Parliament passed enabling legislation, the Petroleum Resource Rent Tax Assessment Act 1987
, and this Act was effective from 15 January 1988. At that time, Petroleum Resource Rent Tax (PRRT) applied to all offshore areas except Bass Strait and the North West Shelf. In addition, the legislation applied retrospectively to exploration permits awarded on or after 1 July 1984, and recognised expenditures incurred on or after 1 July 1979.
Production in Bass Strait switched from the Royalty/Excise regime to PRRT in the fiscal year 1990-91. The only areas in Commonwealth waters not currently under the PRRT regime are the North West Shelf project and associated permit areas (WA-1-P and WA-28-P), which retain the former royalty and crude oil excise regime.
A number of amendments have been made since the introduction of PRRT legislation and these are set out below.
In 1991 exploration cost deductibility was widened from a project to a company wide basis. This enables undeducted exploration expenditure incurred after 1 July 1990 to be transferred to other projects with a notional taxable profit held by the same entity. In the case of a company in a company group, the expenditure is also transferable to other PRRT-liable projects held in the group.
In October 2001 legislative amendments allowed the Tax Commissioner to apply a gas transfer price formula in the absence of an arms length sale in an integrated gas to liquids project. The reference date for the five year rule applying to expenditure uplifts was changed to refer to the date nominated in a 'Statement of receipt' issued when all information pertinent to the application for a production licence is supplied to the 'Designated Authority'.
In October 2003 legislative amendments removed an inconsistency in relation to tolling fees. In a tolling situation, the property of one project, such as the platform or processing facilities, may be partially used to produce its own petroleum and partially used to process petroleum sourced from third party projects. The amendments ensure that all partial usage situations are treated the same way and do not impact on efficient commercial arrangements. The amendments also ensure that double taxation, black hole expenditures or understatement of net assessable receipts do not affect government or industry.
In May 2004 the Government introduced a measure to encourage petroleum exploration in remote offshore areas. This involves an uplift of 150 per cent on PRRT deductions for exploration expenditure incurred in designated offshore frontier areas. The measure applies to pre-appraisal exploration expenditure in the initial term of the exploration permit granted for a designated area. This measure applies up to 30 June 2008.
In 2005 the Government introduced the Petroleum Resource Rent Tax Assessment Regulations, known as the Gas Transfer Regulations. The objective of the Regulations is to provide a framework to determine the price for gas in the case of an integrated gas-to-liquids (GTL) project. The framework enables a PRRT liability to be calculated in the upstream component of an integrated GTL project where there is no arm's length price or comparable uncontrolled price. These Regulations allow for a gas transfer price to be determined by the Commissioner of Taxation either by an advanced pricing arrangement agreed with the PRRT taxpayer, an uncontrollable comparable price, or by a Residual Pricing Mechanism (RPM). In the circumstances where an advanced pricing arrangement or uncontrollable comparable price does not exist, the RPM prevails. The Gas Transfer Pricing Regulations took effect from 20 December 2005. For further information about the Regulations download Gas Transfer Price Methodology
[PDF, 33KB].
In May 2005 the Government announced further policy changes to the PRRT designed to reduce compliance costs, improve administration and remove inconsistencies in the PRRT regime. These changes, which became effective from 1 July 2006, included:
- allowing deduction of transferable exploration expenditure when calculating quarterly instalments and of fringe benefits tax for PRRT purposes
- allowing deduction of closing-down costs when moving from a production to an infrastructure license
- the PRRT in the self-assessment regime
- providing roll-over relief for internal corporate restructuring
- introducing a transfer notice requirement for vendors disposing of an interest in a petroleum project
- extending the lodgement period for PRRT annual returns from 42 to 60 days.
The Government announced in the 2007-08 Budget on 8 May 2007 three policy changes to the PRRT that aim to lower compliance costs and remove inconsistencies. These measures, which are planned to commence from 1 July 2008, will include:
- a functional currency rule built into the PRRT, similar to that under income tax, which will allow oil and gas producers to elect to work out their PRRT position in a foreign currency
- the introduction of a 'look back' rule for exploration expenditure, ensuring that all exploration expenditure is deductible for PRRT purposes where a production licence is derived from a retention lease on or after 1 July 2008
- addressing overlap between two petroleum projects - so that where a petroleum project processes petroleum sourced from another petroleum project for a tolling fee, the tolling fee received will be treated as a PRRT receipt, and the expenses incurred will be treated as a PRRT deduction.
On 2 July 2010, the Government announced that from 1 July 2012, the PRRT would be extended to include all onshore and offshore oil and gas projects, including the North West Shelf, oil shale projects and coal seam gas projects.