Some amounts of expenditure are specifically deducible under PRRT, including:
Native title payments to landowners are deductible to the extent they are liable to be made in relation to securing access to land for the operations, facilities and other things comprising a petroleum project.
Private override royalties are payments to a party other than payments made under a state or territory law. They are, in effect, a profit-sharing agreement. These payments are excluded expenditure and not deductible for PRRT purposes.
To ensure that eligible native title payments are not considered to be excluded expenditure as private override royalties, from 1 July 2012, the definition of excluded expenditure has been modified.
Therefore, compensation payments to certain parties for carrying on or providing (in an area) the operations, facilities or other things comprising a petroleum project are deductible as eligible real expenditure. The certain parties are:
- native title holders
- native title claimants
- people who hold a right (under an Australian law dealing with the rights of Aboriginal and Torres Strait Islander people in relation to land and waters).
Commonwealth, state and territory governments have regulatory requirements in relation to the environment. Such requirements may arise before, during and after the life of a petroleum project.
Before the extension of PRRT to onshore petroleum interests and the North West Shelf project, environmental expenditure was deductible to the extent it was liable to be incurred in relation to carrying on the operations, facilities and other things comprising a petroleum project. However, environmental expenditure was not separately identified as a deductible amount other than for environmental studies or environmental restoration as a consequence of closing down a petroleum project.
With the extension of PRRT, concerns were raised as to whether certain expenditure (such as water treatment costs) would meet the requirements for deductibility.
To address this, from 1 July 2012 any expenditure incurred for an environmental purpose in relation to carrying on or providing the operations, facilities and other things comprising a petroleum project is specifically deductible as either exploration or general project expenditure.
Whether environmental expenditure is characterised as exploration or general project expenditure is a question of fact to be worked out, taking into account the circumstances.