint News.

It means Australian taxpayers would be forced to subsidise the clean-up of oil any spill in the pristine Great Australian Bight, paid for via a loss of future taxpayer revenue.

In December, oil giant BP officially withdrew its application to drill for oil in the Bight, ending months of uncertainty after it announced it was not pursuing the project but then did not withdraw its application.

But Chevron still plans to drill four exploration wells in the area, starting in 2017, with public consultations with stakeholders slated for the first quarter of this year.

Whish-Wilson told Guardian Australia the news is further proof that the subsidies Australia provides for fossil fuels are “obscene”.

“The rules are written so if a company created an oil spill with their exploration rig, they could make a profit from it,” he said.



“A standard tax deduction for an oil spill clean-up would be bad enough, but in this case the deduction grows in value every year. No other sector, no other set of businesses gets such ridiculous and costly deductions.

“Are we a sovereign nation who charges a fair amount for the resources these companies extract or are we a petro-state doing the bidding of global oil barons?



“The rules have been written by the oil companies for the oil companies and they are laughing all the way to their banks. Parliament enacted these broken laws and its time that Parliament reasserted itself over the fossil fuel giants and rewrote them.”

Jason Ward from the Tax Justice Network said the PRRT system was an “absolute scandal”.



“First we learn that we are giving away our natural resources to the world’s largest oil companies for free and now we know they can get tax credits for oil spills,” he said. “It is mind-boggling that this is actually how the PRRT works.”

The treasurer, Scott Morrison, announced a formal review of the PRRT regime in November following a rapid decline in revenues from the tax.

He acknowledged revenues from the PRRT had halved since 2012-13, while crude oil excise collections had fallen by more than half. When he announced his inquiry into the tax, he said he wanted it to be completed in time for this year’s budget.