Show download pdf controls
  • Consolidation of interests in a PRRT project

    Wholly-owned groups that have consolidated for income tax purposes are able to make a choice to consolidate their interests in onshore petroleum projects for petroleum resource rent tax (PRRT) purposes.

    Eligibility

    A head company of a consolidated group or multiple entry consolidated (MEC) group or a provisional head company (PHC) of a MEC group for income tax purposes can choose to consolidate the group's interests in certain petroleum projects for PRRT purposes.

    Consolidation for PRRT purposes only applies to interests held by a wholly-owned group in onshore petroleum projects. It does not apply to interests held in offshore petroleum projects including the North West Shelf project.

    For PRRT purposes, a petroleum project is taken to exist where there is a production licence in force. Where entities hold an interest in an exploration permit or retention lease, this will not constitute a project for PRRT purposes and these interests cannot be consolidated.

    Effects of choosing to consolidate for PRRT purposes

    Where a group consolidates for PRRT purposes, all the onshore petroleum project interests held by subsidiary members are treated as being transferred to the head company of the group.

    The broad effect of this is that the subsidiary members of the group are taken to be part of the head company of the group, for the purpose of working out all of the following:

    • the head company's and subsidiary members' interests in onshore petroleum projects
    • the assessable receipts and deductible expenditure under the PRRT legislation for those interests
    • the PRRT payable for those interests.

    This means that all the onshore petroleum project interests of the group are treated as being the interests of the head company. Therefore, if an interest is transferred between two entities in the group, the transfer is ignored for PRRT purposes.

    It is important to note that the consolidation rules do not alter the way PRRT is calculated on a project basis. For example, if members of a wholly-owned group hold a number of interests in three separate onshore petroleum projects, upon consolidating for PRRT, the head company will be taken to hold a single interest in each of the three projects and will be responsible for the PRRT obligations for each project interest.

    However, PRRT consolidation reduces compliance costs for wholly-owned groups. It does this by replacing multiple reporting and payment requirements with a single PRRT return, starting base return and PRRT instalments for the entire group for all of the group's interests in each onshore petroleum project. Apart from this, the members of the group will be jointly and severally liable for paying the head company's PRRT liabilities if the head company does not pay them.

    It is also important to note that the interests that a group member holds in offshore petroleum projects including the North West Shelf project are unaffected by the choice to consolidate for PRRT purposes. This means that entities holding interests in offshore projects including the North West Shelf project will still be required to account for those interests and meet those PRRT obligations separately.

    The choice to consolidate also does not affect the interests held by group entities in onshore exploration permits and retention leases. The entities need to account for those interests separately until such a time as a production licence comes into force. At that time, the interest in the resulting petroleum project will become an interest of the head company.

    Finally, the choice to consolidate will make no difference as to whether some of the projects can be combined. Whether projects can be combined remains dependant on the resource minister's consideration of certain criteria unaffected by consolidation.

    See also:

    Entering or exiting a consolidated group for PRRT purposes

    Special rules apply to entities that join or leave a group that is consolidated for income tax and that has chosen to consolidate its interests in onshore petroleum projects for PRRT purposes.

    Entities can join a consolidated group or MEC group either when the group forms or when the group acquires the entity some time after the group is formed. In either case, when the entity joins a group it is treated as transferring its interests in onshore petroleum projects (if any) to the group's head company. This includes transferring to the head company the history of assessable receipts and deductible expenditure the joining entity brings with them.

    In addition, the joining entity will need to complete the relevant transfer notice to be provided to the head company for the head entity to lodge a copy of the notice with us.

    The joining entity remains liable for any PRRT liabilities that arose for the transferred interest before the transfer year.

    When an entity leaves a consolidated group or MEC group, just after the leaving time, the head company or PHC is taken to have transferred to the leaving entity the relevant interest in any onshore petroleum projects that the leaving entity takes with them.

    In this case, the leaving entity will become liable for any PRRT liabilities that arise for the transferred interest from the beginning of the transfer year.

    The head company will need to complete the relevant transfer notice to be provided to the leaving entity for it to lodge a copy of the notice with us.

    When an entity leaves one consolidated group or MEC group and joins another consolidated group or MEC group (that is, when one group acquires an entity from another group), the transfer rules operate to do both of the following:

    • transfer the relevant onshore petroleum project interests from the head company of the relinquishing group to the leaving entity
    • then transfer the same interests from that entity to the head company of the acquiring group.

    In addition, the head company of the relinquishing group will need to complete the relevant transfer notice to be provided to the head company of the acquiring group for the acquiring head company to lodge a copy of the notice with us.

    See also:

      Last modified: 24 Nov 2016QC 27327