Broadly, payments are deductible to the extent to which they are made in carrying on or providing petroleum project activities. As a result, a payment may need to be apportioned where it is not wholly made in carrying on or providing the petroleum project activities. This may occur if an entity splits or allocates a payment between:
- petroleum project activities, non-petroleum project activities and excluded expenditure
- more than one petroleum project, exploration permit, or retention lease of the entity
- multiple commodities within a petroleum project
- exploration, general project and closing-down expenditures within a petroleum project.
Project activities include:
- operations and facilities involved in, or in connection with, exploration for petroleum
- preparatory activities, including carrying on any feasibility or environmental studies
- recovery of petroleum (including gas) from the relevant production licence area
- processing or treatment of petroleum
- moving or storing petroleum or a marketable petroleum commodity (MPC) up to the point that the petroleum
- is sold
- an MPC is produced from the petroleum that is sold
- an MPC is produced from the petroleum that becomes an excluded commodity otherwise than being sold
- services, facilities for services, and employee amenities.
There is no prescribed method for apportioning payments for PRRT and there may be more than one approach available. If there is more than one reasonable method, an entity needs to choose the most relevant and reasonable basis which needs to be supported by appropriate records.
However, we do not consider a notional or arbitrary basis for apportioning a payment to be a reasonable basis for apportionment, unless there is evidence to support that it is appropriate in the circumstances.
We consider the following practices will assist an entity when choosing a reasonable basis of apportionment:
- apply a methodical and consistent approach to classifying and apportioning the expenditure
- maintain records that describe the activities which show the extent and nature of the activities, and the connection to the project activities
- maintain records of calculations and the steps undertaken to support its choice of a reasonable basis
- use reliable data
- keep information to support the reasoning and justification of any estimates made
- consider whether there is a correlation between the basis of apportionment and the expenditure.