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  • PRRT updates

    A summary of review activities and developments relating to the petroleum resource rent tax (PRRT).

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    What’s new

    Tolling Arrangements and the PRRT Regulation

    We have recently considered how the pricing rules contained in the Petroleum Resource Rent Tax Assessment Regulation 2015 (PRRT Regulation) apply to a tolling arrangement. The arrangement arises where an offshore petroleum project contracts with another unrelated and separate offshore project for the processing of its natural gas into liquified natural gas in an integrated gas to liquid operation (IGTL).

    The PRRT Regulation provides for the calculation of a gas transfer price in an IGTL operation using the residual pricing method.

    Participants in an IGTL operation who have their gas processed under a tolling arrangement and have access to all capital and operating cost information, may use the Residual Price method (RPM) price calculated according to the method outlined in section 30 of the PRRT Regulation.

    Participants in an IGTL operation who pay a toll fee to the operator of the tolling facility and do not have sufficient access to the cost information, cannot workout the RPM price using the method statement in section 30. Instead, they should approach us to obtain an Advance Pricing Arrangement or arrive at an RPM price in agreement with the Commissioner under section 25 of the Regulation.

    The ATO, through the Energy and Resources (E&R) Working Group, is discussing the need for additional guidance associated with the operation of the regulations, including tolling arrangements. We encourage you to contact us directly to discuss your specific circumstance and share examples where you have encountered difficulty in applying the Regulation, so we can improve its operation. Alternatively work with your E&R Working Group representative to provide us with feedback on the operation of the Regulation.

    You can contact us by email at or e&

    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.

    Further information can be found in our Guide to functional currency rules.

    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

    Impact of Shell decision

    The decision of Commissioner of Taxation v Shell Energy Holdings Australia Limited [2022] FCAFC 2 (Shell) considered the meaning of ‘exploration for petroleum’ in the Petroleum (Submerged Lands) Act 1982 (WA) and Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth) (the Petroleum Acts).

    We do not consider that Shell impacts on the meaning of ‘exploration for petroleum’ in section 37 of the Petroleum Resource Rent Tax Assessment Act 1987 (PRRTAA).

    Shell did not decide the meaning of “exploration for petroleum” for the purpose of section 37.

    The Court decided a wide reading of ‘exploration’ was necessary to avoid a gap in the regulatory scheme for the exploration and exploitation of natural resources in Australia’s continental shelf. A wide reading ensures the Petroleum Acts regulate all offshore exploration and exploitation activities.

    There is no equivalent policy need to ensure that expenditure on all offshore exploration and exploitation activities is deductible under the PRRTAA.

    There is a deduction available under section 38 of the PRRTAA for ‘general project expenditure’, which expressly includes feasibility studies.

    We consider Taxation Ruling TR 2014/9 Petroleum resource rent tax: what does ‘involved in or in connection with exploration for petroleum’ mean? still correctly states the meaning of ‘exploration’ for the purposes of section 37.

    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.

    For further guidance material, see:

    • 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.

    Last modified: 10 Aug 2022QC 52338