House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello MP)

Chapter 1 - Transferable exploration expenditure and quarterly instalments of tax

Outline of chapter

1.1 Schedule 1 to this Bill amends the Petroleum Resource Rent Tax Assessment Act 1987 (PRRT Act) so that Petroleum Resource Rent Tax (PRRT) taxpayers transfer and deduct exploration expenditure when calculating their PRRT liability for each quarterly instalment period. This change was announced by the Treasurer and Minister for Industry, Tourism and Resources in a joint press release dated 10 May 2005.

Context of amendments

Current law

1.2 The PRRT is a tax on profits derived from petroleum projects. It is assessed on a project basis and the liability to pay PRRT is imposed on a taxpayer in relation to its interest in the project. This liability is based on the project's assessable receipts less the project's deductible expenditures. A regime allowing the transfer of unused (or undeducted) exploration expenditure between petroleum projects, provided that continuity of ownership is maintained, was introduced on 1 July 1990.

1.3 PRRT is payable in quarterly instalments covering the first three quarters of a year of tax, with a balancing payment (or refund) at the end of the year of tax. The first quarterly PRRT payment is calculated for the 'instalment period' 1 July to 30 September, the second quarterly PRRT payment is calculated for the instalment period 1 July to 31 December, and the third quarterly PRRT payment is calculated for the instalment period 1 July to 31 March. The second and third quarter PRRT payments take account of previous PRRT payments for that year of tax. The 'notional tax amount' is the amount of PRRT calculated for each instalment period.

1.4 Section 97 of the PRRT Act, which specifies the assumptions used to calculate the notional tax amount as at the end of each quarter, treats the period from the start of the year to the end of each quarter as if it were a full year for that project. However, this section contains no reference relating to transferable exploration expenditure derived from other petroleum projects. In the absence of a reference to transferable exploration expenditure from other petroleum projects in section 97, the more specific transfer provisions (sections 45A and 45B) which apply only at the end of a year of tax have precedence governing the transfer of exploration expenditure from other petroleum projects.

1.5 Sections 45A and 45B require exploration expenditure actually incurred on a particular petroleum project which is not absorbed against assessable receipts from this project in a particular year (ie, a project not generating a PRRT liability) to be transferred in that year to the extent it can be offset against assessable receipts of another petroleum project (ie, a project generating a PRRT liability). The ability to transfer exploration expenditure between projects in this way is dependent on meeting rules contained in the Schedule to the PRRT Act, particularly clauses 22 and 31 dealing with the common ownership rule. The common ownership rule tests the continuity of common ownership between the source project incurring the exploration expenditure (ie, the non-PRRT paying project) and the receiving project (ie, the PRRT paying project). A more detailed explanation of the common ownership rule is contained in Chapter 2 of this explanatory memorandum.

1.6 In this context, another key rule in the Schedule to the PRRT Act is that 'notional taxable profit' (ie, taxable profit excluding any use of transferable exploration expenditure) which can only be calculated at the end of the financial year (because only then are the total deductible expenditures and assessable receipts of the year known). There is no reference in the PRRT Act indicating that notional taxable profit can be calculated for any period less than an entire financial year. As a result, there is no capacity to take account of transferable exploration expenditure in calculating the amount of PRRT payable (ie, the notional tax amount) for any instalment period.

Consequences of the current law

1.7 The inability to deduct transferable exploration expenditure when calculating quarterly instalments of tax for PRRT purposes may result in effectively 'overpaying' PRRT in the first three instalment periods, with an adjustment for this overpayment at the end of the year of tax, when transferable exploration expenditure can be reconciled against assessable receipts. PRRT taxpayers do not receive interest compensation on their overpayments, and so forgo the time value of money.

Summary of new law

1.8 Schedule 1 to this Bill introduces amendments allowing and obliging PRRT taxpayers to transfer exploration expenditure in each instalment period, if required to do so under the rules governing transferability contained in the Schedule to the PRRT Act. This enables PRRT taxpayers to deduct transferable exploration expenditure from their assessable receipts in calculating their notional tax amount for an instalment period.

1.9 The assumptions used to calculate an amount of instalment tax payable in an instalment period are extended to transferable exploration expenditure. That is, transferable exploration expenditure eligible to be included in an instalment period is worked out as if the instalment period is a year of tax, transferable exploration expenditure incurred in the instalment period is immediately deductible, and prior year transferable exploration expenditure is deductible in an instalment period according to the instalment percentages that apply to other deductible expenditure from prior years (ie, 25 per cent in the first instalment period, 50 per cent in the second instalment period and 75 per cent in the third instalment period).

1.10 Schedule 1 also introduces a new interest charge, called the 'instalment transfer interest charge'. This charge is based on working out the 'instalment transfer excess', which is essentially transferable exploration expenditure that was included in an instalment period but then not available in calculating the tax for the whole of that tax year because of a breach in the common ownership test. Any instalment transfer excess arising in this circumstance can be reduced or eliminated by certain offsets. In particular, there will be no instalment transfer excess if the amount that was transferred in the instalment period is otherwise used by the end of the year in relation to another project, or if an equivalent amount is transferred to the project because the original amount cannot be transferred. The person who is liable to pay the instalment transfer interest charge is the person who benefited from the instalment transfer excess.

1.11 The interest rate used to calculate the instalment transfer interest charge is the base interest rate used in the Taxation Administration Act 1953 (TAA 1953) for the purpose of calculating interest charges in relation to tax (essentially the 90-day bank bill rate). Accordingly, the instalment transfer interest charge is not a penalty. Rather, it recoups (approximately) the time value of the money associated with the excess transfer of exploration expenditure.

Comparison of key features of new law and current law

Detailed explanation of new law

1.12 Schedule 1 primarily amends two areas of the PRRT Act. The first area involves amending Division 3A of Part V, Transfer of exploration expenditure incurred on or after 1 July 1990 to oblige PRRT taxpayers to transfer exploration expenditure in calculating each instalment to the end of the relevant quarter. The second area involves amending Division 2 of Part VIII, Collection by instalments dealing with the assumptions used to calculate each tax instalment and to introduce a new interest charge called the instalment transfer interest charge.

Quarterly transfers of transferable exploration expenditure

1.13 Schedule 1 extends section 45 of Division 3A by introducing a new section 45E. This section provides the way in which the transfer of exploration expenditure provisions apply to instalment periods. In particular, subsection 45E(1) obliges PRRT taxpayers to transfer transferable exploration expenditure in an instalment period in a way that is consistent with the way end-of-year transfers are made under rules governing transferability as set out in Division 3A of the PRRT Act and the Schedule to the PRRT Act (together with related definitions) [Schedule 1, item 7, subsection 45E(1)] . Consequently, instalment transfers must be made so far as they can be and so far as the expenditure can be used against what would otherwise be taxable profit. There is an offence if instalment transfers are not made in that way. Subsection 45E(2) limits the application of subsection 45E(1) to the extent that it only applies in so much as is necessary to require the transfer of exploration expenditure in relation to the instalment periods [Schedule 1, item 7, subsection 45E(2)] .

1.14 For the purposes of subsection 45E(1), the same assumptions applying under subsection 97(1A) in relation to a petroleum project to work out instalment tax payable for an instalment period also apply in relation to any petroleum project. The first assumption is that the instalment period is taken to be a financial year. As a result, transferable exploration expenditure incurred in an instalment period in a year of tax is immediately deductible in the instalment period the transferable exploration expenditure is actually incurred. [Schedule 1, item 7, paragraph 45E(3)(a)]

1.15 The second assumption is that all prior year general expenditure and exploration expenditure incurred before 1 July 1990 is taken account of in working out an instalment of tax for an instalment period. This expenditure needs to be taken into account for both petroleum projects (ie, the loss project and receiving project) because it impacts on the amount of exploration expenditure that can be transferred and used in an instalment period. The expenditure is apportioned in the current period liability according to the instalment percentages. That is, 25 per cent of this amount for the first instalment period (the period 1 July to 30 September), 50 per cent of the amount for the second instalment period (the period 1 July to 31 December) and 75 per cent of this amount for the third instalment period (the period 1 July to 31 March). [Schedule 1, item 7, paragraph 45E(3)(b)]

1.16 The third assumption is that all prior year unused transferable expenditure is taken account of in working out an instalment of tax for an instalment period. The expenditure is apportioned in the current period liability according to the instalment percentages mentioned above. [Schedule 1, item 7, paragraph 45E(3)(c)]

1.17 If an instalment transfer of an amount of transferable exploration expenditure is made, this does not necessarily prevent the transfer of all or part of this expenditure again. This applies both to later instalment periods in a particular financial year and to later financial years (as an annual transfer) [Schedule 1, item 7, subsection 45E(6)] . This is required as the rules governing the transfer of exploration expenditure can only be satisfied at the end of the year of tax. In particular, transferable exploration expenditure included in a particular instalment period may need to be reversed (in whole or in part) in a subsequent instalment period, or at the end of the year of tax, because the common ownership test is breached (contained in clauses 22 and 31 of the Schedule to the PRRT Act), or because there is insufficient notional taxable profit.

1.18 Subsection 45E(6) relies on the definitions of annual transfer (which is the amount of transferable exploration expenditure included in a financial year) and instalment transfer (which is the amount of transferable exploration expenditure included in an instalment period). [Schedule 1, item 7, subsections 45E(4) and (5)]

1.19 Section 45E refers to 'financial years' throughout rather than 'years of tax'. The difference between the two terms as used in the PRRT Act is that 'financial year' is a generic term (referring to any financial year), while 'year of tax' refers to the first and subsequent financial years in which a taxpayer receives assessable receipts in relation to a project (see subsection 3(1)).

1.20 Expenditure may be able to be transferred from a project in relation to a financial year which is not a year of tax for this project (because the project has never yielded any assessable receipts). For example, as subsection 45E(3) would apply to such a project in relation to a financial year, it is incorrect to refer to the year as a 'year of tax'. Moreover, the term instalment period is defined as a period in a year of tax, and therefore cannot refer to financial years that are not years of tax.

1.21 To deal with this difficulty of terminology, a definition is included to the effect that an instalment period includes a period in a financial year that would be an instalment period if the financial year were a year of tax. This gives substance to references to instalment periods insofar as the references are made in relation to financial years for projects that have not yet had assessable receipts (and so have no years of tax on which the references to instalment periods in relation to the projects can be based). [Schedule 1, item 7, subsection 45E(7)]

Calculation of an instalment of tax

1.22 As a result of section 45E, a consequential amendment is made to subsection 97(1A). This amendment specifies that instalment transfers in relation to the instalment period are the same as annual transfers in relation to a year of tax. This links the provision dealing with instalment transfers in section 45E with the calculation of the amount of tax payable for each instalment period. [Schedule 1, item 7, paragraph 97(1A)(aa)]

Instalment transfer interest charge - where the charge applies

1.23 This Bill introduces a new interest charge, called the instalment transfer interest charge. The instalment transfer interest charge is not a penalty. Rather, it recoups (approximately) the time value of money associated with excess transfers of exploration expenditure.

1.24 The amount of transferable exploration expenditure subject to the instalment transfer interest charge is called the instalment transfer excess. The person who is liable to pay the instalment transfer interest charge is the person who benefited from the instalment transfer excess. Two conditions need to be met to determine the instalment transfer excess.

1.25 First, there needs to be a transfer of exploration expenditure between petroleum projects in an instalment period in a year of tax in a manner required by the rules governing the transfer of exploration expenditure. Consequently, the transfer of exploration expenditure needs to have occurred and the transfer needs to be properly made under sections 45A and B. Further, if a transfer is made by the Commissioner of Taxation (Commissioner) under section 45C, the transfer is taken to be a transfer by the person under sections 45A and 45B because of subsection 45C(4). In this context, it is noted that subsection 45E(5) indicates that an instalment transfer is a transfer of exploration expenditure in accordance with Division 3A of Part V. This provides a link between paragraph 98A(1)(a) and subsection 45E(5) ensuring that the transfer of exploration expenditure for the purposes of paragraph 98A(1)(a) needs to be properly made in accordance with the rules in Division 3A of Part V. [Schedule 1, item 12, paragraph 98A(1)(a)]

1.26 Second, the transferred exploration expenditure in a particular instalment period in a year of tax, and to the same petroleum project as in the first condition, cannot be made later in the particular year of tax only because of a breach of the common ownership test as outlined in clauses 22 and 31 of the Schedule to the PRRT Act. That is, the exploration expenditure is transferred in one instalment period in a year of tax but this transfer is subsequently reversed in the same year of tax. This reversal can apply to all or part of the exploration expenditure that is transferred in an instalment period. If this reversal occurs for reasons other than a breach of clause 22 or 31 of the Schedule to the PRRT Act (such as insufficient notional taxable profit), then this does not give rise to an amount of instalment transfer excess. [Schedule 1, item 12, paragraph 98A(1)(b)]

1.27 The amount of instalment transfer excess arising from paragraphs 98A(1)(a) and (b) can be offset, in part or in whole, in two circumstances [Schedule 1, item 12, subsection 98A(2)] . The first circumstance deals with scenarios relating to the particular transferable exploration expenditure relating to the instalment transfer that has been reversed. This transferable exploration expenditure may be subsequently applied or transferred in the same year of tax as the original instalment transfer occurred, and so much of the expenditure as is so applied or transferred will offset the instalment transfer excess [Schedule 1, item 12, paragraph 98A(2)(a)] . The second circumstance deals with the possibility of alternative annual transfers offsetting the instalment transfer excess [Schedule 1, item 12, paragraph 98A(2)(b)] . These circumstances are discussed below in more detail. Any offsets to the instalment transfer excess cannot make the instalment transfer excess negative [Schedule 1, item 12, subsection 98A(3)] .

Instalment transfer excess offset by an alterative transfer or application

1.28 In the first circumstance relating to paragraph 98A(2)(a), there are three possible scenarios. The first scenario is the case where the receiving project causes the breach of either clause 22 or 31 of the Schedule to the PRRT Act. In this scenario, the instalment transfer excess can be reduced or eliminated by transferring this amount to another PRRT paying project held by the liable person (ie, the person holding the receiving project which breaches clause 22 or 31). This result arises because paragraph 98A(2)(a) refers to 'any person's taxable profit in relation to any petroleum project,'

Example 1.1

Company (or company group) X has an interest in three petroleum projects - Projects A and B which are both generating a notional taxable profit of $100, and Project C which is not generating a notional taxable profit and has incurred transferable exploration expenditure of $100. The $100 of transferable exploration expenditure incurred by Project C is transferred to Project A in the first instalment period (ie, the September quarter) of the tax year as required under section 45E, and Project A is sold in the second instalment period (ie, the December quarter) causing a breach of either clause 22 or 31 of the Schedule to the PRRT Act.

An instalment transfer excess of $100 is created in relation to the second instalment period due to the operation of paragraphs 98A(1)(a) and (b). However, this instalment transfer excess can be eliminated by transferring the relevant exploration expenditure to Project B due to the operation of paragraph 98A(2)(a), subject to Projects B and C satisfying either clause 22 or 31.

1.29 The second scenario is where the loss project causes the breach of either clause 22 or 31 of the Schedule to the PRRT Act. In this scenario, the instalment transfer excess can be reduced or eliminated in two ways.

1.30 The first way is that the loss project generates a notional taxable profit in the same year of tax the breach of clause 22 or 31 occurs that can be used to absorb, in whole or in part, the instalment transfer excess. This result arises because paragraph 98A(2)(a) indicates that the instalment transfer excess can be offset by an amount applied to reduce or eliminate any person's taxable profit in relation to any petroleum project.

Example 1.2

Company (or company group) X has an interest in two petroleum projects - Project A which is generating a notional taxable profit of $100, and Project C which is not generating a notional taxable profit and has incurred transferable exploration expenditure of $100. The $100 of transferable exploration expenditure incurred by Project C is transferred to Project A in the first instalment period (ie, the September quarter) of the tax year as required under section 45E, and Project C is sold in the second instalment period (ie, the December quarter) causing a breach of either clause 22 or 31 of the Schedule to the PRRT Act.

An instalment transfer excess of $100 is created in relation to the second instalment period due to the operation of paragraphs 98A(1)(a) and (b). However, this instalment transfer excess can be eliminated to the extent that Project C generates a notional taxable profit in the same year of tax, due to the operation of paragraph 98A(2)(a).

1.31 The second way is where a company or company group holds an interest in a loss project, a profit project benefiting from the transfer of exploration expenditure and a profit project not benefiting from the transfer of exploration expenditure. In addition, the loss project and the profit project not benefiting from the transfer of exploration expenditure are sold to the same company or company group. The instalment transfer excess can be reduced or eliminated by the exploration expenditure being transferred from the loss company to the profit project not originally benefiting from the transfer of exploration (subject to satisfying either clause 22 or 31 of the Schedule to the PRRT Act). This result arises because paragraph 98A(2)(a) refers to 'any person's taxable profit in relation to any petroleum project,'

Example 1.3

Company (or company group) X has an interest in three petroleum projects - Projects A and B which are both generating a notional taxable profit of $100, and Project C which is not generating a notional taxable profit and has incurred transferable exploration expenditure of $100. The $100 of transferable exploration expenditure incurred by Project C is transferred to Project A in the first instalment period (ie, the September quarter) of the tax year as required under section 45E, and Project C is sold in the second instalment period (ie, the December quarter) to Company Y (or company group) causing a breach of either clause 22 or 31 of the Schedule to the PRRT Act. In addition, Project B is also sold to Company (or company group) Y in the second instalment period (ie, the December quarter).

An instalment transfer excess of $100 is created in relation to the second instalment period due to the operation of paragraphs 98A(1)(a) and (b). However, this instalment transfer excess can be eliminated by transferring relevant exploration expenditure to Project B due to the operation of paragraph 98A(2)(a). This is because Project B and C still satisfy either clause 22 or 31 of the Schedule to the PRRT Act.

Alternative annual transfers offsetting instalment transfer excess

1.32 In the second circumstance, relating to paragraph 98A(2)(b), alternative annual transfers can offset the instalment transfer excess. This deals with the scenario where the loss project causes a breach of either clause 22 or 31 and the vendor has available at the end of the year unused exploration expenditure that can be transferred in place of the transferable exploration expenditure that can no longer be transferred.

Example 1.4

Company (or company group) X has an interest in three petroleum projects - Project A which is generating a notional taxable profit of $100, and Projects C and D which are not generating a notional taxable profit and both have incurred transferable exploration expenditure of $100. Further, the $100 of transferable exploration expenditure incurred by Project C is transferred to Project A in the first instalment period (ie, the September quarter) of the tax year as required under section 45E, and Project C is sold in the second instalment period (ie, the December quarter) causing a breach of either clause 22 or 31 of the Schedule to the PRRT Act.

In this example, an instalment transfer excess of $100 is created in relation to the second instalment period due to the operation of paragraphs 98A(1)(a) and (b). However, this instalment transfer excess can be eliminated by drawing on the unused transferable exploration expenditure incurred by Project D as an annual transfer due to the operation of paragraph 98A(2)(b), subject to Projects A and D satisfying either clause 22 or 31 of the Schedule to the PRRT Act.

Instalment transfer interest charge - liability to pay this charge

1.33 The liable person is liable to pay the instalment transfer interest charge. The liable person is the person who benefited from the transfer of exploration expenditure in an instalment period that was subsequently reversed.

1.34 The instalment transfer interest charge applies to the following periods (called the instalment transfer charge period):

•

if the instalment transfer excess relates to the first instalment period (ie, 1 July to 30 September), the period from the day on which the instalment of tax relating to the first instalment period is due and payable to the day before the second instalment of tax is due and payable [Schedule 1, item 12, paragraph 98A(4)(a) and subsection 98A(7)] ;

•

if the instalment transfer excess relates to the second instalment period (ie, 1 July to 31 December), the period from the day on which the instalment of tax relating to the second instalment period is due and payable to the day before the third instalment of tax is due and payable [Schedule 1, item 12, paragraph 98A(4)(b) and subsection 98A(7)] ; and

•

if the instalment transfer excess relates to the third instalment period (ie, 1 July to 31 March), the period from the day on which the instalment of tax relating to the third instalment period is due and payable to the day before tax relating to the year of tax is due and payable [Schedule 1, item 12, paragraph 98A(4)(c) and subsection 98A(7)] .

1.35 For any year of tax, one of the above periods applies to each instalment transfer that results in an instalment transfer excess. Where an instalment transfer results in an instalment transfer excess in relation to more than one instalment period, the way the periods are defined ensures that there is no double counting of the period for which the charge applies. For instance, suppose an instalment transfer resulting in an instalment transfer excess is made for the purposes of the first instalment period and the third instalment period but not the second, then the charge periods will cover only two quarters, not three. Furthermore, there could be an instalment transfer interest charge for a number of instalment transfer charge periods in a year of tax which are effectively additive due to the interaction of subsections 98A(1) and (4).

Example 1.5

Company A holds an interest in Project A (the loss project) and Company B holds an interest in Project B (the profit project), and Companies A and B are members of a company group. Project A transfers $100 of exploration expenditure to Project B, and Project B takes this into account in calculating its instalment of tax for the first instalment period. Similarly, Project A transfers $100 to Project B, and Project B takes this into account in calculating its instalment of tax for the second instalment period. On 1 March, Company A sells its interest in Project A, causing a breach of clause 31 to the Schedule to the PRRT Act. Consequently, the $100 cannot be taken into account in calculating Project A's instalment of tax for the third instalment period and PRRT liability for the year of tax.

An instalment transfer interest charge would need to be calculated for the instalment transfer charge period relating to the first instalment period, and for the second instalment period. These two instalment transfer interest charges are effectively added together in working out the instalment transfer interest charge for the year of tax.

Instalment transfer interest charge - other

1.36 The liable person remains liable to pay the instalment transfer interest charge despite sections 48 and 48A of the PRRT Act [Schedule 1, item 12, subsection 98A(5)] . This applies to the case where the petroleum project receiving the transferable exploration expenditure breaches clause 22 or 31 (ie, there is a change in ownership of the receiving project). The effect of sections 48 and 48A is to place the purchaser of the petroleum project in the same position as the vendor, for the whole of the year of tax. In particular, subparagraph 48(1)(a)(ii) and paragraph 48A(5)(d) indicate that the purchaser is liable for any liabilities in respect of the instalments paid in relation to the project. If it was not for subsection 98A(5), these sections would capture any instalment transfer interest charge which arises after, and because of, the sale of the project receiving the transferable exploration expenditure.

1.37 The liable person must provide the Commissioner information to work out the instalment transfer interest change on or before the 60th day after the end of the year of tax. This enables the Commissioner to assess the amount of instalment transfer interest charge. [Schedule 1, item 12, subsection 98A(6)]

Instalment transfer interest charge - amount

1.38 The instalment transfer interest charge is calculated by multiplying the instalment transfer tax by the base rate compounded over the number of days in the instalment transfer charge period the instalment transfer excess is outstanding. The instalment transfer tax is obtained by multiplying the instalment transfer excess by the PRRT rate (which is currently 40 per cent). The base rate is the interest rate specified in section 8AAD of the TAA 1953, which is essentially the 90-day bank bill rate. [Schedule 1, item 12, section 98B]

1.39 The method used to calculate the instalment transfer interest charge is the same method used to calculate the shortfall interest charge set out in section 280-105 of the TAA 1953 except that the interest rate is different. That is, the shortfall interest charge uses an interest rate of the base rate plus 3 percentage points, while the instalment transfer interest charge uses the base rate (with no uplift factor). The base rate is the appropriate interest rate to apply in this case because it is consistent with the policy intention of the interest charge recouping the time value of money associated with the delay in payment of PRRT. The base rate represents (approximately) the opportunity cost of money for the Australian Government. It also represents (approximately) the cost of money for large companies (who are within the PRRT regime), ensuring they are neither penalised nor advantaged by the requirement to make transfers of exploration expenditure that are reversed by subsequent events.

Instalment transfer interest charge - notification and payment

1.40 The Commissioner must give the liable person a notice stating the amount of the instalment transfer interest charge liability. This amount can be included in another notice that the Commissioner gives to the taxpayer (such as the notice of the amended assessment). The notice will serve as prima facie evidence of the instalment transfer interest charge liability. Any instalment transfer interest charge that a taxpayer is liable to pay will be due 21 days from when the liable person is given notice of the charge. [Schedule 1, item 12, section 98C]

1.41 The provisions dealing with notification are similar to section 280-110 of the TAA 1953 dealing with notification of the shortfall interest charge. Further information on notification in the shortfall interest charge context that is also relevant in this context can be found in the explanatory memorandum to the Tax Law Amendment (Improvements to Self Assessment) Bill (No. 1) 2005.

Instalment interest transfer charge - remission

1.42 The Commissioner can remit all or part of the instalment transfer interest charge where the Commissioner considers it fair and reasonable to do so [Schedule 1, item 12, subsection 98D(1)] . However, in general, the Commissioner will not remit just because the benefit the PRRT payer received from the temporary use of the instalment transfer excess is less than the instalment transfer interest charge, or because the Commissioner obliged the transfer and deduction of the exploration expenditure.

1.43 To improve confidence in the objectivity of remission decisions, the Commissioner must provide reasons for the remission decision where a taxpayer requests remission of the shortfall interest charge and the Commissioner decides not to remit all of the amount [Schedule 1, item 12, subsection 98D(2)] . The taxpayer may object to any decision made by the Commissioner using the objection, review and appeal rights available under Part 1VC of the TAA 1953 [Schedule 1, item 12, subsection 98D(3)] .

1.44 The provisions dealing with remission are similar to sections 280-160, 280-165 and 280-170 in the TAA 1953 dealing with remission of the shortfall interest charge. Further information on remission in the shortfall interest charge context that is also relevant in this context can be found in the explanatory memorandum to the Tax Law Amendment (Improvements to Self Assessment) Bill (No. 1) 2005.

Imposition of the instalment transfer interest charge

1.45 The Petroleum Resource Rent Tax (Instalment Transfer Interest Charge Imposition) Bill 2006 accompanies the Petroleum Resource Rent Tax Assessment Amendment Bill 2006. It imposes the instalment transfer interest charge as a tax, but only to the extent to which it cannot otherwise be validly imposed.

Application and transitional provisions

1.46 These amendments will apply to instalment transfers for PRRT purposes for financial years beginning on or after 1 July 2006. [Schedule 1, item 12]

Consequential amendments

1.47 A consequential amendment is made to the TAA 1953. Specifically, subsection 250-10(2) of the TAA 1953, the index of tax-related liabilities, specifies what liabilities the Commissioner may collect under other Acts and the key provision specifying when the particular liability becomes due and payable. The instalment transfer interest charge is added to this list, with the key provision being subsection 98A(2). [Schedule 1, item 11