House of Representatives

Explanatory Memorandum

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

Chapter Nine: Termination of Royalty

1. Summary of Proposed Changes

The proposed changes to the Petroleum (Submerged Lands) (Royalty) Act 1967 will terminate the imposition of royalty on petroleum production from all offshore areas except the North West Shelf. Royalty charges previously imposed on other offshore areas will be terminated from 1 July 1991.

2. Background

The Petroleum (Submerged Lands) (Royalty) Act 1967 and the Petroleum (Submerged Lands) Act 1967 provide the legislative basis for the imposition of royalties on petroleum recovered from the offshore areas beyond the outer limit of the territorial sea. The royalty rate is prescribed in the Petroleum (Submerged Lands) Act 1967 and is set between 10% and 12.5% of the wellhead value. This royalty is shared between the Commonwealth and the relevant State. In return for a share of the royalty, the relevant State has day to day responsibility for administration of royalty. The States also levy separate royalties for onshore (including the territorial sea) petroleum projects.

The amendments to the Petroleum (Submerged Lands) (Royalty) Act 1967 are being introduced to limit the application of this royalty to exploration permits, licences and leases in the North West Shelf area only; all other offshore petroleum production will be subject to PRRT.

3. Clauses Involved in the Changes

Part 5 - Amendment of the Petroleum (Submerged Lands)(Royalty) Act 1967

Clause 30: states that in Part 5 of the Bill, the Principal Act is the Petroleum (Submerged Lands) (Royalty) Act 1967.

Clause 31: limits the application of the Principal Act to North West Shelf exploration permits and licences.

Part 6 - Transitional and Application Provisions

Clause 38: limits the application of the amendments to the Principal Act to petroleum recovered on or after 1 July 1991.

Clause 39: provides for the Commonwealth to refund under the Principal Act royalty on petroleum recovered before 1 July 1990 where an overpayment had been made but not subsequently adjusted against later payments.

Clause 40: requires Victoria to refund to the Commonwealth overpayments of its royalty share where an overpayment had been made by the Commonwealth but not subsequently adjusted against later payments.

Clause 41: requires the Commissioner to credit excise and royalty paid against a person's PRRT liabilities and other Commonwealth tax and to refund any excess.

Clause 42: provides that once the Commissioner has credited excise and royalty paid against a person's PRRT liability, further excise and royalty amounts would cease to be payable on petroleum subsequently recovered from Bass Strait and that no further adjustment to the amount credited can be made for any subsequent refund.

4. Explanation of the Amendments

Application of the Act

The amendments to the Petroleum (Submerged Lands) (Royalty) Act 1967 limit the application of that Act to the North West Shelf exploration permits. [Clause 38]

North West Shelf exploration permits

The meaning of North West Shelf exploration permits is the same as in the Petroleum Resource Rent Tax Assessment Act 1987, as amended by clause 4 of this Bill. That definition reads "North West Shelf exploration permits means the exploration permits known as WA-1-P and WA-28-P".

Royalty Act - refund of over payments of royalty on Bass Strait petroleum recovered before 1 July 1990

If a recalculation of royalty on petroleum recovered in Bass Strait before 1 July 1990 reveals that an overpayment of royalty had been made but not subsequently adjusted, the Commonwealth must refund the excess to the producer. [Clause 39]

Petroleum (Submerged Lands) Act 1967 - Victoria to refund overpayments in respect of Bass Strait petroleum

If a recalculation of the share of royalty payable to Victoria by the Commonwealth in respect of petroleum recovered from Bass Strait before 1 July 1990 reveals an overpayment had been made by the Commonwealth and not subsequently adjusted, Victoria must refund the excess to the Commonwealth. [Clause 40]

Effect of allowing credit or refund on liability to pay royalty or excise etc

Once the Commissioner has credited the creditable amount as defined in clause 32, that is, the net amount of excise and royalty paid by the producers on petroleum recovered from the Bass Strait area (defined in clause 33) in the transitional year (defined in clause 32) and that amount exceeds the producers' total tax liability to the Commonwealth, the difference is refunded by the Commissioner to the producers. After the Commissioner has made the crediting adjustment to arrive at the producers' tax liability, no refunds of either excise or royalty can be made in respect of petroleum recovered in the transitional year that was used in calculating the creditable amount. [Clause 42]