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How to record look-back valuations
As an alternative to using market value or book value a taxpayer may choose to use the look-back approach4. Under the look-back approach, the taxpayer is able to account for expenditures incurred from 1 July 2002, that would have been deductible had the PRRT applied at that time, in calculating their tax liability post 1 July 20125.Where the look-back approach is chosen in relation to a project interest, there is no starting base amount. Instead, expenditures incurred in relation to the project interest from 1 July 2002 will be able to be taken into account in determining PRRT liability, consistent with existing PRRT deductible expenditure provisions.6.
Current income tax laws relating to document maintenance will assist taxpayers in determining their expenditure for recent years. Furthermore, most starting base assets are CGT assets. Therefore, where a taxpayer currently holds a CGT asset which was held on 1 May 2010, the taxpayer would already have information7 which may also assist in determining the expenditure.
However, there may be circumstances where a taxpayer has legitimately disposed of the documentation relating to the expenditure.
In such a circumstance, the ATO would accept the following, as prima facie evidence of expenditure:
- a combination of contemporaneous secondary documents (for example, audited financial statements, journal entries) rather than original documents that, as a whole, support the expenditure
- a copy of the exploration expenditure reports which are required to be reported to the relevant state or territory authority, or
- joint venture accounts subject to review processes under a joint venture agreement.
Generally, the relevant authority of each state or territory jurisdiction requires a taxpayer to expend a minimum amount for exploration on the relevant tenement. Therefore, where the taxpayer is unable to obtain an exploration expenditure report or other documentation, the expenditure for the period may be, depending upon the facts and circumstances, some or all of the state or territory's statutory minimum annual exploration expenditure for the period. Alternatively, and again depending on the circumstances, the ATO may accept a reasonable estimate of the expenditure.
The ATO is working to develop further guidance on:
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- the ATO's administrative approach to resource rent tax reviews of joint venture participants
- the look-back approach
- the alternative valuation method for a petroleum right with an identified coal seam methane resource in the three years to 1 May 20108 (may be provided).