Edited version of your written advice

Authorisation Number: 1012749236955

Ruling

Subject: Alternative Valuation Method for Coal Seam Gas Projects

Question 1

Can the taxpayer choose to apply the alternative valuation method pursuant to subclause 8(4) of Schedule 2 to the Petroleum Resource Rent Tax Assessment Act 1987 to determine the starting base amount pertaining to its interest in the coal seam gas project?

Answer

Yes.

This ruling applies for the following periods:

The year of tax commencing on 1 July 20XX and all later years of tax.

The scheme commences on:

The date the applicant acquired its interest in the project.

Relevant facts and circumstances

• The taxpayer is an Australian company.

• The taxpayer acquired its interest in the project from another entity. The Sale and Purchase Agreement pertaining to the acquisition was executed on after 2 May 2010.

• Another entity has an interest in the project acquired under a Sale and Purchase Agreement executed before 2 May 2010.

• The project is a transitioning project which will be subject to the extended PRRT regime from 1 July 20XX and is therefore eligible to a starting base amount for the project.

• The project has a known reserve of coal seam gas that satisfies subclause 8(3) of Schedule 2 to the Petroleum Resource Rent Tax Assessment Act 1987 (PRRTAA 1987). These reserves have been independently certified by qualified persons according to the standards set by the Society of Petroleum Engineers.

• The taxpayer intends to elect the market value approach and in particular would like to choose to apply the Alternative Valuation Method under clause 8(4) under Schedule 2 to the PRRTAA 1987.

• The Commissioner has granted the taxpayer an extension to lodge its starting base return in respect of its interest in the project.

• Maps and diagrams outlining the project provided by the applicant also form part of the relevant facts and circumstances for this private binding ruling.

Relevant legislative provisions

Petroleum Resource Rent Tax Assessment Act 1987

Schedule 2 clause 8

Schedule 2 subclause 8(1)

Schedule 2 subclause 8(4)

Schedule 2 subclause 8(7)

Schedule 2 clause 18

Schedule 2 subclause 18(7)

Reasons for decision

The entity that holds a petroleum interest on 30 June 20YY is responsible for lodging the starting base return and making the choice of valuation approach. The choice to use the alternative valuation method may only be made if the market value approach is chosen for the petroleum interest. The alternative valuation method for coal seam gas projects is outlined in clause 8 of Schedule 2 to the PRRTAA. Subclause 8(1) provides that clause 8 applies if:

(a) under Part 2, the market value approach is the valuation approach for an interest in an onshore petroleum project; and

(b) the project includes a known reserve of coal seam gas; and

(c) either

(i) the interest, or another interest in the project, was acquired, by any person, between 1 July 2007 and 2 May 2010; or

(ii) a company that held the interest, or another interest in the project, was acquired, by any person, between 1 July 2007 and 2 May 2010; and

(d) the person who chose the market value approach in relation to the interest (the interest holder) chooses under subclause (4) of this clause to apply the alternative valuation method for coal seam gas projects.

Subclause 8(4) of Schedule 2 to the PRRTAA provides that the interest holder may choose to apply the alternative valuation method for coal seam gas projects.

Subclauses 8(1)(a) and (b) - market value approach is chosen for an onshore petroleum project that includes a known reserve of coal seam gas.

The project is an onshore petroleum project and includes a known reserve of coal seam gas that has been independently certified by qualified persons according to the standards set by the Society of Petroleum Engineers. The taxpayer intends to elect the market value approach and in particular would like to choose to apply the Alternative Valuation Method. Accordingly, the taxpayer's interest in the project satisfies subclauses 8(1)(a) and (b) of Schedule 2 to the PRRTAA.

Subclause 8(1)(c) - an interest in the project was acquired by any person between 1 July 2007 and 2 May 2010

Subclause 8(7)(a) of Schedule 2 to the PRRTAA provides that, for the purposes of paragraph 8(1)(c):

… a person holding an interest in the project is taken to have acquired the interest if, and when, the person is taken to have acquired that interest for the purposes of clause 18.

Subclause 18(7) of Schedule 2 to the PRRTAA defines when an acquisition of an interest has occurred. In the case where the project existed on 2 May 2010, paragraph 18(7)(a) provides that the person holding an interest in an onshore petroleum project is taken to have acquired the interest if and only if, the person purchased the interest. Paragraph 18(7)(c) provides that the acquisition is taken to have occurred when the transaction was first entered into that, when complete, had the effect of transferring the interest, or the permit or lease. The acquisition is taken to have occurred when the transaction was first entered into that, when complete, had the effect of transferring the interest, or the permit or lease.

Pursuant to clause 18 of Schedule 2 to the PRRTAA, the taxpayer is taken to have acquired its interest in the project when the Sale and Purchase Agreement pertaining to that acquisition was executed after 2 May 2010 and the other entity with an interest in the project is taken to have acquired its interest in the project when the Sale and Purchase Agreement pertaining to that acquisition was executed before 2 May 2010.

Subclause 8(1)(c)(i) of Schedule 2 to the PRRTAA will be satisfied if the interest, or another interest in the project was acquired by any person between 1 July 2007 and 2 May 2010. So long as an interest in the project was acquired by any person between 1 July 2007 and 2 May 2010, it is open to the interest holders in that project to use the alternative valuation approach to determine their starting base asset value under the market value approach (see Example 5.8 of the Explanatory Memorandum to the Petroleum Resource Rent Tax Assessment Amendment Bill 2011). Subclause 8(1)(c)(i) is satisfied in this case because although the taxpayer acquired its interest in the project after 2 May 2010, another interest in the project was acquired by another entity in the period between 1 July 2007 and 2 May 2010.

Subclause 8(1)(d) - the interest holder chose the market value approach and chooses to apply the alternative valuation method

Pursuant to subclause 8(1)(d) of Schedule 2 to the PRRTAA, the taxpayer will be entitled to choose to apply the alternative valuation method if it is the person who chose the market value approach in relation to the interest in the project.

The taxpayer intends to elect the market value approach and in particular would like to choose to apply the Alternative Valuation Method under clause 8(4) under Schedule 2 to the PRRTAA. Accordingly, subclause 8(1)(d) is satisfied.

Conclusion

As the taxpayer satisfies subclauses 8(1)(a) to (d) of Schedule 2 to the PRRTAA, subclause 8 will apply and the taxpayer can choose to apply the alternative valuation method for the project pursuant to subclause 8(4).