Edited version of private advice

Authorisation Number: 1012623234402

Ruling

Subject: Petroleum Resource Rent Tax - Transfer time for petroleum interests

Issue 1 Question 1

For the purposes of section 48 of the Petroleum Resource Rent Tax Assessment Act 1987 (PRRTAA), is the transfer time for the transfer of the interest in various exploration permits to you a date that is on or before 30 June 2013?

Answer

No

Issue 1 Question 2

Are you the holder of an interest in various exploration permits on 30 June 2013 under section 4B of the PRRTAA?

Answer

No

Issue 1 Question 3

Are you entitled to choose a starting base valuation approach under clause 3 of Schedule 2 to the PRRTAA for the interest in various exploration permits?

Answer

No

This ruling applies for the following periods:

Year ended 30 June 2013

Year ended 30 June 2014

Relevant facts and circumstances

The following facts were provided in a private ruling application and in correspondence after that time.

You signed an asset sale agreement (ASA) to purchase the various exploration permits.

ASA

The relevant clauses from the ASA provide:

The Definitions Clause contains the following definitions:

• Completion Date means the specified number of days after the conditions precedent are satisfied or have been waived or any other date the parties agree in writing.

• Effective Date is the date of this document.

• Joint Venture means the Joint Venture as relevant.

• Joint Venture Assets includes, in respect of the Joint Venture petroleum produced by that Joint Venture on or after the Effective Date

• Joint Venture Interests means the Vendor's participating interest in the Joint Venture and the Joint Venture Assets, as modified by any relevant Farmin Agreements.

• Sale Assets means Registered Interests, Farmin Interests, Joint Venture Interests, Other Interests and information and project facilities to the extent they are not part of the joint venture.

The Sale of Sale Assets Clause provides that, subject to the terms and conditions of the contract, the Vendors agree to sell to the Purchaser and the Purchaser agrees to purchase from the Vendors the Sale Assets free from Encumbrances for the Purchase Price.

The Transfer of Risk Clause provides that, subject to the completion taking place and the terms of this document the sale and purchase of the Sale Assets will be deemed to have taken effect on and from the Completion Date; and title to, and the risk of, the Sale Assets will be deemed to have passed to the Purchaser on the Completion Date.

The Conditions Precedence Clause provides that, other than that clause and the clauses and parts of clauses required to make it operational, all other clauses do not become binding unless and until:

• the Minister giving Indicative Consent for the transfer of the Registered Interests in respect of the Initial Tenement that is (i) unconditional or (ii) subject to conditions that are acceptable to the Purchaser (acting reasonably); and

• each of the stakeholders specified in the clause consents in writing to the assignment of the interests relevant to PL A pertaining to the Sale Assets to the Purchaser.

Non-satisfaction of conditions precedent:

• If, because of a party not making best endeavours the conditions precedent are not satisfied or waived then the non-defaulting party may, before satisfaction or waiver of the condition, terminate this document by given notice to the other parties.

• If this document is terminated then all rights and obligations under this document other than those in the specified clauses and rights that accrue before the date of that notice terminate on the day of the notice.

The Indicative Consent for Sale Assets clause in part provides that if the Indicative Consent for any of the Sale Assets has not been obtained prior to the date that is the specified number of days before the Completion Date then the Purchaser must proceed with the Completion of the Sale of Assets in the manner as set out in the contract.

Written consent from stakeholders as required by the conditions precedent was received after 30 June 2013.

Some exploration permits had received Indicative Consent after 30 June 2013 while others are still pending.

The completion date for the ASA was agreed by the parties as provided for in the contract in the circumstances where indicative consent had not been received.

Relevant legislative provisions

Section 2 Petroleum Resource Rent Tax Assessment Act 1987

Section 4B Petroleum Resource Rent Tax Assessment Act 1987

Section 48 Petroleum Resource Rent Tax Assessment Act 1987

Subsection 48(1A) Petroleum Resource Rent Tax Assessment Act 1987

Part V Subdivision 6A Petroleum Resource Rent Tax Assessment Act 1987

Part V Division 8 Petroleum Resource Rent Tax Assessment Act 1987

Schedule 2 clause 3 Petroleum Resource Rent Tax Assessment Act 1987

Schedule 2 paragraph 3(1)(b) Petroleum Resource Rent Tax Assessment Act 1987

Reasons for decision

Issue 1 Question 1

Summary

For the purposes of section 48 of the PRRTAA, the transfer time for the transfer of the interest in the exploration permits to you is not a date that is on or before 30 June 2013 because the parties' commitment to the transaction to transfer these interests has not been finalised by that date.

Detailed reasoning

You executed the ASA prior to 30 June 2013 to acquire interest in the exploration permits. An interest in an exploration permit is not an interest in a petroleum project for PRRT purposes. A petroleum project is taken to exist in relation to an eligible production licence only when the eligible production licence is in force. Miscellaneous Taxation Ruling MT 2004/1 Petroleum resource rent tax: effects of transferring an interest in an exploration permit or retention lease provides the Commissioner's view in relation to whether sections 48 and 48A of the PRRTAA apply where a vendor transfers all or a part of an interest in an exploration permit or retention lease at any time when an eligible production licence is not in force.

Paragraph 5 of MT 2004/1 states:

Sections 48 and 48A of the Act apply to a transaction that has the effect of transferring an entitlement of a vendor to derive assessable receipts in relation to a petroleum project whether or not an eligible production licence is then in force and whether or not an eligible production licence ever comes into force in relation to the project. So the sections apply when there is only the transfer of an interest in an exploration permit or retention lease or in any other entitlement at any time when an eligible production licence is not in force.

You executed the ASA prior to 30 June 2013 to acquire the relevant interests in various exploration permits from the relevant vendors. The percentage interests you are acquiring in each exploration permit represent each vendor's whole entitlement in that ATP. Therefore, section 48 of the PRRTAA applies as the vendors are transferring their whole entitlement in the relevant exploration permit to you under the ASA.

Section 48 of the PRRTAA applies if a person enters into a transaction that has the effect of transferring a vendor's whole entitlement to derive assessable receipts to a purchaser in relation to a petroleum project and the purchaser gives consideration for that transfer. Subsection 48(1A) states:

48(1A) This section applies if:

(a) at a particular time (the transfer time) a person (the vendor) enters into a transaction in relation to a petroleum project; and

(b) the transaction has the effect of transferring to another person or persons (the purchasers):

(i) the whole of the vendor's entitlement to derive, after the transaction, assessable receipts in relation to the project; and

(ii) any property held by the vendor that is being used in relation to the project; and

(c) the purchasers give consideration for the entitlement and property.

The transaction may occur at any time (even before the vendor's first year of tax in relation to the project).

The transfer time is when the vendor enters into the transaction that has the effect of transferring the vendor's whole entitlement to derive assessable receipts to a purchaser in relation to a petroleum project.

Paragraph 5.14 of the Explanatory Memorandum to the Petroleum Resource Rent Tax Assessment Amendment Bill 2006 provides that 'entering into a transaction' for the purposes of section 48 is taken to mean once the commitment to the transaction is finalised.

The time when the commitment to the transaction is finalised is a question of fact. In a sale and purchase arrangement, the contractual terms will determine an intention by the parties to commit to the transaction which results in the existence of a binding contract.

According to the ASA, the sale and purchase of the exploration permits is deemed to have effect, and risk and title of the Sale Assets (including the petroleum produced by the Joint Venture after the date of the agreement) to have passed, on the Completion Date.

The Completion Date is defined under the ASA to be a set of business days after the conditions precedent pursuant to the ASA have been satisfied or waived or any other date as the parties agree in writing.

The ASA provides for the conditions precedent. It provides that most clauses of the ASA, including the clause providing for the sale of the interest in the exploration permits do not become binding unless and until the conditions precedent are satisfied. These conditions are:

• the Minister gives indicative consent to the transfer of the Registered Interests (Clause 3.1(a)), and

• the stakeholders consented in writing.

You advised that:

• written consent as required was received after 30 June 2013, and

• Some exploration permits had received Indicative Consent after 30 June 2013 while others are still pending.

Based on the above mentioned contractual terms and facts, it is clear that the ASA was not binding on the parties on or before 30 June 2013. That is the parties have not entered into a transaction that has the effect of transferring a vendor's whole entitlement to derive assessable receipts to a purchaser in relation to a petroleum project on or before 30 June 2013 because a commitment to the transaction has not been finalised by that date.

Therefore, the transfer time for the purpose of section 48 of the PRRTAA has not occurred on or before 30 June 2013.

Issue 1 Question 2

Summary

You are not the holder of an interest in the exploration permits on 30 June 2013 under section 4B of the PRRTAA because, at that particular time, you do not have an entitlement to receive receipts from the sale of petroleum, or of a marketable petroleum commodity (MPC) produced from petroleum, recovered from the exploration permit areas relating to those exploration permits.

Detailed reasoning

Under section 4B of the PRRTAA a person is taken to have held, at a particular time, an interest in, or in relation to an exploration permit, if the person was, at that time, entitled to receive receipts from the sale of petroleum, or of an MPC produced from petroleum, recovered from the exploration permit area.

In relation to the interest in the exploration permits, you were not entitled to receive receipts from the sale of petroleum or MPC produced from petroleum recovered from the exploration permit areas relating to those exploration permits on 30 June 2013 because the transfer under section 48 of the PRRTAA has not yet occurred on that day as discussed in Question 1.

Issue 1 Question 3

Summary

You are not entitled to choose a starting base valuation approach under clause 3 of Schedule 2 to the PRRTAA for the interest in the exploration permits as you did not hold an interest in those exploration permits on 30 June 2013.

Detailed reasoning

Clause 3 of Schedule 2 to the PRRTAA sets out the circumstances where a person may choose a starting base valuation approach in relation to an interest in a petroleum project, an exploration permit or retention lease. Paragraph 5.22 of the Explanatory Memorandum to the Petroleum Resource Rent Tax Assessment Amendment Bill 2011 explain that the choice is to be made by the person holding the relevant interest on or before 30 June 2013, whether it be an interest in a petroleum project, exploration permit or retention lease.

In relation to an exploration permit, paragraph 3(1)(b) of Schedule 2 to the PRRTAA provides that a person may choose the valuation approach for an interest that the person may in the future hold in such a project if:

• the project does not exist at the time that the person makes the choice and

• the production licence to which the project would relate would, if it later came into existence, be derived from an exploration permit or retention lease in which the person held an interest at that time.

Paragraph 3(1)(b) of Schedule 2 to the PRRTAA does not apply to you in relation to your interest in the exploration permits. This is because you did not hold the interest in these exploration permits on 30 June 2013. Therefore you are not entitled to choose a starting base valuation approach for those exploration permits.

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