Petroleum is any naturally occurring hydrocarbon or mixture containing hydrocarbons, whether in a gaseous, liquid or solid state, including coal seam gas and tight gas. From 1 July 2012, the definition was amended to include oil shale.
Marketable petroleum commodity (MPC)
An MPC is a product produced from petroleum. For PRRT purposes, the product is to be in its final form and with the purpose of being:
- for sale
- used as feedstock for conversion to another product
- used for direct consumption as energy.
The following products are MPCs for PRRT purposes:
- stabilised crude oil
- sales gas
- liquefied petroleum gas
- shale oil
- any other product declared by regulation to be an MPC.
A product cannot be an MPC if it has been produced wholly or partly from an MPC.
An excluded commodity is:
- an MPC that has been sold
- a commodity that has been produced from an MPC
- an MPC that has been moved away from the place of its production (other than to a storage site adjacent to that place)
- an MPC that has been moved away from a storage site adjacent to the place of its production.
Different MPCs require different levels of processing before they become an excluded commodity. Consequently, the position of the taxing point varies according to where an MPC becomes an excluded commodity.
The point at which petroleum, or products produced from petroleum, becomes taxable is commonly referred to as the taxing point. While the term is not defined in the legislation, it commonly refers to the point in time when the petroleum is sold or an MPC becomes an excluded commodity.
It is at the taxing point that assessable receipts are brought to account, and up to which eligible project expenditures incurred (deductible expenditure) are deducted to determine PRRT taxable profit.
The taxing point signifies the boundary between petroleum project operations, which fall within PRRT, and non-project operations, which do not.
PRRT is levied at the rate of 40% on the taxable profits derived from the petroleum project in a year of tax. A year of tax is the first financial year in which an entity derives assessable petroleum receipts and any subsequent financial year.
The taxable profit derived from a petroleum project in a year of tax is the excess of assessable receipts over the deductible expenditure and transferred exploration expenditure.
Assessable receipts and deductible expenditure
For PRRT purposes, assessable receipts are receipts derived in relation to a petroleum project and can be of a capital or revenue nature.
The classes of assessable receipts are:
- assessable petroleum receipts
- assessable tolling receipts
- assessable exploration recovery receipts
- assessable property receipts
- assessable miscellaneous compensation receipts
- assessable employee amenities receipts
- assessable incidental production receipts.
For PRRT purposes, deductible expenditure (also referred to as 'eligible real expenditure') is expenditure that is directly related to a petroleum project and can be of a capital or revenue nature. Certain types of expenditure are specifically excluded from being deductible and are known as excluded expenditure.
The categories of eligible real expenditure are:
- exploration expenditure
- general project expenditure
- resource tax expenditure
- acquired exploration expenditure
- starting base expenditure
- closing-down expenditure.
Generally, where there is an excess of deductible expenditure over assessable receipts the undeducted amount is uplifted, carried forward and applied against assessable receipts derived in later years of tax. The uplift rate is determined according to the category of expenditure and when it was incurred.
Year of tax
A year of tax is the first financial year in which an entity derives assessable petroleum receipts and any subsequent financial year. Substituted accounting periods do not apply to PRRT, therefore the year of tax will always start on 1 July and end on 30 June.
For onshore petroleum projects and interests in the North West Shelf project, the first year of tax is the financial year beginning on or after 1 July 2012.
Transfers in PRRT
Under PRRT, there are two types of transfers, transfers of:
- exploration expenditure between projects and group companies
- interests in petroleum titles, whether wholly or in part.
Definitions of key PRRT concepts.