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  • PRRT updates

    This is a summary of developments and concerns arising from our petroleum resource rent tax (PPRT) review activities.

    You should note these items and the additional guidance provided about our administration of the PRRT.

    Find out about:

    What’s new

    Residual Pricing Method – Translating expenditure into functional currency

    We've found that some participants in an integrated operation are incorrectly translating project cost information provided to them in a foreign currency.

    Under the PRRT legislation, foreign currency expenditure amounts must be translated into the taxpayer’s relevant currency, which is Australian currency, unless you choose to be bound by the functional currency rules. If you choose to be bound by the functional currency rules, the applicable functional currency applies. The exchange rate used must be the rate that applied when the expenditure occurred.

    You may be using an alternative method to translate downstream capital costs (DCC) and upstream capital costs (UCC) foreign currency amounts to calculate a residual pricing method (RPM) price. Consider whether the method used meets the requirements of the PRRT legislation.

    If you need help in applying the currency translation rules when calculating an RPM price, email us at

    Previous updates

    Parliament passes first tranche of PRRT amendments

    On 5 April 2019, the Treasury Laws Amendment (2019 Petroleum Resource Rent Tax Reforms No. 1) Bill 2019 received royal assent.

    From 1 July 2019:

    • the uplift rates that apply to certain categories of carried-forward expenditure will be reduced
    • onshore projects will be removed from the scope of the PRRT.

    Further details are available on the Parliament of AustraliaExternal Link website.

    On 5 April 2019, Treasury released a consultation paper on gas transfer pricing arrangements. The consultation paper is available on the Treasury websiteExternal Link and interested parties are encouraged to make a submission by 14 June 2019.

    Government response to Callaghan PRRT review

    On 2 November 2018, the government released its final response to the review of the PRRT undertaken by economist Mike Callaghan AM PSM.

    On 14 December 2018, the government released exposure draft legislation and explanatory material for public consultation. The draft legislation gives effect to the measures that change the uplift rates and removes onshore projects from the PRRT.

    Further details are available on the Treasury websiteExternal Link.

    Once the law has passed and received royal assent, we will progressively update PRRT guidance on our website.

    Functional currency translation rule

    In some instances, entities using the functional currency rules for PRRT purposes did not apply the applicable translation rule correctly to their assessable petroleum receipts.

    If an entity has made a functional currency election, any assessable petroleum receipt that is not in the applicable functional currency should be translated into it at the exchange rate applicable at the time the receipt is derived.

    See also:

    PRRT return – label 18A

    Some entities did not complete label 18A (expenses payable in relation to sales) of the PRRT return. This label provides us with comparative information and must be completed.

    Integrated GTL operation – RPM

    We have seen instances where entities in an integrated gas-to-liquid (GTL) operation incorrectly worked out their assessable petroleum receipts using the residual pricing method (RPM) provided under the Petroleum Resource Rent Tax Assessment Regulation 2015 (PRRT Regulation). In these cases, expenses payable in relation to sales were applied to the final amount worked out.

    If an entity has worked out its assessable petroleum receipts using the RPM, the final amount already incorporates any allowable expenses in relation to sales. As such, no further reductions apply.

    RPM – LNG freight costs

    We have seen entities include liquefied natural gas (LNG) freight costs as part of the downstream personal cost (DPC) component of the RPM calculation when working out their assessable petroleum receipts under the RPM method of the PRRT Regulation.

    If an entity has applied the RPM method to work out its assessable petroleum receipts, the DPC component incorporates expenses only from the downstream stage. The downstream stage ends with the storage or loading of LNG at an adjacent facility. Accordingly, LNG freight costs incurred after the end of the downstream stage should not be included in the DPC component in the RPM calculation.

    Public advice and guidance

    Amendments to PCG 2016/13

    We have amended practical compliance guideline (PCG) 2016/13 to include social infrastructure costs as high-risk expenditure likely to attract the allocation of a higher level of compliance resources.

    We've also added an example to show:

    • a range of costs aimed at benefiting the general community that will not be regarded as having a close and direct connection with the project
    • other types of costs that may be deductible, to the extent that such costs reasonably reflect the use of the facilities, operations and other activities that comprise the project and can be reasonably allocated to the project.

    See also:

    • PCG 2016/13 Petroleum Resource Rent Tax – deductibility of general project expenditure – This PCG explains how we will allocate compliance resources according to our assessment of risk in relation to general project expenditure.
    • PCG 2016/12 Petroleum Resource Rent Tax – deductibility of general project expenditure relating to the overhead component of time written costs – This PCG is about the deductibility of general project expenditure relating to the overhead component of time written costs charged to a joint venture billing statement or sole risk operation account. It explains our compliance approach to applying section 38 of the PRRTAA.

    Release of TR 2018/1

    Taxation Ruling (TR) 2018/1 is about the characterisation of abandonment, decommissioning and rehabilitation expenditure (ADRE) incurred on a part of a petroleum project before a project is completely closed down.

    The ruling provides the Commissioner’s view and examples of what is considered to be ADRE incurred on a part of a petroleum project under section 38 (about general project expenditure) or section 39 (about closing-down expenditure) of the Petroleum Resource Rent Tax Assessment Act 1987 (PRRTAA). This ruling applies to years of income starting both before and after its date of issue.

    See also:

    • TR 2018/1 Petroleum resource rent tax: character of expenditure incurred in relation to abandonment, decommissioning and rehabilitation activities undertaken on a part of a petroleum project
    Last modified: 16 Jan 2020QC 52338