Petroleum resource rent tax (PRRT) has applied to offshore petroleum projects except for the North West Shelf project, and the Joint Petroleum Development Area since 1987 while the Bass Strait project has been subject to PRRT since 1990.
From 1 July 2012, the PRRT regime extends to onshore petroleum projects including coal seam gas, tight gas and oil shale projects. It also extends to the North West Shelf project, but not to the Joint Petroleum Development Area in the Timor Sea.
The PRRT is payable on the taxable profit of a taxpayer in relation to a petroleum project. If a taxpayer has an entitlement to assessable petroleum receipts from a production licence they will have a petroleum project.
A taxpayer may have an interest in a future petroleum project where they hold an interest in an exploration permit or retention lease but they will not be liable to pay the PRRT until a production licence is derived from the permit or the lease.
Who is affected by the extension of PRRT?
A taxpayer with an interest in an onshore exploration permit, retention lease, production licence or the North West Shelf project may need to consider the possible impact and obligations that may arise from the PRRT system.
Onshore exploration permits or retention leases
A taxpayer may be entitled to a starting base in relation to their interest in an exploration permit or retention lease and may choose the market value, book value or look-back valuation approach to determine their starting base. A taxpayer will be required to lodge a starting base return if they intend to claim a starting base.
A taxpayer does not need to lodge annual PRRT returns or pay quarterly PRRT instalments for their interest in an exploration permit or retention lease. However, they should maintain records of all expenditure to determine whether their expenditure would be deductible in the future and to meet their future obligations under PRRT.
Onshore petroleum projects
A taxpayer with an onshore petroleum project may also be entitled to claim a starting base amount for their interest in the project. If they intend to claim a starting base amount, they need to lodge a starting base return.
A taxpayer lodges an annual PRRT return for their interest in each onshore petroleum project when the project first derives assessable petroleum receipts and for all subsequent years, if they have any assessable receipts. They will also be required to pay quarterly PRRT instalments and lodge instalment statements from 21 October 2013 if they are liable to pay a PRRT instalment.
North West Shelf project
From 1 July 2012, participants in the North West Shelf project are subject to PRRT and have similar obligations to a participant in an onshore project.
Joint ventures
A taxpayer with an interest in a project operating under a joint venture arrangement is required to meet PRRT obligations in the same manner as a taxpayer with an interest in a non-joint venture operation. All joint venture participants have individual obligations under the PRRT. They cannot combine their PRRT obligations such as registering for the PRRT and lodging annual PRRT returns.
As each participant within a joint venture arrangement has individual obligations under PRRT, they are required to lodge their own starting base return and choose their own starting base valuation method.
Multiple petroleum projects
PRRT applies on a project basis. Therefore, separate PRRT returns and instalment statements must be lodged in relation to interests in each project.
However, in certain circumstances, an application can be made to the Federal resources minister to combine projects together as a single petroleum project. Combining projects allows each participant in those projects to lodge a single PRRT return in relation to their interest in the combined project.
Consolidation of interests
A group of entities that is consolidated for income tax purposes can choose to consolidate their interests in an onshore petroleum project for PRRT purposes. Broadly, this allows a consolidated group to lodge a single return for all their interests in a project.
Contractors
Contractors are generally paid for their services and they have no entitlement to the resources or profits and losses of the project. Unless a contractor has an interest in a petroleum project they are not subject to PRRT.
Preparing for PRRT
The following issues may need to be considered by a taxpayer preparing for PRRT obligations.
Consider registering for PRRT
Consider registering for PRRT and providing up-to-date contact details. This will enable the Australian Taxation Office (ATO) to provide information to help entities make PRRT decisions. Entities with a PRRT payment liability will be issued with a unique payment reference number (PRN) to enable them to pay electronically.
As PRRT is assessed on a project basis, taxpayers who want to register should lodge a separate form with the ATO for their interest in each petroleum project.
Starting base considerations
Taxpayers with an interest in an onshore exploration permit, retention lease, or petroleum project that existed before 2 May 2010 or the North West Shelf project should consider whether they would benefit from having a starting base for their interest and, therefore, what valuation method they should use.
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Lodging a valid starting base return is the only way expenditure incurred before 1 July 2012 will be deductible for interests held in transitioning petroleum projects, exploration permits or retention leases existing on 2 May 2010.
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A taxpayer may choose the market value, book value or look-back approach to value their interest in an onshore petroleum project, exploration permit or retention lease. An alternative valuation method is also available to a taxpayer with an interest in a coal seam gas project under the market value approach.
A taxpayer must make an irrevocable choice of their valuation approach for their starting base.
The choice will be made in the starting base return which is required to be lodged with the ATO by 30 August 2013, or within such further time as the Commissioner allows.
Obtaining valuations and identifying and maintaining records that can substantiate the claim for a starting base as well as doing the necessary calculations, may result in additional compliance costs. Taxpayers should consider both the costs and benefits of having a starting base.
Consider whether to consolidate for PRRT
If a group of entities chooses to consolidate for PRRT purposes, the choice must be made in the approved form and lodged within 21 days of making the choice or within further time allowed by the Commissioner. For onshore PRRT taxpayers, the notification of the choice to consolidate has been extended.
Consider project combination
Participants that want to combine a number of onshore petroleum projects that exist on 1 January 2013 must apply to the Federal resources minister to combine those projects within 90 days after 1 January 2013.
Participants in onshore petroleum projects that come into existence after 1 January 2013 must apply to the resources minister to combine the projects within 90 days from the day the latest project comes into existence.
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Find out more
Refer to 'Taxpayers with projects that may be combined' in Who PRRT affects.
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Understand lodging, reporting and paying obligations
The first year of operation of the extended PRRT measures is 1 July 2012 to 30 June 2013. Substituted accounting periods (SAPs) do not apply to PRRT. As PRRT is assessed on a project basis, taxpayers should prepare and lodge separate annual returns for each petroleum project interest.
In this first year, projects transitioning into the PRRT regime will not be required to pay quarterly instalments of PRRT or lodge statements. However, any PRRT payable in relation to the project for the first year must be paid and a PRRT annual return lodged with the ATO within a certain period.
A taxpayer entering the PRRT system can prepare for their lodgment, payment and reporting obligations by:
- setting up their record keeping system to capture information needed to calculate, report and pay their PRRT liability (if any)
- registering with the ATO so their details are correctly recorded and they can receive their PRRT payment reference number
- being ready to lodge their first PRRT return and make any payment (if required)
- being ready to pay quarterly PRRT instalments and lodge statements, if they are liable to pay PRRT instalments.
Consider what records need to be kept
Taxpayers who have an interest in an exploration permit, retention lease or a petroleum project should keep records of their PRRT affairs.
Record keeping requirements for PRRT purposes are broadly similar to those under other taxation laws administered by the ATO.
PRRT is assessed on a project basis. Therefore, taxpayers should keep separate records for each of their project interests. These records are required to determine PRRT liability in relation to those petroleum project interests or any future petroleum projects that may be derived from the permit or lease.
Other changes to the PRRT regime as a result of the extended PRRT measures
Several changes have been made to the PRRT regime in recognition of the unique features of onshore petroleum projects. These changes apply from 1 July 2012.
These changes also apply to existing and future offshore petroleum projects.
Broadly, these changes include:
- All state and federal resource taxes will be creditable against current and future PRRT liabilities in relation to a petroleum project.
- Confirmation that expenditure for an environmental purpose that has a sufficient nexus to a petroleum project will be deductible.
- Confirmation that native title payments made under the Native Title (Cth) Act 1993 that have a sufficient nexus to a petroleum project will be deductible and not treated as excluded expenditure.
- Revenue generated from the sale of incidental products or from providing carbon capture and storage services will be assessable where they are recovered, extracted or produced in carrying on the activities of a petroleum project.
Last Modified: Thursday, 2 May 2013