About PRRT liability
Petroleum resource rent tax (PRRT) liability is calculated on the taxable profit the entity makes from an interest in a petroleum project in a year of tax.
Taxable profit is calculated by subtracting certain deductible expenditure and transferred exploration expenditure from the assessable receipts derived from the project interest.
An entity's PRRT liability is levied at 40% of the taxable profit made from its interest in the project.
If an entity holds an interest in an exploration permit or retention lease, it will not have a liability to pay PRRT until a production licence is derived from that interest and commercial production starts.
Framework for calculating PRRT liability
The basic framework for calculating a PRRT liability is:
- assessable receipts – deductible expenditure – transferred exploration expenditure = taxable profit
- taxable profit × 40% = PRRT liability.
If assessable receipts exceed deductible expenditure and transferred exploration expenditure, there is a taxable profit. This amount is taxed at 40%.
If deductible expenditure exceeds assessable receipts, there is no taxable profit and no PRRT liability. Any unused deductible expenditure is uplifted and carried forward and will be deducted against future assessable receipts derived in later years.
From 1 July 2023, a deductions cap may apply to an entity in relation to a petroleum project and a year of tax if the:
- entity derives assessable petroleum receipts or assessable tolling receipts but for the application of the deductions cap, the entity has no taxable profit
- sales gas is or will be produced from petroleum recovered from the project
- entity is a party to an arrangement, of which it is intended that the sales gas be wholly or primarily produced into LNG
- entity regularly or consistently enters into such arrangements.
When the deductions cap applies, the entity will be taken to have a taxable profit of 10% of the assessable receipts they derived in relation to the project and the year of tax (the denied deduction amount). This effectively limits the entity's deductible expenditure in respect of the project and year of tax to the value of 90% of assessable receipts.
Amounts that are unable to be deducted because of the deductions cap are carried forward and uplifted at the Government long-term bond rate as augmented denied deductible expenditure.
For more information, see:
- PRRT concepts
- PRRT assessable receipts
- PRRT deductible expenditure
- PRRT Deductions cap.
Payment of PRRT liabilities
Entities with an interest in a production licence that is in commercial production are required to lodge an annual Petroleum resource rent tax (PRRT) return (NAT 9849) about their PRRT liability.
An entity is required to pay its PRRT liability in three cumulative quarterly instalments with a final payment when it lodges its annual PRRT return.
The quarterly PRRT instalment is calculated using the taxable profit attributed up to the end of the instalment period.
Where the PRRT instalments paid exceed the assessed PRRT liability for the year, there will be a PRRT refundable amount when the PRRT return is lodged.
Entities with an interest in an exploration permit, retention lease or a production licence that has not started commercial production are not required to lodge an annual PRRT return or pay quarterly PRRT instalments.
For more information, see: