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) (PRRT Act).
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 expenditures.
Modified “look-back” rule for exploration expenditure
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 release.
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 expense
- the costs of processing external petroleum are generally deductible expenses
- the costs of purchasing external petroleum are deductible expenses
- external petroleum acquired by a project counts as petroleum of that project and so gives rise to assessable receipts of that project, and
- the proceeds of sale of petroleum by a project to another project for processing by it are an assessable receipt for the selling project.
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.