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PRRT risks

Outlines the risks we have identified around petroleum resource rent tax (PRRT) based on risk indicators.

Last updated 17 June 2020

There are PRRT risks associated with:

Assessable receipts risks

Taxpayers may understate assessable receipts for a petroleum project by:

  • misrepresenting taxing points for a petroleum project (more often a sales gas project risk)
  • misapplying applicable regulations for a liquefied natural gas (LNG) project
  • overstating expenses associated with the sale of a marketable petroleum commodity (MPC) including related entity expenses.

Risk indicators:

  • the PRRT returns of all project participants
  • third party data
  • joint venture, sales, marketing and other contracts (including those between related parties).

Deductible expenditure risks

Taxpayers may overstate deductible expenditure for a petroleum project by including:

  • expenditure that they should exclude
  • non-project related costs as project related costs (either as sole costs or joint venture costs).

Risk indicators:

  • the PRRT returns of all project participants
  • third-party data
  • joint venture, service and other contracts (including those between related parties).

Transferred exploration expenditure risks

Taxpayers may overstate transferable exploration expenditure from a petroleum project by:

  • misclassifying petroleum project development expenditure as exploration expenditure
  • transferring exploration expenditure of a petroleum project that does not satisfy the applicable transfer rules.

Risk indicators:

  • third-party data
  • material that explains the nature of the expenditure transferred.

Governance and record keeping risks

Taxpayers may misstate their liability due to inadequate record keeping and governance by:

  • relying on operator provided joint venture accounts rather than undertaking their own analysis
  • having inappropriate or insufficient risk mitigation to comply with their PRRT obligations
  • inadequately recording PRRT related transactions and decisions.

Risk indicators:

  • board and senior management oversight of PRRT risk management
  • strong internal control mechanisms
  • adequate resourcing of the PRRT tax function
  • robust day to day accounting and control mechanisms relating to PRRT.

We may consider material indicating taxpayer compliance with the ATO and internationally accepted tax risk management and governance standards including: