An entity with an interest in a petroleum project may have lodgment, reporting and payment obligations under the petroleum resource rent tax (PRRT). For example, an entity needs to lodge quarterly instalment statements and an annual PRRT return if it derives assessable receipts and the tax is payable in quarterly instalments.
An entity with an interest in an exploration permit or retention lease does not have a liability to pay PRRT. However, it may benefit from understanding aspects of PRRT which may affect it now and into the future. This information helps it consider record keeping requirements.
An entity with an interest in a petroleum project entering the PRRT regime for the first time may consider registering for PRRT and providing up-to-date contact details.
We can then provide the entity with information to help it make PRRT decisions.
If an entity has a PRRT payment liability we issue it with a unique payment reference number (PRN) so it can pay electronically.
An entity with an interest in an exploration permit or retention lease may also choose to register for PRRT.
As PRRT is assessed on a project basis, an entity that wants to register lodges a separate registration form with us for its interest in each petroleum project, exploration permit or retention lease.
An entity needs to pay its PRRT liability for a year of tax in three cumulative quarterly instalments with a final payment (if any) when it lodges its PRRT return.
The year of tax for PRRT purposes begins on 1 July and ends on 30 June the following year. An entity is not able to choose a substituted accounting period for PRRT.
PRRT instalments of tax are due and payable on or before the following dates of each year of tax:
- 21 October
- 21 January
- 21 April.
PRRT instalment statements need to be lodged on or before those dates for a relevant instalment period.
PRRT instalments are cumulative with each instalment period effectively treated as a year of tax. An instalment period is the period starting at the beginning of the year of tax and ending at the end of the month before the month in which the instalment is due and payable. That is, the instalment period is the three month, six month or nine month period ending on the following dates in a year of tax:
- 30 September
- 31 December
- 31 March.
The current liability for each instalment period takes into account actual receipts and expenditure in that current year of tax up to the end of the instalment period and a proportionate amount of any undeducted expenditure and transferred exploration expenditure calculated based on the following percentage amounts:
- first instalment period – 25%
- second instalment period – 50%
- third instalment period – 75%.
The previous instalment period liability is then deducted from the current instalment period liability to determine the instalment of tax payable.
However, an entity is not required to lodge an instalment statement until it has a liability for an instalment period.
Once an entity lodges an instalment statement, it needs to lodge an instalment statement for each subsequent instalment period, even if the instalment amount payable for the period is nil.
As PRRT is assessed on a project basis, an entity needs to prepare and lodge separate instalment statements for each interest it has in a petroleum project.
An entity with an interest in a petroleum project that is in commercial production needs to lodge a PRRT return for a year of tax, even if its taxable profit is nil.
The due date for lodgment of a PRRT return is no later than 60 days after the end of a year of tax, being on or before 29 August, or within such further period as we allow.
Any final payment of tax is also due to be paid on 29 August following the end of the year of tax. However, if the PRRT instalments paid for the year of tax exceed the assessed PRRT liability for the year, a refundable amount arises.
As PRRT is assessed on a project basis, an entity needs to prepare and lodge separate PRRT returns for each interest it has in a petroleum project.
An entity needs to lodge a notification of transfer of PRRT exploration expenditure if a transfer of certain exploration expenditure is made from another interest in a petroleum project, exploration permit, or retention lease held by the entity or a related group company.
The entity needs to lodge the notice within 60 days of the end of the financial year. This requirement may be met by lodging the notice with the PRRT return of the receiving project for the year of tax in which the transfer was made.
- Notification of transfer of PRRT exploration expenditure
- Instructions for notification of transfer of PRRT exploration expenditure
An entity needs to lodge a PRRT notification of transfer of an interest in a petroleum title (for the purposes of the notice, that is a petroleum project, exploration permit or retention lease) if it enters into a transaction that transfers the whole or part of an entitlement to derive future assessable receipts from that petroleum title.
The notice needs to be given to the purchaser of the interest that is being transferred within the latest of 60 days after either:
- entering into the transaction
- the purchaser gives consideration for the entitlement and the property.
The purchaser needs to provide a copy of the notice to us when it lodges a PRRT return for the relevant petroleum project.
- PRRT notification of transfer of an interest in a petroleum title
- Instructions for PRRT notification of transfer of an interest in a petroleum title
An entity needs to lodge a notification of PRRT instalment transfer interest charge if an instalment transfer excess arises.
An instalment transfer excess arises when an amount of transferred exploration expenditure for a particular instalment period is reversed in a subsequent instalment period or at the end of the year of tax. As a result, the entity may have underpaid its instalments of tax and an instalment transfer interest charge may apply.
An amount of transferred exploration expenditure may need to be reversed because of a transfer in the ownership of the project from which the exploration expenditure was transferred. An instalment transfer excess arises because a breach in the common ownership rule has occurred during a year of tax.
If a reversal of a transfer occurs for reasons other than a breach of the common ownership rule (such as insufficient taxable profit of the receiving project) then an instalment transfer excess does not arise.
Any instalment transfer excess can be reduced or eliminated by certain offsets. There is no instalment transfer excess if the amount that was transferred in the instalment period is otherwise used by the end of the year for another project or if an equivalent amount is transferred from another interest in a petroleum title.
Example: offsetting the instalment transfer excess
Lexi LPG Pty Ltd has an interest in three petroleum projects – projects A and B which are both generating a taxable profit of $10 million and project C which is not generating a taxable profit and has incurred enough transferable exploration expenditure to reduce either project A or B's taxable profit to nil.
Lexi LPG Pty Ltd transfers the transferable exploration expenditure incurred by project C ($10 million) to project A in the first instalment period (ending in September) of the year of tax. Project A is then sold in the second instalment period (ending in December) to an unrelated party causing a breach of the common ownership rule and a reversal of the transfer.
Ordinarily, an instalment transfer excess of $10 million is created for the second instalment period and Lexi LPG Pty Ltd, which received the benefit of the transfer in the first instalment period, would be liable to pay the instalment transfer interest charge for that excess. However, it can eliminate this instalment transfer excess by transferring the relevant exploration expenditure to project B.End of example
The method we use to calculate the instalment transfer interest charge is the same method we use to calculate a shortfall interest charge except that the interest rate is different. That is, the shortfall interest charge uses a base rate plus an uplift factor, while the instalment transfer interest charge uses the base rate with no uplift factor.
Therefore, the instalment transfer interest charge is not a penalty. Instead, it recoups (approximately) the time value of money associated with the excess transfer of exploration expenditure.
Lodging the notification
An entity that is liable for an instalment transfer interest charge needs to lodge the notice within 60 days after the end of the year of tax. It needs to lodge a separate notice for each project where an instalment transfer interest charge arises.
The notice may be lodged with the PRRT return.
We assess the amount of the interest charge and provide the entity with a notice stating the amount of the instalment transfer interest charge liability.
An entity liable for the instalment transfer interest charge can request we remit the charge by completing the relevant section of the notification. It can also object to a decision not to remit an amount of instalment transfer interest charge as set out in Part IVC of the Taxation Administration Act 1953.
- Notification of PRRT instalment transfer interest charge
- Instructions for notification of PRRT instalment transfer interest charge
- Object to an ATO decision
PRRT assessments are subject to a period of review, during which the entity or we may initiate an amendment to the assessment.
The period of review restricts the time in which an assessment may be amended. For the PRRT, the period of review is generally four years, unless extended.
The day the four-year period begins depends on when the entity receives its assessment.
If an entity's assessment is an original self-assessed – for example, initial PRRT returns – the period of review starts on the day the return is lodged with us, regardless of whether the return is lodged early or late.
If an entity's assessment is an amended assessment – for example, amendments to PRRT returns – the period of review starts on the day we give the entity the notice of the assessment (but only for the amended item or items).
In certain circumstances, the period of review may be extended. This can only be done by Federal Court order or with an entity's consent.
An entity can lodge an amendment request during the applicable period of review. In certain circumstances, an assessment may be amended outside of the period of review – for example, to give effect to a private ruling or objection.
We can amend an assessment during the applicable period of review.
We may amend an assessment at any time in certain circumstances involving:
- fraud or evasion
- an objection, review or appeal
- profit shifting
- cancellation of a combination certificate
- the rules associated with transferred exploration expenditure.
Objecting to a decision and other review mechanisms
An entity has the right to make an objection to a decision made by us within certain time limits.
An entity also has the right to apply to the Administrative Appeals Tribunal or the Federal Court of Australia for a review of some of our actions or decisions.
However, in most cases, the entity needs to lodge an objection with us and be dissatisfied with the outcome before it can seek an external review by the Administrative Appeals Tribunal or appeal to the Federal Court of Australia.
There are also other avenues for external review of our decisions, such as the Taxation Ombudsman.
Alternative dispute resolution
We support the use of alternative dispute resolution (ADR) in appropriate cases as a cost effective, informal, consensual and speedy means of resolving disputes.
ADR may also be used to resolve or narrow issues in dispute, streamline procedures and deal with ongoing relationship issues between the parties.
See also:Petroleum resource rent tax (PRRT) obligations, including returns, instalments and key dates.