Transfers of interests in petroleum titles
If an entity (transferring entity) transfers its interest in an exploration permit, retention lease or petroleum project (a petroleum interest), wholly or in part, it transfers its entitlement to assessable receipts to the receiving entity.
Due to the changes to the petroleum resource rent tax (PRRT) legislation that apply to augmentation of expenditure from 1 July 2019, it is very important that year-wise breakdown of each type of expenditure is provided to the purchaser by the transferring entity.
The purchaser should ensure that they have all the necessary information and supporting documentation. This will allow them to meet their PRRT obligation in the year of transfer as well as in later years. The purchaser may be asked to provide documentary evidence in support of their claims relating to deductible expenditure actually incurred by the transferor of the interests.
On this page:
Transferring a whole interest
A transfer of a whole interest in a petroleum title occurs when the transferring entity's whole entitlement to assessable receipts for the petroleum interest is transferred to the receiving entity.
Following a transfer, the receiving entity is treated as having derived any assessable receipts and incurred any eligible real expenditure that the transferring entity derived or incurred in that year before the transfer.
The receiving entity effectively 'steps into the shoes' of the transferring entity and inherits its petroleum resource rent tax (PRRT) position. If a transfer takes place in the middle of a year of tax, the receiving entity is taken to have paid any instalments paid by the transferring entity in the year of tax that the transfer occurred.
The receiving entity is not considered to have incurred any additional eligible real expenditure by transfer of any property held by the transferring entity. The transferring entity is not, by reason of the transfer, taken to have derived any assessable receipts from the property at the time of the transfer.
Any consideration that is exchanged for the transfer of a petroleum interest is not deductible expenditure for the receiving entity (as it is excluded expenditure) and is not an assessable receipt for the transferring entity.
Transferring a part interest
A transfer of part of a petroleum interest occurs when part of a transferring entity's entitlement to assessable receipts (the transferred percentage) is transferred to a receiving entity.
The transfer of part of a petroleum interest has the same implications as a transfer of a whole petroleum interest, except that the receiving entity is taken to have both:
- derived a percentage of any assessable receipts
- incurred a percentage of any eligible real expenditure the transferring entity derived or incurred.
Example: transferring a part interest
Nilon Oil Ltd and Reid Resources Co each have a 50% interest in project Beu. Reid Resources Co transfers 50% of its interest to Cox LPG. Cox LPG has a 25% interest in the Beu project following the transfer.
At the time of transfer of interest, Cox LPG inherits 50% of the assessable receipts and deductible expenditure which were derived or incurred by Reid Resources Co in the year of transfer in relation to the Beu project.
End of example
As with the transfer of a whole interest, the receiving entity 'steps into the shoes' of the transferring entity and inherits the transferring entity's PRRT position for the part of the petroleum interest transferred.
Transfers from combined projects
When an interest or part of an interest in a combined petroleum project is transferred, the amounts of assessable receipts and deductible expenditure inherited by the new owner are ascertained by reference to the transferred petroleum title rights to which the receipts and expenditure relate. In other words, the receipts and expenditure that relate to a particular production licence are transferred with that licence.
Lodging a transfer of interest notice
If an entity transfers its interest in a petroleum interest, wholly or in part, it needs to give the receiving entity written notice of the transfer. The receiving entity then needs to give us a copy of the notice when it lodges its PRRT return.
Inherited exploration expenditure
If an entity transfers a petroleum interest, wholly or in part, the receiving entity is treated as having inherited the relevant percentage of the transferring entity's exploration expenditure incurred before the transfer. This is commonly called 'inherited exploration expenditure'.
Undeducted exploration expenditure incurred by an entity in relation to its petroleum interest generally has to be transferred to other PRRT petroleum projects with notional taxable profit (held by the entity or within the entity's related group of entities).
Before exploration expenditure can be transferred, the petroleum interests need to meet the common ownership rule. To meet the rule, the entity (or the wholly-owned company group) needs to have held an interest in both the transferring and receiving petroleum interests from the time the transferable exploration expenditure was incurred up until the time of the transfer.
This means that if a petroleum interest has been transferred, the common ownership rule is not met by the receiving entity for that petroleum interest. Therefore, any undeducted inherited exploration expenditure cannot be transferred to other projects held by the receiving entity or its related entities.
However, any exploration expenditure incurred after the transfer of the petroleum interest may be transferable to other projects held by the receiving entity or its related entities if the other transfer rules for exploration expenditure have been met.
Transferring an interest in a combined project
Entities that hold interests in, two or more petroleum projects can apply for the projects to be combined and treated as a single project for PRRT purposes if certain criteria are satisfied.
Where an entity transfers its interest in a combined project either wholly or in part, the receiving entity 'steps into the shoes' of the transferring entity and inherits the PRRT position for the transferred interest in the combined project.
Instalment transfer interest charge
An entity may be liable for an instalment transfer interest charge if both of the following apply:
- it receives benefits from a transfer of exploration expenditure in an instalment period
- the exploration expenditure is subsequently made non-transferable due to a transfer of interest in a petroleum interest.
If an entity is liable to pay instalment transfer interest charge, it will need to complete a Notification of petroleum resource rent tax (PRRT) instalment transfer interest charge (NAT 16121).
Explains the effects of transferring interests in petroleum titles including transfer of a whole interest and a partial interest.