Petroleum resource rent tax

Key Legislation: Petroleum Resource Rent Tax Assessment Act 1987

 
PRRT is levied under the Petroleum Resource Rent Tax Assessment Act 1987. It applies to all projects seawards of the outer limits of the territorial sea.
 
The exceptions to this coverage are for those production licences drawn from the North West Shelf project area (Exploration Permits WA-1-P and WA-28-P) where Commonwealth excise and royalty applies (including Australia's only LNG export operation), and permits within the Timor Leste / Australia Joint Petroleum Development Area (see proposed changes below).
 
The basic features of the PRRT are:
ʉۢ it is assessed on a project basis;
ʉۢ liability to pay PRRT is on a producer/company basis;
ʉۢ it is levied before company tax and PRRT payments are deductible for company tax;
ʉۢ it is assessed at a rate of 40 per cent;
ʉۢ is payable quarterly on an instalment basis;
ʉۢ a liability is incurred when all allowable expenditures (including compounding) have been deducted from assessable receipts;
ʉۢ assessable receipts include the amounts received from the sale of all petroleum (or a marketable petroleum commodity);
ʉۢ deductions include capital or operating costs that directly relate to the petroleum project, and are deductible in the year they are incurred;
ʉۢ deductible expenditures include exploration, development, operating and closing activities; non-deductible expenditures include financing costs, some indirect administration costs, income tax, and cash bidding payments; and
ʉۢ undeducted expenditures are compounded forward at a variety of set rates depending on the nature of those expenditures and the time that they are incurred prior to the granting of a production licence.

 

PRRT was substantially altered in 1990 to allow undeducted exploration expenditure incurred after that date to be transferred to other projects. Simultaneously, the carry-forward rate of undeducted general projects expenditures was significantly reduced from the long-term bond rate plus 15 percentage points to the LTBR plus 5 percentage points.

The wider deductibility provisions were limited by applying several restrictions and conditions on this area of the legislation. Changes made in 1992 and 1993 clarified the treatment of transferable expenditure as well as lodgement provisions. A technical amendment passed in 2000 addressed an uncertainty associated with the treatment of expenditures when a party "walks-away" from a continuing joint venture. In 2001, a number of changes were made to the operation of the five-year GDP factor rule and the introduction of a gas transfer pricing mechanism.

The regime was further modified and extended in 2003 to clarify the treatment of income and expenditures in which a project is used to toll or process external or third-party petroleum. In 2004, the government introduced a 150% incentive to assist exploration in nominated frontier areas. This was incentive lapsed in 2010.

From 1 July 2006, several technical enhancements were introduced to improve the regime's operation and efficiency. A transfer notice requirement was introduced for vendors disposing of an interest in a permit; a deduction for transferable exploration expenditure was now required when calculating quarterly instalments; and taxpayers could now use self-assessment provisions.

 
Changes to PRRT
In July 2010, the Government announced a decision to extend the coverage of PRRT to cover all onshore oil and gas production and existing offshore production not currently covered by the PRRT (excluding that production sourced from the JPDA). The new provisions were passed by Parliament in March 2012 and will apply from 1 July 2012. Existing royalties and production excise will continue to apply from these areas, but will be creditable against future PRRT liabilities from each individual project.

 

PRRT receipts are retained wholly by the Federal Government. Collections for the period 1989/90 to 2010/11 were as follows:

 

 

1989/90

$42m

 2000/01 $2379m

1990/91

$293m

2001/02

$1361m

1991/92

$876m

2002/03

$1712m

1992/93

$1389m

2003/04

$1168m

1993/94

$1072m

2004/05

$1459m

1994/95

$865m

2005/06

$1917m

1995/96

$791m

2006/07

$1510m

1996/97

$1308m

2007/08

$1871m

1997/98

$907m

2008/09

$2099m

1998/99

$419m

2009/10

$1297m

1999/2000

$1184m

2010/11

$806m

 

 

 

 

 

 
 
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