What’s new
PRRT deductions cap – return and instalment statement deferrals
The PRRT deductions cap applies from 1 July 2023. For more information, see PRRT deductions cap – return and instalment statement deferrals.
Our PRRT compliance approach
We take a risk-based approach to petroleum resource rent tax (PRRT) compliance, segmenting the population based on relative impact on the system. The population segments are high, medium and low impact.
Application of the compliance approach and our engagements with you will vary depending on which segment of the PRRT market you are in.
As always, we encourage you to contact us at prrt@ato.gov.au to clarify our view on the operation of the PRRT law, no matter where you fall in the market.
High impact
Most of our attention will focus on the highest impact taxpayers. We will contact you to let you know if you fall into this population segment.
We will review high impact taxpayers on an annual basis.
The intensity of our engagement will vary based on our assessment of risk in 3 focus areas:
- Significant and new PRRT transactions
- Key tax risks and tax risks flagged to market
- PRRT systems and procedures.
After the initial review, our engagement approach will be based on the risk rating.
|
High risk |
Medium risk |
Low risk |
|---|---|---|
|
Annual risk review and audits |
3-year cycle Years 1 and 2, desktop review with engagement on a limited basis (for example, risks rated as high risk). Year 3, standard risk review. |
4-year cycle Years 1 to 3, desktop review with engagement on an exceptions basis (e.g. new risk identified). Year 4, standard risk review. |
Medium impact
The medium impact segment comprises those taxpayers who are PRRT payable but don't fall within the high impact segment.
Generally, we will engage with this segment through indirect approaches such as letter campaigns, website updates and public advice and guidance. Where risk is identified through our routine compliance processes, we will engage directly through risk reviews or audits.
Low or no impact taxpayers
This segment comprises of the non-PRRT payable oil and gas projects.
For this group, we will primarily engage using indirect compliance approaches such as letter campaigns, website updates and public advice and guidance.
Get the latest PRRT updates from the ATO
You can subscribe to our Business bulletins newsletterExternal Link for future updates about the PRRT.
PRRT Assessment Regulations 2024 now registered
The new Petroleum Resource Rent Tax Assessment Regulations 2024External Link were registered on the Federal Register of Legislation on 6 August 2024.
These new regulations respond to recommendations from the Treasury Gas Transfer Pricing reviewExternal Link. They include changes to better accommodate commercial tolling arrangements and enhance the integrity rules.
PRRT anti-avoidance rules and PRRT exploration for petroleum now law
Parliament has enacted the Treasury Laws Amendment (Delivering Better Financial Outcomes and Other Measures) Act 2024External Link.
The changes amend the PRRT anti-avoidance rules to align with the general anti-avoidance provisions in Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) with effect from 1 July 2023.
Parliament has also clarified that the phrase 'exploration for petroleum' for PRRT purposes is limited to the ‘discovery and identification of the existence, extent and nature of the petroleum resource’ and does not extend to ‘activities and feasibility studies directed at evaluating whether the resource is commercially recoverable’. This change is effective from 21 August 2013.
Previous updates
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 prrt@ato.gov.au.
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.
For more information see our Guide to functional currency rules.
Integrated GTL operation – RPM
We've seen instances where entities in an integrated gas-to-liquid (GTL) operation incorrectly worked out their assessable petroleum receipts using the RPM provided under the 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've 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 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 added an example in Practical Compliance Guideline PCG 2016/13 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 information, 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 Petroleum resource rent tax: character of expenditure incurred in relation to abandonment, decommissioning and rehabilitation activities undertaken on a part of a petroleum project 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 PRRTAA. This ruling applies to years of income starting both before and after its date of issue.