Starting base assets
If the look-back approach is chosen for the petroleum interest, the petroleum interest does not have any starting base assets.
For more information on valuing a petroleum interest using the look-back approach, see Under the look-back approach.
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A starting base asset is any kind of property, or legal or equitable right, related to a petroleum interest that existed just before 2 May 2010 and which was used, or being constructed for use, in carrying on a project activity on 2 May 2010.
Project activities are those activities done in carrying on or providing the operations, facilities and other things (including services and amenities) on which expenditure would have been deductible, as either exploration or general project expenditure, had PRRT applied when the expenditure was incurred.
The asset concept is broad, encompassing all types of legal property and rights. Starting base assets can include the following:
- Christmas trees (oil heads)
- drilling equipment
- buildings or land.
Holding starting base assets
For an asset to be a starting base asset, an entity needs to hold the asset at all times over the interim period from 2 May 2010 to 30 June 2012. If an asset that was held on 2 May 2010 is not held in relation to the interest on 30 June 2012, it is not included as a starting base asset in working out the starting base amount.
If the petroleum interest is transferred to another entity before 1 July 2012, the assets are still starting base assets, provided they continued to be held and used, or were being constructed for use, by an entity in relation to the interest up until 30 June 2012.
The principle of holding a starting base asset also relates to when an amount of expenditure can be included as interim expenditure relating to a starting base asset.
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Example: Holding a starting base asset
Good Oil Ltd has a petroleum interest on 9 August 2009. It has three trucks which are used exclusively in relation to the petroleum interest. On 23 April 2011, Good Oil sells the petroleum interest and the three trucks to Big Rig Ltd, which also uses the trucks exclusively in relation to that petroleum interest. Big Rig continues to hold the petroleum interest and the trucks until after 1 July 2013.
Big Rig chooses the market value approach for the petroleum interest and includes the three trucks as starting base assets. Even though Big Rig did not hold the trucks for the entire interim period, the trucks are included as starting base assets because they were continually used in relation to the same petroleum interest and they were owned by the entity that held the petroleum interest for the entire interim period.
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Certain assets excluded under the book value approach
Certain assets are excluded from being starting base assets if the book value approach is chosen for a petroleum interest. The excluded assets are:
- rights and interests that constitute the project
- mining, quarrying or prospecting information, or rights to such information
Market value approach starting base assets
Certain assets are taken to be a single starting base asset if the market value approach is chosen for a petroleum interest. The assets that form a single starting base asset are any of:
- mining, quarrying or prospecting information
- rights to such information.
No double counting of starting base assets
If a production licence is derived between 2 May 2010 and 30 June 2012 from an exploration permit or a retention lease that existed before 2 May 2010, the result may be that the entity holds an interest in two petroleum projects:
- the petroleum project that relates to the production licence
- a petroleum project that may, in the future, be derived from the remaining exploration permit or retention lease.
Consistent with existing PRRT provisions, the starting base assets relating to the entity's interest in the exploration permit or retention lease that existed before 2 May 2010 become those of the derived production licence. As a result, they cannot also be starting base assets of another project derived from the remaining exploration permit or retention lease in the future.
This means that the entity's interest in the remaining exploration permit or retention lease is treated as commencing at the time the production licence was derived from the original exploration permit or retention lease. As a result, the interest in the remaining exploration permit or retention lease is not entitled to a starting base amount. However, eligible real expenditure incurred by the entity in relation to that interest is deductible under existing PRRT principles.