The Tax Laws Amendment (2009 Measures No. 3) Bill 2009
(Cth) (Bill) amends, among other things, the
Petroleum Resource Rent Tax Assessment Act 1987 (Cth)
Petroleum Rent Resource Tax (PRRT) is a tax on
profits generated by offshore petroleum projects (other than the
North West Shelf project). The PRRT is assessed on a project basis
and liability to pay PRRT is imposed on a taxpayer in respect of
its interest in the relevant project. Liability for PRRT is based
on a project's assessable receipts less project deductible
Modified "look-back" rule for exploration
Currently, if a retention lease is derived from an exploration
permit and a production licence is then derived from that retention
lease, exploration expenditure incurred within the exploration
permit area but outside the retention lease area is not taken to
have been incurred in relation to the petroleum project identified
by the production licence. Consequently, such expenditure is not
associated with the relevant production licence area and is not
deductible for PRRT purposes.
The Bill introduces amendments to the PRRT Act to ensure that
all exploration expenditure in an exploration permit area or
retention lease area related to a particular production licence is
deductible for PRRT purposes in relation to the petroleum project
identified by that production licence.
Offshore exploration incentive extended
The offshore exploration incentive in the PRRT Act allows for an
immediate 150% uplift on PRRT deductions for exploration
expenditure incurred in offshore frontier areas designated by the
Minister for Mines and Petroleum. These frontier areas must be
located more than 100km from an existing commercialised oil
discovery and must not be adjacent to an area designated in the
previous years' acreage release. The incentive was applied to
the annual offshore acreage releases for 2004 to 2008. The
amendment introduced by the Bill will allow the Minister to specify
offshore frontier areas in the 2009 annual offshore acreage
Introduction of "internal petroleum" provisions
"External petroleum" is petroleum that is sourced from
outside of a petroleum project. Currently, for PRRT purposes:
any tolling fee paid to a project for processing external
petroleum is an assessable receipt
any tolling fee paid by a petroleum project providing external
petroleum to another project for tolling is a deductible
the costs of processing external petroleum are generally
the costs of purchasing external petroleum are deductible
external petroleum acquired by a project counts as petroleum of
that project and so gives rise to assessable receipts of that
the proceeds of sale of petroleum by a project to another
project for processing by it are an assessable receipt for the
The Bill introduces the possibility of processing internal
petroleum into the PRRT Act. "Internal petroleum" is
petroleum sourced from within a petroleum project. That is,
petroleum that is processed or purchased by one participant in a
project for or from another participant in the same project. The
PRRT position with respect to internal petroleum is similar to the
position with respect to external petroleum. The Bill does not
change the external petroleum provisions.
Functional currency option introduced
PRRT taxpayers are currently required to work out their PRRT
liability in Australian dollar terms. The Bill introduces a
functional currency rule, similar to the functional currency rule
in income tax law. This rule gives PRRT taxpayers the option to
work out their PRRT position in their applicable functional
currency, which is then converted to Australian dollars.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The article examines the regulation of the oil and gas industry and breaks down the regulatory process state by state.
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