ATO Interpretative Decision

ATO ID 2007/96

Petroleum Resource Rent Tax

Transferability of exploration expenditure: project interest transferred from common owner to common acquirer
FOI status: may be released

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Issue

Group company A holds an interest in an exploration permit and a production licence. If these interests are transferred to group company B, is the transferability of the exploration petroleum resource rent tax (PRRT) credits from the exploration permit to the production licence preserved?

Decision

No. If group company B acquires interests in both the exploration permit and the production licence from group company A, the transferability of the exploration PRRT credits from the exploration permit to the production licence would not be preserved.

Facts

Group company A became a member of the company group prior to 1 July 2006. It had incurred exploration expenditure in relation to the exploration permit prior to this date. Prior to transferring its interests to group company B, group company A is able to transfer exploration PRRT credits from the exploration permit to the production licence in which it holds an interest.

Group company B intends acquiring interests in the exploration permit and the production licence from group company A after 1 July 2006.

Reasons for Decision

Sections 45A and 45B of the Petroleum Resource Rent Tax Assessment Act 1987 (PRRTAA) allow the transfer of exploration PRRT credits by a person to a petroleum project owned by the person and a group company respectively. These transfers are subject to meeting the continuity of ownership tests prescribed in clauses 22 and 31 respectively of the Schedule (the Schedule) to the PRRTAA.

The test prescribed in clause 22 of the Schedule requires the person to hold an interest in the transferring entity (exploration permit) and the receiving project (production licence) from the start of the financial year in which the expenditure was incurred to the end of the transfer year (the test period). Group company A is able to transfer exploration PRRT credits under section 45A of the PRRTAA because it meets the continuity of ownership test prescribed in clause 22. However, after the proposed transfer, group company B would fail the ownership test in clause 22 as it did not hold an interest in both the transferring entity and the receiving project for part of the test period. Clause 31 of the Schedule would not apply to this situation as clause 31 of the Schedule applies to the transfer of exploration PRRT credits from one group company (loss company) that holds an interest in the transferring entity to another group company (profit company) that holds an interest in the receiving project.

Date of decision: 28 February 2007

Year of income: Year ended 30 June 2006

Legislative References:
Petroleum Resource Rent Tax Assessment Act 1987
   section 2B
   section 41
   section 45A
   section 45B
   section 48
   section 48A
   Schedule, Part 1, Clause 1
   Schedule, Part 1, Clause 2
   Schedule, Part 1, Clause 3
   Schedule, Part 2
   Schedule, Part 3
   Schedule, Part 4
   Schedule, Part 5, Clause 19
   Schedule, Part 5, Clause 20
   Schedule, Part 5, Clause 21
   Schedule, Part 5, Clause 22
   Schedule, Part 5, Clause 23
   Schedule, Part 5, Clause 24
   Schedule, Part 5, Clause 25
   Schedule, Part 5, Clause 26
   Schedule, Part 6, Clause 27
   Schedule, Part 6, Clause 28
   Schedule, Part 6, Clause 29
   Schedule, Part 6, Clause 30
   Schedule, Part 6, Clause 31
   Schedule, Part 6, Clause 32
   Schedule, Part 6, Clause 33
   Schedule, Part 6, Clause 34
   Schedule, Part 6, Clause 35

Petroleum Resource Rent Tax Assessment Amendment Act 2006
the Act

Related ATO Interpretative Decisions
ATO ID 2007/97

Keywords
Continuity of ownership
Group companies
Petroleum resource rent tax
PRRT exploration expenditure
PRRT transferable exploration expenditure

Siebel/TDMS Reference Number: 5665628

Business Line: Public Groups and International

Date of publication: 11 May 2007

ISSN: 1445-2782

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