House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon. P.J. Keating, M.P.)

Chapter Three: Bass Strait Collection Arrangement for 1990-91

1. Summary of Proposed Changes

PRRT will apply from 1 July 1990 to Bass Strait. However, in order to keep a collection system in place until the proposal to extend PRRT is given legislative effect, the excise and royalty regime has continued to apply to Bass Strait petroleum producers after that date. The total amount of excise and royalty paid during the period 1 July 1990 to 30 June 1991- the creditable amount - will be credited against the person's assessment of PRRT in relation to Bass Strait for the year ended 30 June 1991.

Where the creditable amount exceeds the PRRT assessment the amount of the excess will be an amount due as a refund to the person.

No PRRT instalments will be payable in relation to Bass Strait for the year ended 30 June 1991.

2. Background

A quarterly instalment system operates for producers subject to PRRT. Proportionate amounts of PRRT are collected during a year of tax and made available as a credit against the ultimate assessment of PRRT for that year. The instalment system provides for an efficient and more even way of collecting PRRT.

The interim arrangement - using excise and royalty paid during the year ended 30 June 1991 as a credit - will provide a special collection system for the first financial year for Bass Strait Producers. They will however be subject to the instalment system in the following financial year.

3. Clauses Involved in the Changes

Clause 32: contains a number of new definitions including those that define "the creditable amount".

Clause 35: ensures the PRRT instalment system does not apply to the Bass Strait in the first financial year.

Clause 41: contains the operative provisions that credits the excise and royalty against the Bass Strait PRRT and provides for the treatment of any excess creditable amount.

Clause 42: will ensure that the creditable amount is not adjusted once the credit takes place.

Clause 43: will ensure a double deduction does not arise under the income tax law for amounts paid as the creditable amount.

4. Explanation of the Amendments

Who will have a creditable amount?

Producers who have paid excise and royalty in relation to petroleum recovered from the Bass Strait area in the period from 1 July 1990 to 30 June 1991 will have a creditable amount.

The Bass Strait area

The excise and royalty paid must be in relation to petroleum recovered from the area of the Bass Strait exploration permit VIC/P1 and the areas of the retention leases and production licences excised from that exploration permit. [Subclause 32(1), definition "Bass Strait area"]

What is the creditable amount?

Amounts that make up the creditable amount are:

•

excise paid under the Excise Act 1901 on goods referred to in sub-item 17(A)(B) or (C) of the Schedule to the Excise Tariff Act 1921 (broadly these goods are crude oil and liquid petroleum gas produced from petroleum); and

•

royalty paid under the Petroleum (Submerged Lands)(Royalty) Act 1967. [Subclause 32(1), new definitions "Bass Strait excise payment", "Bass Strait royalty payment"]

The amounts paid as a royalty must be in respect of petroleum - and in the case of excise, goods produced from petroleum - recovered from Bass Strait during the transitional year, from 1 July 1990 to 30 June 1991. [Sub clause 32(1), new definitions "commencement" "creditable amount" transitional period"]

Note that the total creditable amount in not calculated having regard only to payments of excise and royalty made during the transitional year but is calculated by reference to petroleum recovered during that year. Consequently payments made after 30 June 1991 relating to petroleum recovered during the transitional year may be creditable amounts.

This will include all payments made up to the time of the actual crediting by the Commissioner.

This cut off time will be achieved by ensuring that at that point in time when the Commissioner credits the creditable amount:

•

any excise and royalty that would be payable in relation to petroleum recovered during the transitional year - and would be a creditable amount - stops being payable; and

•

no refund of excise is payable by the Commonwealth in relation to any creditable amount paid by the person. (There is no need to address refunds of royalty as they do not arise.) [Paragraphs 42(c) and (d)]

The excise and royalty paid during the transitional year will be used as a credit against the Bass Strait PRRT assessments. The PRRT is the effective secondary tax that applies to Bass Strait from 1 July 1990. Consequently upward or downward adjustments of the creditable amount after it has been credited would only result in a matching adjustment to a person's Bass Strait PRRT assessment for the year ended 30 June 1991.

How is a creditable amount credited?

An assessment is made of the amount of PRRT payable by a person in relation to the Bass Strait project for the year ended 30 June 1991.

The Commissioner will credit the creditable amount a person has paid in payment successively against that assessment and then any other Commonwealth taxation liability of the person that would exist at the time the assessment was made. Any amount not credited will be refunded to the person. [Clause 41]

PRRT instalment system not to apply to Bass Strait in 1990-91 year

Because the interim collection arrangement will apply to the Bass Strait project for the year ended 30 June 1991 the instalment system will not operate in the initial year of Bass Strait PRRT. The instalment system will however apply to subsequent years. [Clause 35]

Income tax consequences of collection arrangement

Broadly, a deduction is allowable under the Income Tax Assessment Act 1936 (the ITAA) for PRRT paid on assessment. Apart from the general deduction provisions, section 72A of the ITAA specifically provides for such a deduction. Similarly excise and royalty payments are normally deductible under the general deduction provisions of the ITAA.

Under the collection arrangement in relation to Bass Strait and the year ended 30 June 1991 a credit is being allowed for excise and royalty paid by a person - the creditable amount - against their PRRT assessment.

In the absence of a preventative measure a double deduction may arise under the income tax law in respect of what is effectively one liability.

Therefore where the creditable amount is allowed as a credit in payment of PRRT assessed the deduction allowable for the PRRT assessed is reduced.

If the creditable amount exceeds the amount payable under the PRRT assessment no deduction is available under any provision of the ITAA. [Subclause 43(1)]

Alternatively if the amount payable under the PRRT assessment exceeds the creditable amount a deduction will be allowable only in respect of the excess. [Subclause 43(2)]