Petroleum
Petroleum is any naturally occurring hydrocarbon or mixture containing hydrocarbons, whether in a gaseous, liquid or solid state, including oil shale.
Marketable petroleum commodity (MPC)
An MPC is a product produced from petroleum. For PRRT purposes, the product is to be in its final form for one of the following purposes:
- for sale
- for use as feedstock for conversion to another product
- for direct consumption as energy.
The following products are MPCs for PRRT purposes:
- stabilised crude oil
- sales gas
- condensate
- liquefied petroleum gas
- ethane
- shale oil
- any other product declared by regulation to be an MPC.
A product cannot be an MPC if it has been produced wholly or partly from an MPC.
Excluded commodity
An MPC becomes an excluded commodity when it is:
- sold
- further processed or treated
- moved away from the place of its production (other than to a storage site adjacent to that place)
- moved away from a storage site adjacent to the place of its production.
Different MPCs require different levels of processing before they are produced and then become an excluded commodity. Consequently, the position of the taxing point varies according to where an MPC becomes an excluded commodity.
Taxing point
The point at which petroleum, or products produced from petroleum, becomes taxable is commonly referred to as the taxing point. While the term is not defined in the legislation, it commonly refers to the point in time when the petroleum is sold or an MPC becomes an excluded commodity.
It is at the taxing point that assessable receipts are brought to account, and up to which eligible project expenditures incurred (deductible expenditure) are deducted to determine PRRT taxable profit.
The taxing point signifies the boundary between petroleum project operations, which fall within PRRT, and non-project operations, which do not.
Taxable profit
PRRT is levied at the rate of 40% on the taxable profits derived from the petroleum project in a year of tax. A year of tax is the first financial year in which an entity derives assessable petroleum receipts in relation to the project and any subsequent financial year.
The taxable profit derived from a petroleum project in a year of tax is the excess of assessable receipts over the deductible expenditure and transferred exploration expenditure.
See How to work out PRRT.
Assessable receipts and deductible expenditure
For PRRT purposes, assessable receipts are receipts derived in relation to a petroleum project and can be of a capital or revenue nature.
The classes of assessable receipts are – assessable:
- petroleum receipts
- tolling receipts
- exploration recovery receipts
- property receipts
- miscellaneous compensation receipts
- employee amenities receipts
- incidental production receipts.
For PRRT purposes, deductible expenditure (which is derived from 'eligible real expenditure') is expenditure that is directly related to a petroleum project and can be of a capital or revenue nature. Certain types of expenditure are specifically excluded from being deductible and are known as excluded expenditure.
The categories of eligible real expenditure are:
- exploration expenditure
- general project expenditure
- resource tax expenditure
- starting base expenditure
- closing-down expenditure.
Resource tax expenditure and starting base expenditure are applicable to the North West Shelf project only.
Generally, where there is an excess of deductible expenditure over assessable receipts the undeducted amount is uplifted, carried forward and applied against assessable receipts derived in later years of tax. The uplift rate is determined according to the category of expenditure and when it was incurred.
See How to work out PRRT.
Year of tax
A year of tax is the first financial year in which an entity derives assessable petroleum receipts and any subsequent financial year. Substituted accounting periods do not apply to PRRT. Therefore, the year of tax will always start on 1 July and end on 30 June of the next calendar year.
Financial year
A financial year means any financial year that commenced or commences on or after 1 July 1979. A financial year is the 12-month period beginning on 1 July and ending 30 June.
Transfers in PRRT
Under PRRT – there are 2 types of transfers, transfers of:
- exploration expenditure between projects and group companies
- interests in petroleum titles, whether wholly or in part.
For more information, see:
Deductions cap
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
- the entity has no taxable profit, but for the application of the deductions cap
- sales gas is or will be produced from petroleum recovered from the project
- entity is a party to an arrangement, as a result 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.
Projects will not be subject to the deductions cap in the first financial year in which assessable petroleum receipts are derived, or in any of the subsequent 7 financial years.
Amounts that are unable to be deducted because of the cap are carried forward and uplifted at the Government long-term bond rate as augmented denied deductible expenditure.
For more information, see PRRT Deductions cap.