Woodside thankful for tax victory

THE $25 billion contract Woodside landed with the Chinese Government to supply Liquefied Natural Gas may never have come to pass had the Australian Tax Office had its way.

Woodside’s problems began when the Federal Government scrapped its accelerated depreciation provisions in the late 1990s.

It faced a regime in which its LNG trains and the assets associated with them would be depreciated over 50 years.

Woodside Commonwealth approval coordinator Steve Gerhardy said such a move would have made the company uncompetitive.

“With the ATO’s 50-year proposal the China contract would never have come off,” he said.

“The depreciation proposal would have made us uncompetitive.”

Indeed, the ATO’s preferred depreciation scenario could have made the multi-billion dollar expansion of the North West Shelf unviable.

Some other gas producing nations have allowed their LNG producers to depreciate LNG-related assets over five years.

“Our main concerns were about big things being built up north,” Mr Gerhardy said. Every asset up there would have had its own life and nobody was clear how that would be defined.

“It could have meant that some of our assets would have been depreciated over 50 years. There was a lot of uncertainty about how the ATO would treat the effective life of an asset. It was all a bit arbitrary. There were no firm guidelines.”

He said the Government instead decided in June to cap depreciation of LNG assets at 15 years.

“There are other depreciation caps for other assets. I think some are as low as 10 years,” Mr Gerhardy said.

He said the 50-year proposal would have been unworkable because some of the company’s LNG assets would not have lasted that long.

“In 50 years we would have rebuilt the whole thing,” Mr Gerhardy said.

“Compressors and the like wouldn’t last 10 years. It all depends on maintenance too. If an asset is not maintained properly its lifespan is naturally shorter.”

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