House of Representatives

Explanatory Memorandum

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

GENERAL OUTLINE

Petroleum Resource Rent Tax Assessment Bill 1987

This Bill provides for the assessment and collection of the petroleum resource rent tax (PRRT) payable by persons in respect of certain offshore petroleum projects. The Bill -

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contains rules for determining the petroleum projects that are to be subject to PRRT;

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specifies the basis on which the PRRT liability of each participant in a petroleum project is to be calculated - broadly, the tax will apply to the excess (if any) of receipts over expenditure (capital or revenue) for a year;

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provides for any excess of expenditure over receipts for a year to be compounded forward at a specified rate for deduction against future receipts;

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identifies the receipts - or, in the case of certain petroleum products that have not been sold by the point at which they leave an on-site storage facility, amounts deemed to be receipts that are to be assessable for PRRT purposes;

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identifies project-related expenditure that is to qualify for deduction for PRRT purposes;

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provides for the collection of PRRT by instalments payable on 21 October, 21 January and 21 April in each year, with a final payment on assessment; and

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affords rights of objection and appeal and contains general machinery provisions consistent with those in other taxation laws.

Petroleum Resource Rent Tax Bill 1987

This Bill will declare the rate of petroleum resource rent tax and formally impose the tax in respect of the taxable profit of a petroleum project determined in accordance with the accompanying Petroleum Resource Rent Tax Assessment Bill 1987. The rate of tax is to be 40%.

Petroleum Resource Rent Tax (Miscellaneous Provisions) Bill 1987

This Bill will amend various laws consequent upon the enactment of the proposed Petroleum Resource Rent Tax Assessment Act 1987. The consequential amendments will -

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ensure that the Excise Tariff Act 1921 does not apply to impose excise on petroleum produced from a project to which the proposed Petroleum Resource Rent Tax Assessment Act 1987 applies;

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ensure that the Petroleum (Submerged Lands)(Royalty) Act 1967 does not apply to impose royalties in respect of petroleum produced from a project to which the proposed Petroleum Resource Rent Tax Assessment Act 1987 applies;

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provide a deduction under the Income Tax Assessment Act 1936 for petroleum resource rent tax assessed and paid in a year of income;

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include as assessable income under the Income Tax Assessment Act 1936 any amount of petroleum resource rent tax refunded;

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extend the operation of the Crimes (Taxation Offences) Act 1980 to schemes for the evasion of petroleum resource rent tax;

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ensure that the Administrative Decisions (Judicial Review) Act 1977 does not apply to decisions related to making, or forming part of the process of making, an assessment under the proposed Petroleum Resource Rent Tax Assessment Act 1987;

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extend the operation of the Taxation (Interest on Overpayments) Act 1983 to authorise the payment of interest on certain refunds of petroleum resource rent tax;

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include petroleum resource rent tax within the categories of taxes for which a liquidator must make provision under the Fringe Benefits Tax Assessment Act 1986, the Income Tax Assessment Act 1936, the Pay-roll Tax (Territories) Assessment Act 1971, the Sales Tax Assessment Act (No. 1) 1930, the Tobacco Charges Assessment Act 1955 and the Wool Tax (Administration) Act 1964; and

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extend the list, in the Taxation Administration Act 1953, of provisions of various taxation laws dealt with in that Act to include corresponding provisions of the proposed Petroleum Resource Rent Tax Assessment Act 1987.

Petroleum Resource Rent Tax (Interest on Underpayments) Bill 1987

This Bill will formally impose the interest payable on certain underpayments of tax as determined in accordance with the accompanying Petroleum Resource Rent Tax Assessment Bill 1987.

FINANCIAL IMPACT

Some petroleum resource rent tax revenue may be received in the 1988-89 financial year. However, the amount of revenue in any year is inestimable due to the continuing fluctuations in world oil prices and the uncertainty inherent in offshore petroleum exploration.

MAIN FEATURES

The main features of the principal Bill - the Petroleum Resource Rent Tax Assessment Bill 1987 - are as follows.

General application of petroleum resource rent tax

The tax is to apply to profits from the recovery of petroleum in offshore areas where the Commonwealth's Petroleum (Submerged Lands) Act 1967 applies, other than in areas covered by production licences granted on or before 1 July 1984 and the permit areas from which those production licences were drawn. Excise and royalty arrangements will continue to apply in those other areas.

Unlike royalty and excise arrangements, the petroleum resource rent tax is profit-based, rather than being based on production. It will apply only where there is an excess of project-related receipts for a financial year over -

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project-related expenditure for the year;

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undeducted project expenditure of previous years (other than certain expenditure of more than 5 years prior to the coming into force of a production licence in the permit area) compounded forward at a rate equal to the prevailing long-term bond rate increased by 15 percentage points;

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undeducted expenditure (generally exploration expenditure) of more than 5 years before the coming into force of the first production licence in the permit area compounded forward at a rate equal to the rate of the GDP deflator (i.e., the Implicit Price Deflator for Expenditure on Gross Domestic Product); and

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expenditure for the year in closing down the project.

Petroleum resource rent tax assessed and paid will qualify as an allowable deduction for income tax purposes in the year of payment.

The following simple example serves to illustrate the operation of the petroleum resource rent tax in the initial years of a petroleum project:

Assume that a company is the sole holder of an exploration permit in an area to which petroleum resource rent tax will potentially apply. That exploration permit was acquired on 1 July 1986. During the financial year to 30 June 1987, the company undertakes exploration within the permit area and incurs $50m in exploration expenditure (both capital and revenue in nature).

During the year from 1 July 1987 to 30 June 1988, the company incurs a further $20m on exploration and discovers a substantial pool of petroleum. The company then incurs $1m in that year on expenses related to its application for a production licence to develop the discovery. A production licence comes into force in the 1988-89 financial year and the company incurs $100m in start up and production costs in that year.

During the year from 1 July 1989 to 30 June 1990, the company incurs $20m of production expenditure and petroleum to the value of $200m is recovered and sold. During the following year, production expenditure is $20m and the company recovers and sells petroleum to the value of $200m.

The petroleum resource rent tax would apply as follows:

1986-87 financial year

	$m	$m
Receipts		Nil
Exploration expenditure		50
Undeducted expenditure as at 30 June 1987		50
Undeducted expenditure is compounded at the augmented bond rate of, say, 29% (long-term bond rate plus 15 percentage points) for 1986-87, so that $64.5m is carried forward.

1987-88 financial year

	$m	$m
Receipts		Nil
Exploration expenditure	20
General project expenditure	1
Undeducted augmented bond rate expenditure from 1986-87 (deemed to be incurred on the first day of the 1987-88 year)	64.5	85.5
Undeducted expenditure as at 30 June 1988		85.5
Undeducted expenditure is compounded at the augmented bond rate of, say, 30% for 1987-88, so that $111.15m is carried forward.

1988-89 financial year

	$m	$m
Receipts		Nil
General project expenditure	100
Undeducted augmented bond rate expenditure from 1987-88 (deemed to be incurred on the first day of the 1988-89 year)	111.15	211.15
Undeducted expenditure as at 30 June 1989		211.15
Undeducted expenditure is compounded at the augmented bond rate of, say, 30% for 1988-89, so that $274.495m is carried forward.

1989-90 financial year

	$m	$m
Receipts		200
General project expenditure	20
Undeducted augmented bond rate expenditure from 1988-89 (deemed to be incurred on the first day of the 1989-90 year)	274.495	294.495
Undeducted expenditure as at 30 June 1990		94.495
Undeducted expenditure is compounded at the augmented bond rate of, say, 28% for 1989-90, so that $120.9536m is carried forward.

1990-91 financial year

	$m	$m
Receipts		200
General project expenditure	20
Undeducted augmented bond rate expenditure from 1989-90 (deemed to be incurred on the first day of the 1990-91 year)	120.9536	140.9536
Net receipts		59.0464
Petroleum resource rent tax at the rate of 40% is payable on $59.0464m - that is, $23.61856m. (The operation of the instalment system for payment of tax is explained in later notes.)

Petroleum projects (Clauses 19 and 20)

The petroleum resource rent tax is to apply to taxable profits from a petroleum project - the term "petroleum" meaning any naturally occurring hydrocarbon (or mixture of hydrocarbons) whether in a gaseous, liquid or solid state. A petroleum project can only exist when a production licence comes into force and, broadly, will consist of the production licence area, as well as treatment facilities and other facilities and operations outside that area which are integral to the processes for production and initial on-site storage of a marketable petroleum commodity - that is, stabilised crude oil, condensate, liquefied petroleum gas, etc. Two or more projects will be treated as a single project for tax purposes where the Minister for Resources and Energy, having regard to a number of specified factors, considers that they should be so treated and issues a certificate to that effect.

The boundaries of a petroleum project will not extend beyond the point at which a marketable petroleum commodity is initially stored after production. That is, the project boundaries will not extend to "downstream activities" such as refineries and facilities for the transport of marketable products from that storage.

Liability to petroleum resource rent tax (Clauses 21 and 22)

Each participant in a project will be subject to petroleum resource rent tax, assessed on the basis of the participant's receipts and expenditure. For this purpose, a partnership will be treated as a participant, as will an unincorporated association. Similarly, in the case of participation through trusts, the petroleum resource rent tax will be assessed to, and payable by, the trustee, rather than the individual beneficiaries. Venturers in a joint venture will be assessed to the tax on an individual basis.

Assessable receipts (Clauses 23 to 31)

Liability for petroleum resource rent tax will be assessed on an accruals basis. Assessable receipts from the project will, therefore, be taken into account in the financial year in which they are receivable.

Assessable receipts of a project will include amounts receivable from the sale, on an arm's length basis, of petroleum or of a marketable petroleum commodity. Where, because a sale was not on an arm's length basis, the proceeds are less than would otherwise be expected, assessable receipts will be appropriately increased - ordinarily to the market value of the product at the sale point. In the event that the marketable petroleum commodity is not sold at or immediately after the point of initial on-site storage (e.g., where stabilised crude oil is refined by the producer), the market value at that point (or such other value as is fair and reasonable) will be treated as an assessable receipt of the project.

Amounts receivable in respect of the disposal, loss, destruction or damage, or the lease or hire, of project property in respect of which a deduction has been allowed or is allowable will also be treated as assessable receipts, as will any other project-related amounts receivable by way of insurance, compensation, refunds, rebates, etc.

Assessable receipts will not include amounts received as loans or, in respect of loans made, receipts of interest and capital repayments received from borrowers. Nor will they include share capital received as shareholders' funds, dividends or bonus share issues from associated companies or private royalty income.

Deductible expenditure (Clauses 32 to 45)

Expenditure of both a capital and revenue nature which is directly related to a petroleum project will be deductible in the year it is incurred against any assessable receipts for the year. Any capital expenditure in respect of property for use only partly for eligible purposes will be proportionately deductible. Any excess of deductible expenditure (other than closing-down expenditure) over receipts at the end of a year will be compounded forward for deduction against receipts in future years. Deductible expenditure is of 3 types - exploration expenditure, general project expenditure and closing-down expenditure.

Exploration expenditure comprises all expenditure (other than excluded expenditure - see below) in an exploration permit area prior to the coming into force of a production licence that is directly related to exploration for petroleum, its recovery and the production of a marketable commodity. Such expenditure includes that on storage and processing facilities and on employee amenities. Exploration expenditure (after deduction of any relevant receipts prior to the granting of a production licence) will be deductible against assessable receipts of any project established within the exploration permit area. Where there are two or more projects within a permit area in a year of tax, exploration expenditure is to be set off first against receipts (after deduction of general project expenditure) of the project that is the subject of the production licence that first came into force and then against subsequent projects with assessable receipts in that year. Special rules apply where a production licence from one permit area is combined with a production licence from another permit area to form a single project.

General project expenditure comprises all expenditure (other than excluded, exploration or closing-down expenditure) in a production licence area, or combined production licence areas, on the establishment of a project (including on any feasibility or environmental study) and on recovering and producing a marketable petroleum commodity, including expenditure on storage and processing facilities and employee amenities.

The compounding rate for exploration and general project expenditure not deducted as at the end of a year will depend on when the relevant expenditure was incurred. Expenditure incurred more than 5 years before the first production licence in the exploration permit area came into force will be compounded at the GDP deflator rate - determined by dividing the GDP deflator for the year in question by the GDP deflator for the preceding year. Other expenditure will attract compounding at the augmented bond rate - that is, the long-term bond rate for the year in question plus 15 percentage points.

Closing-down expenditure comprises all expenditure in closing down a petroleum project - for example, the cost of removing a drilling platform (but not the cost of relocating it elsewhere). It specifically includes expenditure on environmental restoration of a closed-down project site. If there are insufficient assessable receipts for a year against which to deduct closing-down expenditure for the year, a tax credit of 40% of the excess expenditure is provided. Total credits in respect of a project cannot exceed total petroleum resource rent tax paid in respect of the project. Credits may be refunded or applied against a petroleum resource rent tax liability or another tax liability. Credits will constitute assessable income for income tax purposes.

Certain expenditure will be specifically excluded from petroleum resource rent tax deductibility. Excluded expenditure includes interest payments and repayments of principal in respect of borrowings, dividend payments, share issue costs, private royalties, equity capital repayments and payments made under a cash bidding system. Expenditure for which provision is made but for which liability has not yet arisen (for example, accruing leave entitlements of employees and provision for contingent costs) will not be deductible. Additionally, because outright deductions are allowable for expenditure of a capital nature, there will be no deduction for depreciation of plant or equipment used in a project. As petroleum resource rent tax is a deductible expense for income tax purposes, income tax payments will not be deductible - nor will fringe benefits tax payments.

Petroleum resource rent tax returns (Clauses 59 to 61)

Liability to petroleum resource rent tax will be assessed on an annual basis with the year of tax being the first financial year commencing on or after 1 July 1986 in which assessable petroleum receipts are received or any subsequent financial year. A petroleum resource rent tax return will be required to be lodged in respect of any year of tax in which assessable receipts are received and may be called for in respect of any other year of tax. A return will not be required for a financial year preceding the first year of tax.

Instalments of petroleum resource rent tax (Clauses 93 to 100)

Instalments of petroleum resource rent tax will be required to be paid during a year of tax in which assessable receipts exceed deductible expenditure (including any compounded expenditure of previous years).

Three instalments of tax will be payable during the year - on 21 October, 21 January and 21 April. Each instalment period ending on 30 September, 31 December and 31 March will be treated as if the time from the commencement of the year of tax (i.e., 1 July) until the end of the relevant instalment period was a year of tax with proportionate amounts of compounded expenditure of previous years being deducted from assessable receipts of that period. Deductible expenditure during the period will also be taken into account in determining the instalment amount. The amount of the instalment payable in respect of a particular period will be reduced by any earlier instalment paid in the year of tax. Thus, for example, the instalment due on 21 January would be determined by applying the tax rate to the amount ascertained by deducting from assessable receipts of the 6 month period to 31 December one-half of any compounded expenditure of previous years and amounts actually expended in that 6 month period. The instalment due would then be ascertained by deducting from the amount so calculated the instalment paid for the period ending 30 September.

Assessments (Clauses 62 to 69)

On the basis of the annual return lodged and any other available information, the Commissioner of Taxation will make an assessment of the person's taxable profit (the excess of assessable receipts over deductible expenditure) and of the tax payable on that amount. The rate of tax - to be imposed by the accompanying Petroleum Resource Rent Tax Bill 1987 - will be 40%. The Commissioner will be authorised to amend assessments under, broadly, the same rules that apply for income tax assessments. Similarly, a person assessed to petroleum resource rent tax will have rights, consistent with those under the income tax law, to object and appeal against a petroleum resource rent tax assessment.

A more detailed explanation of the provisions of the Bills is contained in the following notes.

Notes on Clauses

PETROLEUM RESOURCE RENT TAX ASSESSMENT BILL 1987

PART I - PRELIMINARY

Clause 1: Short title

By this clause, the Act is to be cited as the Petroleum Resource Rent Tax Assessment Act 1987. The Act will, by reason of sub-section 5(1A) of the Acts Interpretation Act 1901, come into operation on the twenty-eighth day after the date on which it receives the Royal Assent.

PART II - INTERPRETATION

Clause 2: Defined terms

Clause 2 contains the following definitions of terms used in the Bill. Each term is to have the given meaning unless the contrary intention appears.

"access authority" means an access authority under Part III of the Petroleum (Submerged Lands) Act 1967. Under section 112 of that Act, a holder of an exploration permit, retention lease or production licence may apply for an access authority to enable petroleum exploration operations or operations related to the recovery of petroleum from the permit area, etc. to be carried on in an area adjacent to the relevant permit area, etc. Payments to acquire or to acquire interests in an access authority, otherwise than in respect of the original grant, are excluded expenditure in terms of clause 44.

"agent" includes a person who has the management or control in Australia of all or part of a business of another person out of Australia. The term also includes a person declared by written notice of the Commissioner of Taxation to be an agent of another person. The definition is relevant for the purposes of clause 109 in relation to a person who, as an agent, derives assessable receipts from a petroleum project.

"assessment" means, by paragraph (a) of the definition, the ascertainment of the taxable profit of a person in relation to a petroleum project for a year of tax and of the tax payable on that profit. Broadly, the taxable profit (clause 22) is the excess of assessable receipts (clause 23) over deductible expenditure (clause 32). The tax payable will, under the accompanying Petroleum Resource Rent Tax Bill 1987, be 40% of the taxable profit.

By paragraph (b) of the definition "assessment" includes the ascertainment of additional tax payable under Part IX of the Bill. Part IX contains a range of "culpability" penalties, including penalties of up to 200% of the tax involved where there is a failure to furnish a return or where a false or misleading statement is made.

Clause 71 provides rights of objection against assessments made under the Bill.

"Australia" , when used in a geographical sense, includes Australia's External Territories. The term would not otherwise include these Territories because of the operation of section 17 of the Acts Interpretation Act 1901. The term is used in the geographical sense in, for example, sub-paragraph 11(2)(a)(i), in determining whether a natural person is to be taken to be a resident of Australia for the purposes of the Bill.

"block" has the meaning given it by the Petroleum (Submerged Lands) Act 1967. Under section 17 of that Act, the surface of the Earth is deemed to be divided into graticular sections 5 minutes of longitude by 5 minutes of latitude. Graticular sections or parts of graticular sections that are within an adjacent area (in terms of that Act) are taken to constitute a block. Section 149 of that Act also deems certain portions of blocks to be blocks. The term "block" is used in clause 4 which specifies the relationships that exist, for the purposes of the Bill, between production licences, exploration permits and retention leases.

"certifying Minister" means the Minister for the time being administering the Petroleum (Submerged Lands) Act 1967. At present, that Minister is the Minister for Primary Industries and Energy. The certifying Minister will be required by clause 20 to consider whether two or more petroleum projects should be combined.

"combined project" means a petroleum project to which sub-clause 19(2) applies. Under that sub-clause, there will be taken to be a single petroleum project in relation to the eligible production licences (also a defined term) specified in a project combination certificate that is issued under clause 20 by the certifying Minister and is in force.

"Commissioner" means the Commissioner of Taxation. The Commissioner is to have responsibility for the general administration of the Bill (clause 15) other than in respect of clause 20 dealing with project combinations, which will be the responsibility of the certifying Minister.

"condensate" means a mixture including pentane and hexane, where the pentane and hexane together comprise more than 50% by weight of the mixture. For example, a mixture consisting predominantly of pentane, with traces of hexane, would be covered by this definition. The term is used in the definition of marketable petroleum commodity.

"Deputy Commissioner" means a Deputy Commissioner of Taxation. The term is used in, for example, sub-clause 17(7), under which the Commissioner of Taxation or a Deputy Commissioner may require officers to make oaths or declaration, to maintain secrecy in conformity with clause 17.

"eligible production licence" means a production licence (as defined), other than a production licence related to an excluded exploration permit (a defined term). The circumstances in which a production licence will be taken to be related to a particular exploration permit are set out in clause 4. An excluded exploration permit is one to which a production licence in force on or before 1 July 1984 was related. Clause 19 will operate to bring into existence petroleum projects only where eligible production licences or project combination certificates are in force.

"eligible real expenditure" means exploration expenditure, general project expenditure or closing-down expenditure. Clauses 37, 38 and 39 specify those expenditures on operations, facilities, etc., that constitute each of the three classes of expenditure. The term "eligible real expenditure" is used, for example, in clauses 27, 28 and 29 which bring to account as assessable receipts certain amounts received in respect of property on which eligible real expenditure has been incurred. Eligible real expenditure is distinguished from expenditure that is deemed to have been incurred, by the operation of sub-clauses 33(3), 34(3) and 35(3), on the first day of a financial year.

"employee amenities" means, broadly, non-profit housing, health, educational, recreational, welfare or similar facilities and services for employees or their dependants, as well as facilities and services involved in supplying meals to employees or their dependants. "Facilities" and "services" are each defined terms. The term "employee amenities" is used in clause 37, which describes the kinds of expenditure that make up exploration expenditure, and in clause 19, which describes those facilities, operations and other things that comprise a petroleum project.

"excluded commodity" means a marketable petroleum commodity (as defined) that has been sold, further processed or treated after being produced, moved from the place of production otherwise than to an adjacent storage site or moved from a storage site adjacent to the place of production. The term is used in clauses 19, 24 and 25 to, in effect, ensure that the cost of facilities for storing a marketable petroleum commodity adjacent to the place of its production will be deductible and that the value of a marketable petroleum commodity stored in such a facility will not be brought to account as an assessable petroleum receipt until the commodity leaves that storage or is sold.

"excluded exploration permit" means an exploration permit to which a production licence in force on or before 1 July 1984 was related. Clause 19 will operate to bring into existence a petroleum project only where an eligible production licence (being a production licence related to an exploration permit other than an excluded exploration permit) or a project combination certificate is in force. Production licences drawn from excluded exploration permits will not constitute petroleum projects and will not be within the petroleum resource rent tax base.

"excluded fee" means, broadly, any payment made under the "cash-bidding" system introduced by amendments of the Petroleum (Submerged Lands) Act 1967 in 1985, as well as payments made under the cash-bidding/work programme system that has been in existence since 1967. Excluded fees will not qualify as deductible expenditure for petroleum resource rent tax purposes.

"exploration permit" means an exploration permit for petroleum under Part III of the Petroleum (Submerged Lands) Act 1967.

"exploration permit area" means a permit area as defined in the Petroleum (Submerged Lands) Act 1967. Section 5 of that Act defines a permit area to mean the area constituted by the blocks (as defined) that are the subject of an exploration permit. The term "exploration permit area" is used in clause 5 of the Bill in determining when exploration or recovery of petroleum is to be taken to relate to certain areas.

"facilities" means land, buildings, plant, equipment and other facilities. The term is used in, for example, clause 19 which sets out those facilities, operations and other things that will be taken to comprise a petroleum project. The term also appears in clauses 37 and 38 which set out the exploration expenditure and general project expenditure that is to form part of deductible expenditure.

"financial year" means any financial year commencing on or after 1 July 1979. By section 22 of the Acts Interpretation Act 1901, "financial year" means a period of 12 months commencing on 1 July. As a consequence, expenditure incurred prior to 1 July 1979 cannot form part of deductible expenditure for the purpose of determining a person's taxable profit.

"holder of a registered interest" means, broadly, the holder of an interest in a production licence, being an interest acquired in an existing title and registered under sub-section 81(12) of the Petroleum (Submerged Lands) Act 1967. The term is used in sub-clause 20(3) in referring to persons whose proposed activities are to be considered by the certifying Minister in deciding whether two or more projects should be combined.

"ineligible project" , in relation to a financial year, means, broadly, a petroleum project (being a "pre-combination project" - see notes on the definition of that term) that is combined with another project or projects during the year to form a combined project. The term is used in clauses 23 and 32, with the effect that assessable receipts and deductible expenditure (respectively) that would otherwise relate to an ineligible project are taken instead to relate to the resultant combined project.

"instalment of tax" means an instalment of tax payable under Division 2 of Part VIII. Under that Division, instalments of petroleum resource rent tax will be payable on 21 October, 21 January and 21 April in any year of tax (as defined). By clause 93, a reference to "tax" in clauses 84, 85, 86, 87, 92, 109, 110 and 111 - dealing with extensions of time, penalty tax and recovery of tax - but not in any other clause, will be taken to include a reference to an instalment of tax.

"instalment percentage" is defined in relation to each instalment period (as defined). In the case of the first instalment period, the percentage is 25. In the case of the second, the percentage is 50 and in the case of the third, the percentage is 75. The instalment percentages are used in clause 97 under which the instalment periods are treated as if they were a year of tax and the amounts deemed to be incurred on the first day of the year of tax by sub-clauses 33(3), 34(3), 35(3) and 36(1) are treated for that purpose as if they were instead only the instalment percent ages of those amounts.

"instalment period" , in relation to an instalment of tax, means the periods commencing on 1 July of any year of tax and ending on 30 September, 31 December and 31 March in the case of the first, second and third instalments respectively.

"lease derived production licence" means a production licence that is related to a retention lease (as defined). Clause 4 sets out when a production licence will be taken to be related to a retention lease. The relationship will exist where, by reason of the grant of the production licence, the retention lease ceased to be in force. The term "lease derived production licence" is used in sub-clause 5(2), which explains the meaning of the eligible exploration or recovery area in relation to a project.

"liquefied petroleum gas" means a mixture including both propane and butane, where the propane and butane together comprise more than 50% by weight of the mixture. For example, a mixture consisting predominantly of propane, with traces of butane, would be covered by this definition. The term is used in the definition of marketable petroleum commodity.

"long-term bond rate" means, in relation to the financial years 1979-80 to 1985-86, the rates set out in paragraphs (a) to (g) of the definition. For subsequent financial years, the rate will be determined by reference to the average of the assessed secondary market yields in respect of 10-year non-rebate Treasury bonds published by the Reserve Bank during the relevant year. If no such yield is published in any year, the long-term bond rate for the purposes of the Bill will be such decimal fraction as is determined by the Treasurer by notice published in the Gazette. The long-term bond rate is referred to in sub-clauses 33(3) and 34(3). Under those provisions undeducted expenditure of a year is compounded at the long-term bond rate augmented by a factor of 1.15 and is deemed to have been incurred on the first day of the succeeding year.

"marketable petroleum commodity" means any of the products listed in paragraphs (a) to (e) of the definition - i.e., stabilised crude oil, sales gas (as defined), condensate (as defined), liquefied petroleum gas (as defined) and ethane - or any product declared by regulations to be a marketable petroleum commodity. Excluded from the definition are products produced from any of the named or prescribed products. In terms of clauses 24 and 25, a notional amount is to be included as assessable receipts where petroleum is not sold at or immediately after the point at which a marketable petroleum commodity is initially stored. Further, under clause 19, activities that relate to petroleum after the production and initial storage of a marketable petroleum commodity will not comprise part of a petroleum project.

"offence against this Act" means not only any offence under a provision of the Bill but, by this definition, includes any offence against the Crimes Act 1914 or the Taxation Administration Act 1953 that relates to the Bill. The expression is used in clauses 12 and 13 which treat partnerships and unincorporated associations as separate legal entities for the purpose of the Bill.

"officer" , for general purposes of the Bill, means an officer or employee of the Australian Public Service. The term is used in clause 107 dealing with access to premises and clause 108 dealing with the powers of the certifying Minister and the Commissioner to obtain information and evidence for the purposes of the Bill.

"permit derived production licence" means a production licence that is related to an exploration permit (as defined) by virtue of sub-paragraph 4(a)(i). Under that sub-paragraph, a production licence will be taken to be so related when, by reason of the grant of the production licence, the exploration permit ceased to be in force in respect of the block or blocks comprising the production licence area. The expression "permit derived production licence" is use d in sub-clause 5(2), which explains the meaning of the eligible exploration or recovery area in relation to a project.

"petroleum" has the meaning given to it by the Petroleum (Submerged Lands) Act 1967. Under section 5 of that Act, "petroleum" is defined to mean -

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any naturally occurring hydrocarbon, whether in a gaseous, liquid or solid state;

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any naturally occurring mixture of hydrocarbons, whether in a gaseous, liquid or solid state; or

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any naturally occurring mixture of one or more hydrocarbons, whether in a gaseous, liquid or solid state, and one or more of hydrogen sulphide, nitrogen, helium and carbon dioxide.

The section 5 definition includes any petroleum (as defined) that has been returned to a natural reservoir in an adjacent area (as defined in that Act). Accordingly, where gas is re-injected and subsequently recovered, the recovered gas, when sold or processed to a marketable petroleum commodity, will generate assessable petroleum receipts for the purposes of the Bill.

"petroleum project" or "project" means a project within the meaning of sub-clause 19(1) or (2). By sub-clause (1) a petroleum project will be taken to exist for the purposes of the Bill in relation to any eligible production licence (as defined) that is not specified in a project combination certificate in force under clause 20. By sub-clause (2) a petroleum project will be taken to exist in relation to such eligible production licences specified as are in a project combination certificate in force under clause 20. The concept of the petroleum project is fundamental to the Bill as petroleum resource rent tax is to be assessed on a project basis - see notes on clauses 19, 20, 21 and 22.

"pipeline licence" means a licence under Part III of the Petroleum (Submerged Lands) Act 1967 to construct and operate a pipeline. Section 60 of that Act prohibits the construction, alteration, reconstruction or operation of a pipeline in an adjacent area (defined under that Act) except in accordance with a pipeline licence. Payments to acquire or to acquire an interest in a pipeline licence, otherwise than in respect of the original grant, are excluded expenditure by the operation of clause 44.

"pre-combination project" is defined in relation to a combined project (meaning a project to which sub-clause 19(2) applies). A pre-combination project is, under paragraph (a) of the definition, any petroleum project that, immediately before the relevant project combination certificate under clause 20 came into force, was related to any one or more of the eligible production licences specified in the project combination certificate. Accordingly, if two projects were combined, each would be a pre-combination project in relation to the combined project. By paragraph (b), if a project that itself resulted from a combination of projects is combined with another project, each of the individual projects would be a pre-combination project in relation to the resultant combined project.

A pre-combination project is, for the year in which the project combination certificate issued, an ineligible project (as defined), so that, in effect, assessable receipts and deductible expenditure of the project for the period of the year prior to the issue of the certificate are to be taken to relate to the combined project.

"production licence" means a petroleum production licence under Part III of the Petroleum (Submerged Lands) Act 1967. In broad terms, a production licence is granted in respect of a block or blocks in a permit or retention lease area in which petroleum has been discovered, and authorises the holder to carry on operations for the recovery of that petroleum. The term is used, inter alia, in the definition of eligible production licence.

"production licence area" means a licence area within the meaning given by the Petroleum (Submerged Lands) Act 1967. Under that Act, a licence area is defined as the area constituted by the blocks (as defined) that are the subject of a production licence for petroleum under Part III of the Act. The expression "product ion licence area" is used in clause 5 in determining when exploration or recovery of petroleum is to be taken to relate to particular areas for the purposes of the Bill.

"project combination certificate" means a certificate under clause 20. On making a determination under that clause that two or more projects should be combined, the certifying Minister is to issue a project combination certificate to that effect.

"registered holder" has the same meaning as in the Petroleum (Submerged Lands) Act 1967. Broadly, the registered holder will be the person whose name is for the time being shown in the Register (under that Act) as being the holder of a production licence. The term is used in clause 20 referring to persons whose proposed activities are to be considered by the certifying Minister in deciding whether two or more projects should be combined.

"re-inject" , in relation to a marketable petroleum commodity (as defined), is defined to mean the return of that commodity either -

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in a case where a production licence in relation to the project has not yet come into force - to a natural reservoir in the eligible exploration or recovery area (see notes on clause 5 of the Bill); or

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in any other case - to a natural reservoir in the production licence area of any production licence in relation to the project.

The definition is relevant for the purposes of clauses 24 and 25 to ensure that the value of a re-injected marketable petroleum commodity is not brought to account as an assessable petroleum receipt or an assessable exploration recovery receipt.

"retention lease" means a retention lease under Part III of the Petroleum (Submerged Lands) Act 1967.

"retention lease area" means a lease area as defined in the Petroleum (Submerged Lands) Act 1967. Section 5 of that Act defines a lease area as the area constituted by the blocks (as defined) that are the subject of a retention lease. The term "retention lease area" is used in clause 5 in determining when exploration or recovery of petroleum is to be taken to relate to certain areas for the purposes of the Bill.

"sales gas" means a mixture that includes methane, where the methane comprises more than 50% by weight of the mixture. The term "sales gas" is used in the definition of marketable petroleum commodity.

"Second Commissioner" means a Second Commissioner of Taxation. The Bill refers to a Second Commissioner in, for example, clause 106 which sets out a number of rules affecting the admissability as evidence of certain documents.

"services" is defined to mean water, light, power, access, communications or other services. The term is used in clause 19, dealing with activities, etc. that are to be taken to comprise a petroleum project, and in clause 37 which sets out the exploration expenditure that is to form part of deductible expenditure.

"tax" means tax imposed by the proposed Petroleum Resource Rent Tax Act 1987.

"this Act" includes the proposed Petroleum Resource Rent Tax Assessment Act 1987 and regulations under the Act. Clause 114 authorises the Governor-General to make regulations.

"Tribunal" means the Administrative Appeals Tribunal. Under clause 20 and Part VII, various decisions made under the Bill will be subject to review by the Administrative Appeals Tribunal.

"trustee" is defined to include the following -

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a person made a trustee by consent, court order, or operation of law;

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an executor, administrator or other personal representative of a deceased person;

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a guardian or committee;

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a receiver or a receiver and manager;

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an official manager or liquidator of a company; or

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any person who -

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has or takes on the administration or control of property affected by any express or implied trust;

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acts in a fiduciary capacity; or

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has the possession, control or management of property of a person under a legal or other disability.

Under clause 109 trustees (and agents) who derive assessable receipts in such a capacity will be required to furnish returns and be liable to pay any tax in respect of those assessable receipts.

"unincorporated association" is defined as not including a joint venture, so that a joint venture itself will not, in terms of clause 13, be treated as a person for the purposes of the Bill. As a result, individual joint venturers will be responsible for lodging petroleum resource rent tax returns disclosing their individual receipts and expenditure in relation to the petroleum project.

"year of tax" means, broadly -

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in the case of a project other than a combined project (as defined), the first financial year commencing on or after 1 July 1986 in which a person derives assessable petroleum receipts (as defined) from a petroleum project and any subsequent year (paragraph (a)); or

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in the case of a combined project, where assessable petroleum receipts have been derived in relation to any of the pre-combination projects (as defined) in a year prior to that in which the projects were combined - the financial year commencing on or after 1 July 1986 in which the project combination certificate (issued under clause 20) comes into force and any subsequent year (paragraph (b)).

The term is important as it is in relation to years of tax that a person may be taken to have a taxable profit under clause 22 and be required to lodge a return under clause 59.

Clause 3: Petroleum Pools

This clause will ensure that whenever petroleum is recovered from a petroleum pool - defined in the Petroleum (Submerged Lands) Act 1967 to be a naturally occurring discrete accumulation of petroleum - the area from which it is taken to be recovered, or the proportion of petroleum taken to be recovered from a particular area, will be ascertained in accordance with section 6A of that Act. Broadly, that section operates in cases where a petroleum pool extends over a production licence or permit area to either another production licence or permit area or a State licence or permit area. In cases, for example, where an agreement has been entered into between the licensees of two adjoining licence areas in accordance with section 59 of the Petroleum (Submerged Lands) Act 1967, petroleum shall be taken to have been recovered from each licence area in the proportions specified in, or determined under, that agreement.

Clause 4: Relationship between licences, permits and leases, &c.

Clause 4 is an interpretative provision which, for the purposes of the Bill, sets out the circumstances in which production licences, retention leases and exploration permits will be taken to be related. The relationship is relevant as an initial step in determining the expenditure to be deductible against specific petroleum projects (see notes on clause 5). Under the Petroleum (Submerged Lands) Act 1967, a production licence, exploration permit or retention lease cannot co-exist in relation to the same area - that is, for example, an exploration permit ceases to exist in relation to that part of the area over which a production licence is granted.

Paragraph (a) operates to determine when a production licence (as defined in clause 2) is to be taken to be related to an exploration permit (also defined in clause 2). Under sub-paragraph (a)(i), a production licence is related to an exploration permit if, because of the grant of the production licence, the exploration permit ceased to be in force in respect of the block or blocks covered by the production licence. Where this direct relationship exists, the production licence is, by the clause 2 definition, a "permit derived production licence" - a term used in paragraph 5(2)(a) (see notes on clause 5). Sub-paragraph (a)(ii) relates a production licence to an exploration permit where a retention lease (defined in clause 2) related (under paragraph (b)) to the exploration permit ceased to be in force in respect of a block or blocks (as defined in clause 2) because the production licence was granted over the block or blocks. Broadly, a retention lease allows an explorer to retain tenure over a currently non-commercial discovery in the prospect that the discovery will become viable. The relationship is relevant for the purposes of determining whether a production licence is an eligible production licence, as defined in clause 2, with the consequence that a project in relation to that production licence is within the petroleum resource rent tax base.

An eligible production licence is a production licence, other than one related to an excluded exploration permit which (by clause 2) is an exploration permit to which a production licence in force on or before 1 July 1984 was related. If, for example, at any time a production licence was granted in respect of a retention lease area and that production licence was related to a permit which, because of the issue of a production licence prior to 1 July 1984, was an excluded exploration permit, the production licence from the retention lease area would not be an eligible production licence.

Paragraph (b) specifies, for the purpose of sub-paragraph (a)(ii), the circumstances in which a retention lease is to be taken to be related to an exploration permit. That relationship will exist where, because a retention lease was granted over a block or blocks under the Petroleum (Submerged Lands) Act 1967, the exploration permit ceased to be in force in respect of the block or blocks.

Paragraph (c) specifies the circumstances in which a production licence is to be taken to be related to a retention lease, so that it is (in terms of clause 2) a "lease derived production licence" for the purposes of paragraph 5(2)(b) - see notes on clause 5. In a similar manner to paragraphs (a) and (b), that relationship will be taken to exist where, because the production licence was granted, the retention lease ceased to be in force.

By paragraph (d), in the event that an exploration permit, retention lease or production licence, any one of which is termed the "original authority", is renewed under the provisions of the Petroleum (Submerged Lands) Act 1967, the renewed permit, lease or licence is to be taken to be a continuation of the original authority. That is to be the case notwithstanding that the renewal is in respect of part only of the area over which the original authority was granted. The concept of the continuation of the original exploration permit, retention lease or production licence is relevant for the purpose of determining whether a production licence or a retention lease is related to an exploration permit (in terms of paragraph (a), (b) or (c)).

Clause 5: Petroleum exploration and recovery in relation to certain areas

Clause 5 is an interpretative provision which, in broad terms, describes what is meant by the exploration for petroleum in or the recovery of petroleum from particular areas.

Sub-clause (1) limits a reference in the Bill to exploration for petroleum in or recovery of petroleum from a production licence area, an exploration permit area or a retention lease area to exploration in or recovery from the relevant area while the production licence, exploration permit or retention lease is or was in force. Accordingly, the references in, for example, sub-clauses (2) and (4) to exploration for petroleum in an exploration permit area are references to such exploration while the exploration permit is or was in force. As a consequence, exploration in a current retention lease area would not be exploration in the exploration permit area from which the retention lease is drawn because the exploration permit ceases to be in force in respect of the blocks comprising the retention lease upon the lease being granted.

Sub-clause (2) explains the meaning of references in the Bill to exploration for petroleum in or recovery of petroleum from the eligible exploration or recovery area in relation to the petroleum project. The eligible exploration or recovery area is relevant for a number of purposes. By clause 25, for example, assessable exploration recovery receipts are specified as including, broadly, the consideration received from the sale of petroleum recovered from the eligible exploration or recovery area before a marketable petroleum commodity is produced. Further, under clause 37, exploration expenditure includes expenditure on operations and facilities involved in exploring for petroleum in the eligible exploration or recovery area in relation to a project.

By paragraph (a), and subject to sub-clause (3), the eligible exploration or recovery area in relation to a permit derived production licence (a defined term, being broadly, a production licence drawn from an exploration permit) is the exploration permit area (also a defined term) to which the production licence is related - that is, the whole of the exploration permit area from which the production licence was drawn. The exploration or recovery referred to includes that occurring either before or after the coming into force of the relevant production licence. It does not, however, extend to exploration or recovery occurring after marketable petroleum commodities, as defined in clause 2, cease permanently to be produced from a project. The effect of this limitation is apparent in terms of its application to paragraph 37(1)(a), which includes as exploration expenditure payments made in carrying on operations involved in exploration for petroleum in the eligible exploration or recovery area in relation to a project. Such payments will only be deductible in relation to the project to the extent that the operations involved exploration prior to or during the ongoing production of marketable petroleum commodities from the project. Once marketable petroleum commodities cease to be produced, further exploration expenditure will no longer be deductible in relation to that project but will be deductible in relation to any other existing or subsequent project constituted by a production licence drawn from the exploration permit area. Where there is no other existing project, the rate at which undeducted exploration expenditure will be compounded forward for future deduction will depend on the time at which any subsequent production licence comes into force. Where the expenditure is incurred more than five years prior to the time of the subsequent production licence coming into force, compounding will be at the GDP deflator rate (see notes on clause 35), otherwise compounding will be at the aug mented bond rate (see notes on clause 34).

Paragraph (b) specifies what is the eligible exploration or recovery area in relation to a lease derived production licence (as defined), being a licence drawn from a retention lease area. Where the production licence (or where there is more than one production licence, any one of them) in relation to a project is a lease derived production licence, the eligible exploration or recovery area in relation to the project will be, broadly, the retention lease area (as defined). The effect will be that, where a project is constituted by a production licence drawn from a retention lease, the exploration expenditure incurred in the retention lease area while the lease is in force will be deductible only against that project and not against projects within the bounds of the exploration permit area but outside the retention lease area. As for paragraph (a), the reference to exploration or recovery is to exploration or recovery occurring before or after the coming into force of a production licence but not after marketable petroleum commodities cease to be produced, otherwise than temporarily, from the relevant project.

Paragraph (c) includes in the eligible exploration or recovery area of a petroleum project the project's production licence area or areas.

Sub-clause (3) will treat, for the purposes of sub-clauses (1) and (2), certain exploration or recovery of petroleum as taking place in a retention lease area notwithstanding that the retention lease was not in force at the time at which the exploration or recovery was undertaken. The sub-clause will only apply in relation to a retention lease area where there is no permit derived production licence (as defined) in force at the time the retention lease comes into force. This could occur either because no production licence had ever been drawn from the exploration permit or because any production licence that had been drawn from the permit had ceased to be in force.

The broad effect of the provision will be to treat the exploration or recovery occurring in the block or blocks over which a retention lease is subsequently granted as occurring in the retention lease area and not in the exploration permit area. Accordingly, where no production licence has been drawn from an exploration permit and a retention lease is drawn from the permit, all the exploration or recovery that has occurred in the blocks that make up the retention lease between the time the exploration permit comes into force and the time the retention lease comes into force will be taken to be related to the retention lease area and not the exploration permit area (paragraph (a)). The relevant expenditure therefore will qualify for deduction in relation to projects constituted by production licences drawn from the retention lease and not in relation to any that may subsequently be drawn from the remainder of the exploration permit. Similarly, receipts from the sale of non-commercial quantities of petroleum recovered while exploring in the relevant block or blocks will be assessable exploration recovery receipts (see notes on clause 25) in relation to projects within the retention lease area.

Paragraph (b) will apply where one or more production licences were in force in the exploration permit area but had ceased to be in force at the time a retention lease comes into force. In this case, the exploration or recovery to be treated as occurring in the retention lease area is that taking place in the blocks that constitute the retention lease area between the time when the production licence (or the last of them) ceased to be in force and the time when the retention lease came into force. As described in relation to paragraph (a), the effect is to treat relevant expenditures and receipts as relating to any projects that may be constituted by production licences drawn from the retention lease and not as relating to subsequent projects in the remainder of the exploration permit area.

Under the terms of sub-clause (2), the same exploration for or recovery of petroleum could, in the absence of sub-clause (4), relate to a number of production licences. For example, where several production licences are drawn from the same exploration permit, the exploration permit area would be, in the absence of the sub-clause, the eligible exploration or recovery area in relation to each of the production licences by the operation of paragraph (2)(a). Sub-clause (4) therefore applies where exploration for petroleum or recovery of petroleum would otherwise be taken to be from an exploration permit area or retention lease area in relation to two or more production licences, to the effect that the exploration or recovery is taken to relate only to the production licence that first came into force. However, in any year in which there are insufficient assessable receipts from the project in relation to that first production licence to offset exploration expenditure, the excess expenditure will, by the operation of clause 36, be offset against assessable receipts of projects in the same project group - broadly, those projects constituted by production licences drawn from the same exploration permit area.

Clause 6: Termination of use of property in relation to a petroleum project

This clause is an interpretative provision dealing with the termination of the use of property in relation to petroleum projects. In terms of clause 27 the termination of the use of property on a project will result in an amount, broadly equivalent to the value of the property at that time, being brought to account as an assessable receipt.

By paragraph (a), where the production licence in relation to a project (or, in the case of a combined project, all of the production licences specified in a project combination certificate) ceases to be in force, the use of any property, if not already terminated in relation to the project, will be taken to be terminated at that time. Accordingly, paragraph 27(b) will apply with the effect that, broadly, the value of the property will be included as an assessable property receipt at that time.

Technically, upon the issue of a project combination certificate, a new project (the combined project) comes into existence by the operation of sub-clause 19(2) and any pre-combination project that is incorporated into the combined project loses its identity as a separate project. Paragraph (b) will ensure that the use of property in relation to a project will not be taken to be terminated by reason only that a project combination certificate is issued - that is, the coming into force of a project combination certificate will not, of itself, result in clause 27 operating to bring to account an assessable receipt in the pre-combination project.

Clause 7: Property installed ready for use

Clause 7 will ensure that where, for the purposes of this Bill, property is required to be used for a particular purpose (for example, in terms of clause 43 dealing with the deferred use of property on a project), it is taken to be used for that purpose if it is installed ready for use and held in reserve.

Clause 8: Consideration not in cash

Where any consideration under a transaction is satisfied by way of the provision of property other than money, the money value of the consideration will, by this clause, be deemed to have been given. For example, if in an arm's length transaction an item of property is receivable as consideration for the sale of a marketable petroleum commodity, the monetary value of the item of property at that time would be an assessable receipt for the purposes of clause 23 of this Bill.

Clause 9: Amounts credited, reinvested, &c., to be taken to be receivable

Under this clause, there will be a constructive receipt of an amount by a person if, although not actually paid over to that person, that amount is re-invested, accumulated, capitalised, carried to a reserve, sinking fund or insurance fund or otherwise dealt with on behalf of the person or as the person directs.

Clause 10: Amounts to be expressed in Australian currency

For the purposes of the Bill, all amounts and values are, by this clause, required to be expressed in Australian currency.

Clause 11: Residence

This clause details the circumstances in which a person is to be taken to be a resident or a non-resident of Australia for the purposes of the Bill. Determination of residence is relevant for the purposes of clause 92, dealing with the collection of tax from persons with the authority to receive, control or dispose of money belonging to a non-resident.

By sub-clause (1), a person will be taken to have been a non-resident at a particular time if that person was not a resident of Australia (determined under sub-clause (2)) at that time.

By paragraph (2)(a), a natural person will be regarded as a resident if he or she resides in Australia or, if not residing in Australia, is domiciled in Australia and does not have a permanent place of residence outside Australia. The residence of a body corporate will be determined by reference to paragraph (2)(b). If the body was incorporated in Australia, or if it carries on business in Australia and has either its central management and control in Australia or its voting power controlled by shareholders who are residents, the body corporate will be treated as a resident. A partnership or unincorporated association (in each case treated as a person - see notes on clauses 12 and 13) will, by paragraph (2)(c), be regarded as a resident if any member is an Australian resident by virtue of either paragraph (a) or (b).

Clause 12: Partnerships

This clause contains rules relevant to the application of the provisions of the Bill to partnerships participating in petroleum projects.

By sub-clause (1), the Bill is to apply to a partnership as if it were a person - i.e., a separate legal entity. However, where, as an entity to which the Bill applies, a partnership would be subject to an obligation under the Bill, sub-clause (2) stipulates that the obligation is imposed on each partner, but may be discharged by any one of them. In terms of sub-clause (3), where an amount is payable under the Bill by a partnership, the partners will be jointly and severally liable for payment of that amount.

If an offence is deemed to have been committed against the Bill by a partnership (as a consequence of it being deemed to be a person by sub-clause (1)), each partner will, by sub-clause (4), be deemed to have committed the offence. However, sub-clause (5) will operate to provide a defence against a prosecution for such an offence if a partner proves that he or she did not aid, abet, counsel or procure the particular act or omission of the partnership (paragraph (5)(a)) and was not in any way, directly or indirectly, knowingly concerned in, or party to, that act or omission (paragraph (5)(b)).

Sub-clause (6) makes it clear that the provisions of clause 12 may apply also in respect of Part III (the offence and prosecution provisions) of the Taxation Administration Act 1953. Thus, a partnership (and, by sub-clause (4), each of the partners) may be deemed to have committed an offence against the Administration Act as well as against the Bill.

Clause 13: Unincorporated associations

This clause, applicable in relation to unincorporated associations, is to the same effect as clause 12 in its application in relation to partnerships. As with a partnership, an unincorporated association will be treated as a person for the purposes of the Bill and members of the association will have the same rights and obligations as partners will have under clause 12 - see notes on that clause. An unincorporated association does not, by the clause 2 definition of the term, include a joint venture.

Clause 14: Application of Act

Sub-clause (1) makes it clear that the Bill extends to Australia's External Territories and, where relevant, to acts, omissions, matters and things outside Australia, whether in a foreign country or not. The Bill will therefore be capable of application regardless of where relevant acts, etc. occur. For example, proceeds from the overseas sale of petroleum recovered from a petroleum resource rent tax project would form part of assessable receipts.

Sub-clause (2) ensures that, unless provided otherwise, the Bill can apply to matters and things occurring before or after its commencement. This will make it clear, for example, that exploration within a permit area prior to the Bill's commencement can be taken into account for the purposes of determining the amount of deductible exploration expenditure.

By sub-clause (3), in conjunction with sub-clause (1), the Taxation Administration Act 1953 - to the extent that it relates to the Bill - also extends to the External Territories and, where relevant, to acts, omissions, matters and things outside Australia. The offence provisions of the Administration Act will therefore be capable of application notwithstanding that an offence took place outside Australia.

PART III - ADMINISTRATION

Clause 15: General administration of Act

Under this clause, the Commissioner of Taxation is to be responsible for the general administration of the law relating to petroleum resource rent tax.

Clause 16: Annual report

This clause will, in line with requirements of other taxation laws administered by the Commissioner of Taxation, require the Commissioner to furnish to the Minister responsible, as soon as practicable after 30 June each year, a report for the year ending on that 30 June on the working of the Bill (sub-clauses (1) and (3). The Minister will be required to present the report to the Parliament within 15 sitting days after receiving the report (sub-clause (2)). In the report, the Commissioner will be required to draw attention to any breaches or evasions of the Act that have come under notice.

Clause 17: Secrecy

This clause contains secrecy provisions consistent with those in other Commonwealth taxation Acts. It will impose an obligation of secrecy on officers (and former officers) who are appointed or employed by, or perform services for, the Commonwealth or to whom the Commissioner of Taxation has delegated powers or functions and who, in the course of their duties, have acquired, for the purposes of the Bill, information with respect to the affairs of another person (sub-clauses (1) and (2)).

Officers will be obliged not to make a record of such information or divulge or communicate it to any other person except in the course of their duties (sub-clause (3)) and will not be required to give to any court information relating to the affairs of a person except when it is necessary to do so for the purpose of giving effect to the provisions of the Act (sub-clause (4)). An officer may communicate information to the Administrative Appeals Tribunal in connection with proceedings under an Act administered by the Commissioner of Taxation or to another person performing duties as an officer under such an Act for the purpose of enabling that person to perform those duties (sub-clause (5)) but may not communicate information to any Minister (sub-clause (6)). An officer may be required to make an oath or declaration to maintain secrecy in conformity with the secrecy provisions (sub-clause (7)).

The maximum penalty for an offence against the secrecy provisions is a fine of $5,000 or imprisonment for one year, or both.

Clause 18: Application of Part in relation to section 20

This clause will restrict the operation of Part III of the Bill (dealing with administration) in its application to clause 20. That clause provides for the certifying Minister (as defined in clause 2 - presently the Minister for Primary Industries and Energy), having regard to a number of listed factors, to issue a certificate to combine two or more petroleum projects into one. Information relevant to the issue of a certificate, although obtained by the certifying Minister (or officers of the Department of Primary Industries and Energy) for the purposes of clause 20 may also be required for the purposes of the Petroleum (Submerged Lands) Act 1967. Sub-clause 18(1), by effectively disregarding clause 20 for Part III purposes, will ensure that officers of the Department of Primary Industries and Energy do not commit a technical offence by reason of their using that information for those other purposes and that administration of the combination certificate provisions does not lie with the Commissioner of Taxation.

Sub-clause (2) will make it clear that sub-clause 17(3) - which prohibits an officer from divulging or communicating to a second person information obtained under, or for the purposes of, this Bill in respect of the affairs of a third person - does not prevent the communication of information to the certifying Minister or to an officer of the Department of Primary Industries and Energy authorised by the certifying Minister, provided that it is for the purposes of clause 20. Where information has been communicated under sub-clause (2), sub-clause (3) will ensure that the officer to whom that information has been communicated (or any other officer of the Department) is, in respect of that information, subject to the secrecy provisions of sub-clauses 17(3) and 17(4).

PART IV - PETROLEUM PROJECTS

As petroleum resource rent tax is to be assessed on a project basis, the concept of a petroleum project is an essential aspect of the tax. This Part provides the rules by which a project and its boundaries will be determined. Broadly, a petroleum project will exist in relation to a production licence area and will comprise recovery, treatment and other facilities and operations which are integral to the production and initial on-site storage of a marketable petroleum commodity. The project boundary will not extend beyond the point at which a marketable petroleum commodity is initially stored, on-site, after production. Two or more projects (that is, production licence areas and associated facilities, etc.) may be treated as a single project for the purposes of petroleum resource rent tax where the certifying Minister (the Minister for Primary Industries and Energy), having regard to a number of specified factors, considers that they should be so treated and issues a certificate to that effect.

A petroleum project can only exist in relation to certain production licences - termed "eligible production licences". In effect, an eligible production licence is any production licence other than one related to an excluded exploration permit (being a permit to which a production licence issued on or before 1 July 1984 was related).

Clause 19: Petroleum project

This clause enables the determination of what constitutes a petroleum project. Sub-clause (1) outlines the basic criterion for determining the existence of a project - i.e., where an eligible production licence is in force and is not specified in a project combination certificate under clause 20. By sub-clause (2), where 2 or more eligible production licences have been specified in a project combination certificate that is in force, such of those production licences as are in force will be taken to constitute a single petroleum project.

Sub-clause (3) will ensure that, where any one or more (but not all) of the eligible production licences specified in a current project combination certificate ceases to be in force, the combined project will continue in relation to those production licences still in force. But for this sub-clause, there could, technically, be a cessation of the combined project with the consequence, for example, that use of property on the project could be taken to have been terminated. Where use of such property is terminated, clause 27 will operate to bring to account an assessable property receipt in relation to the project.

In establishing those items of expenditure which are deductible for petroleum resource rent tax purposes, various clauses of the Bill (notably clause 38) refer to the operations, facilities and other things comprising a petroleum project. Sub-clause (4) sets out the components that are to be taken to comprise a project. By paragraph (a), operations and facilities for recovering petroleum from the area of an eligible production licence (or more than one such area where a project combination certificate is in force) will form part of a petroleum project. In this regard, "facilities" are defined in clause 2 to mean land, buildings, plant, equipment and other facilities. Other things that may form part of a petroleum project are specified in sub-paragraphs (i) to (v) of paragraph (b). It will not be necessary that each of the matters specified be present.

By sub-paragraph (b)(i), operations and facilities involved in the transport of petroleum between any storage or processing facilities prior to producing a marketable petroleum commodity from the petroleum may form part of the project. The project will not extend to operations and facilities for the transport of marketable petroleum commodities (defined in clause 2 to mean stabilised crude oil, sales gas, condensate, liquefied petroleum gas, ethane, etc.).

Sub-paragraph (ii) refers to operations and facilities for storing, processing or treating petroleum recovered from the production licence area or areas to enable production of a marketable petroleum commodity. Thus, for example, equipment located on an offshore platform and used for the separation of sand or water from recovered crude oil to enable it to be sent ashore by pipeline to a crude oil stabilisation plant would form part of the project. In these circumstances, both the pipeline (under sub-paragraph (i)) and the stabilisation plant (under sub-paragraph (ii)) would also form part of the project.

By sub-paragraph (iii), a reference in the Bill to the operations, facilities and other things comprising a petroleum project will include operations and facilities for the moving or storage of any marketable petroleum commodity at a point before it becomes an "excluded commodity". The effect of the sub-paragraph will be to bring within the project boundaries any operations and facilities connected with the storage of a marketable petroleum commodity at a site adjacent to the place of production of that commodity. As a result, expenditure on such operations and facilities will, in terms of clause 38, qualify for deduction as general project expenditure.

By sub-paragraph (iv) services, or facilities for the provision of services, in connection with the operations, facilities, services and amenities referred to in the clause will also form part of the petroleum project. "Services" are (in terms of clause 2) water, light, power, access, communications or other similar services, while "facilities" are land, buildings, plant, equipment and other facilities. As sub-paragraph (iv) itself forms part of the clause, there can be successive applications of the sub-paragraph to bring services and facilities within its ambit. Consequently, a facility to provide a service in connection with another facility that itself provides a service could form part of a project. For example, a generator used to provide power for a water treatment plant used in connection with a crude oil stabilisation plant would form part of a project. (The stabilisation plant and the water treatment plant would form part of the project by virtue of the operation of sub-paragraphs (ii) and (iv) respectively).

By sub-paragraph (v), employee amenities provided in connection with a project will form part of the project. In broad terms, "employee amenities" are non-profit housing, welfare, recreational and meal facilities provided for project employees and their dependants.

Clause 20: Combining of petroleum projects

This clause will authorise the certifying Minister (defined in clause 2 to mean the Minister for the time being administering the Petroleum (Submerged Lands) Act 1967 - presently the Minister for Primary Industries and Energy) to issue a certificate (a "project combination certificate") specifying 2 or more projects as constituting a single petroleum project. A certificate may only be issued where, within the qualifying period (by sub-clause (2), generally the period of 90 days after the production licence under consideration comes into force), the certifying Minister considers that the projects are sufficiently related to be treated for the purposes of the Bill as a single project.

Sub-clause (1) provides for the issue by the certifying Minister of a project combination certificate. The issue of a certificate may, subject to sub-clause (4), follow an application or request by a participant in a petroleum project or may result from the Minister's own action. An application or request may be made in anticipation of the granting of a production licence, although any decision by the Minister would necessarily have to be made after the granting of that licence. A project combination certificate issued under this clause is to specify the eligible production licence or licences in relation to each of the projects that have been combined.

Paragraphs (a) to (c) of sub-clause (1) set out those matters to which the certifying Minister is to have regard in determining whether 2 or more petroleum projects are sufficiently related to be treated for petroleum resource rent tax purposes as a single project. Under these paragraphs, the Minister is to have regard to -

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the operations, facilities and other things (broadly, amenities and services) that comprise, have comprised or will comprise (see notes on sub-clause (3)) the project to which the eligible production licence in question relates and any other existing project or projects (which may include a project that is a single project because of the prior issue of a certificate under this clause) (paragraph (a));

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the persons by whom (or on whose behalf) the operations and facilities referred to in the previous paragraph are being, have been or are proposed to be carried on or provided (paragraph (b)); and

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the geological, geophysical and geochemical and other features of the production licence areas (paragraph (c)) - the Minister would, for example, be required to take into account the fact that two production licences entitle the licensees to recover petroleum from the same discrete petroleum pool.

Sub-clause (2) defines, for the purposes of sub-clause (1), the qualifying period - i.e., the period that the certifying Minister has to consider whether 2 or more projects should form a single project. Under paragraph (a), the qualifying period is the period of 90 days after the later of the coming into force of the eligible production licence referred to in sub-clause (1) or the commencement of the Bill. For example, in relation to an existing project (project A) and a project that comes into existence after the commencement of the Act as a result of the issue of a further production licence (project B), a decision on the combining of projects A and B would be required to be made within 90 days after production licence B comes into force. Paragraph (b), however, modifies paragraph (a) in circumstances where, within the 90 day period specified in paragraph (a), the certifying Minister receives any information, application or request relevant to the consideration of whether the projects should be combined. In those cases, the qualifying period is extended for such longer period (if any) as is necessary for the Minister to adequately consider that information, application or request.

Sub-clause (3) operates to define, for the purposes of paragraph (1)(a), the reference in that paragraph to operations, facilities, etc. that have comprised, or will comprise, a petroleum project. In the case of a combined project, paragraph (a) makes it clear that a reference to operations, facilities, etc. that have comprised a petroleum project includes a reference to those operations, facilities, etc. that have comprised the pre-combination projects (as defined) that have been combined to form the new project. Paragraph (b) limits the reference in paragraph (1)(a) to operations, facilities, etc. that will comprise a project to such of those operations, facilities, etc. as are proposed by persons who are registered holders of, or holders of registered interests in, the production licence(s) relevant to the project. As a consequence, it is only the activities proposed by those persons, rather than by possible future participants, to which the Minister shall have regard in determining whether a project combination certificate should issue. A registered holder is defined, in terms of the Petroleum (Submerged Lands) Act 1967, as the person whose name is, for the time being, shown in the register required to be kept pursuant to section 76 of that Act. A holder of a registered interest, in relation to a production licence, is defined in clause 2 to mean a person holding an interest in that production licence, being an interest created by a dealing in relation to which an entry has been made under sub-section 81(12) of the Petroleum (Submerged Lands) Act 1967. Broadly, such a dealing would be one creating or assigning an interest in an existing title.

Sub-clause (4) will permit an effective application or request for the issue of a certificate to be made only by a participant (or participants together) having a 50 per cent or greater interest in each of the projects sought to be combined. The relevant interest will be determined by reference to a participant's entitlement to share in receipts from the sale of marketable petroleum commodities from the project.

By sub-clause (5), a project combination certificate issued under sub-clause (1) will not be able to be repealed, rescinded, revoked, amended or varied otherwise than -

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under sub-clause (8) which, in general terms, is an anti-avoidance measure allowing the Minister to cancel a certificate in certain circumstances (paragraph (a));

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pursuant to a decision of the Administrative Appeals Tribunal (see notes on sub-clause (11)) or an order of a court (paragraph (b)); or

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to correct an error in the certificate (paragraph (c)) - e.g., a typographical error in a reference to a production licence number.

The period of time during which a sub-clause (1) project combination certificate will be in force is specified by sub-clause (6). Such a certificate will come into force on the issue of the certificate and, subject to sub-clause (5), will remain in force until there is a later project combination certificate which specifies eligible production licences, including eligible production licences specified in the earlier certificate that are still in force at the time the later certificate is issued (see also the notes on sub-clause 19(3)). Undeducted expenditure on a project between the time of coming into force of a production licence and the time of the combination certificate coming into force would constitute expenditure of the combined project by the operation of clauses 33, 34 and 35.

Sub-clause (7) will operate to allow the certifying Minister, in determining whether to issue a project combination certificate, to disregard the carrying on of an operation or the provision of a facility or other thing where the Minister has reasonable grounds to believe that the operation, facility or thing that comprises, has comprised or will comprise any of the petroleum projects has been, is being or is proposed to be carried on or provided for the sole or dominant purpose of obtaining the issue of the certificate.

Sub-clause (8) will operate by reference to sub-clause (7) and will allow the certifying Minister, in limited circumstances, to cancel a previously issued project combination certificate. Where, after a certificate has issued, the Minister becomes aware of information that was not available to the Minister at the time of issue of the certificate and that information is such that a certificate would not have issued by reason of sub-clause (7) had the Minister been aware of the information at that time, the Minister is required to cancel the certificate. The effect of cancellation will be that the certificate will be deemed never to have issued, with the consequence that the combined projects will be treated as having been single projects during the period the certificate was in force. If necessary, therefore, the Commissioner of Taxation will be required to issue amended assessments.

By paragraph (9)(a), the certifying Minister will be required, within 30 days of the issue (under sub-clause (1)) or cancellation (under sub-clause (8)) of a project combination certificate, to arrange for written notification of the issue or the cancellation to be sent to the holder(s) of the production licences and to the Commissioner of Taxation (sub-paragraph (a)(i)) and to be published in the Gazette (sub-paragraph (a)(ii)). By paragraph (b), where a decision has been made by the Minister to refuse an application or request for a sub-clause (1) certificate, the Minister will be required to arrange for the person or persons making the application or request to be notified of the decision within 30 days. Sub-clause (10) will require that sub-clause (9) notices include a statement to the effect that, subject to the Administrative Appeals Tribunal Act 1975, application may be made, by or on behalf of the person or persons whose interests are affected, to have the decision to which the notice relates reviewed by the Tribunal. By sub-clause (11), failure to comply with sub-clause (10) will not result in the decision being invalidated.

Sub-clause (12) will confer on the Administrative Appeals Tribunal jurisdiction to review a number of decisions made under this clause by the certifying Minister. Reviewable will be a decision to issue a project combination certificate (paragraph (a)), a decision to refuse an application or request to issue such a certificate (paragraph (b)) or a decision under sub-section (8) to cancel a project combination certificate (paragraph (c)) .

PART V - LIABILITY TO TAXATION

Under the provisions of this Part, a person's liability to pay petroleum resource rent tax will be determined by reference to the person's taxable profit from a petroleum project. Taxable profits will be ascertained by reference to the excess of assessable receipts (Division 2) over deductible expenditure (Division 3). Where assessable receipts are insufficient to cover deductible expenditure in a financial year, the undeducted expenditure will be compounded (at either the augmented bond rate or the GDP deflator rate) and the compounded amounts will be deemed to have been incurred on the first day of the following financial year.

There are four classes of deductible expenditure - augmented bond rate general expenditure, augmented bond rate exploration expenditure, GDP factor expenditure and closing-down expenditure. Broadly, augmented bond rate general expenditure is project-specific, in that it may only be deducted against the particular project, whereas augmented bond rate exploration expenditure and GDP factor expenditure will be deductible against projects within project groups (broadly, projects involving production licences drawn from the same exploration permit). Closing-down expenditure (also project-specific) may give rise to a credit of tax if not fully deducted in any year.

Where, as a result of an excess of deductible expenditure over assessable receipts in any financial year, an amount of expenditure is taken to have been incurred on the first day of the following year, the composition of that amount (in terms of the various classes of expenditure) is determined as if expenditure were deducted in the following order -

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augmented bond rate general expenditure;

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augmented bond rate exploration expenditure;

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GDP factor expenditure; and

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closing-down expenditure.

That order of deductibility is ascertained by reference to clauses 33, 34, 35 and 46, which determine the amount of a person's augmented bond rate general expenditure, augmented bond rate exploration expenditure, GDP factor expenditure and closing-down credit respectively. In ascertaining the amount of augmented bond rate general expenditure deemed to be incurred on the first day of a succeeding financial year, regard is had only to the excess of that expenditure over assessable receipts, while in ascertaining the augmented bond rate exploration expenditure deemed to be so incurred, regard is had only to the excess of the sum of the augmented bond rate general and augmented bond rate exploration expenditure (limited to the amount of the latter) over assessable receipts. Similarly, in determining GDP factor expenditure, regard is had to the total of that expenditure and the augmented bond rate general and augmented bond rate exploration expenditure. Credits in respect of closing-down expenditure are determined by reference to the excess of the sum of that expenditure and other deductible expenditure (limited to the amount of closing-down expenditure) over assessable receipts. Accordingly, for example, the amount of GDP factor expenditure undeducted as at the end of a year and to be compounded forward to the next year can only be determined after first setting-off against assessable receipts of that year the augmented bond rate general and augmented bond rate exploration expenditure.

As undeducted closing-down expenditure gives rise to a credit, it does not form part of the expenditure that is deemed to have been paid on the first day of the next financial year.

Division 1 - Liability to tax on taxable profit

Clause 21: Liability to pay tax

This clause establishes liability to pay petroleum resource rent tax. Under this clause, the tax to be imposed by the accompanying Petroleum Resource Rent Tax Bill will be payable by any person who is taken by clause 22 to have a taxable profit in relation to a year of tax in relation to a petroleum project - a year of tax being, broadly, the first financial year commencing on or after 1 July 1986 in which a person derives assessable petroleum receipts and any subsequent year or, in relation to a combined project, where assessable receipts have been derived in relation to any of the pre-combination projects, the financial year in which the project combination certificate comes into force and any subsequent year.

Clause 22: Taxable profit

This clause contains the basis for the determination of a person's taxable profit in relation to a petroleum project. A person will be taken to have a taxable profit for any year of tax in which the person's assessable receipts from a project exceed the person's deductible expenditure on the project - the taxable profit being the amount of that excess. Assessable receipts and deductible expenditure are to be ascertained in accordance with Divisions 2 and 3 respectively.

Division 2 - Assessable receipts

Clause 23: Assessable receipts

Sub-clause 23(1) specifies the meaning, for purposes of the Bill, of a reference to the assessable receipts derived by a person in a financial year in relation to a petroleum project (other than an ineligible project). An ineligible project (defined in clause 2) is, broadly, a project that is combined with another project during the year to form a combined project. Combined projects will be treated for the purposes of the Bill as single projects - see notes on clauses 19 and 20.

Receipts, which may be of a capital or revenue nature, that constitute assessable receipts are specified in paragraphs (a) to (e) of sub-clause 23(1) as follows -

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assessable petroleum receipts (in terms of clause 24) - paragraph (a);

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assessable exploration recovery receipts (in terms of clause 25) - paragraph (b);

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assessable property receipts (in terms of clause 27) - paragraph (c);

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assessable miscellaneous compensation receipts (in terms of clause 28) paragraph (d); and

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assessable employee amenities receipts (in terms of clause 29) - paragraph (e).

These receipts will (in terms of the clauses referred to) be taken to be derived when they are receivable or, in certain cases, when they are deemed to be receivable.

Receipts other than those specified in sub-clause (1) will not be assessable. Such receipts could include, for example, amounts received as loans or as interest, or capital repayments of loans made. Similarly, shareholders' funds and dividends and bonus shares received from other companies will not be assessable, nor will amounts received as consideration for the purchase of interests in projects. Private override royalties (broadly, payments in the nature of royalties, other than to a government or government body, usually calculated by reference to the value or quantity of petroleum produced) will not be assessable.

Sub-clause (2) provides that any receipts within the five classes specified in sub-clause (1) derived by a person in relation to a pre-combination project (as defined in clause 2 - broadly, a project that is combined during the year with another project or projects to form a single project) are to be included as assessable receipts of the person in relation to the combined project - that is, the project that resulted from the issue of a project combination certificate under clause 20. Accordingly, where in a financial year two projects are combined to form a single project, assessable receipts derived during the year, but prior to the project combination certificate coming into force, are to be taken to be derived in relation to the single combined project.

Clause 24: Assessable petroleum receipts

The paragraphs of this clause describe, for the purposes of the Bill, what is meant by a reference to assessable petroleum receipts derived by a person in relation to a petroleum project.

Paragraph 24(a) includes as an assessable petroleum receipt consideration receivable, less any expenses payable, in relation to the sale of processed or unprocessed petroleum (or a constituent of petroleum) before the production from it of any marketable petroleum commodity (as defined in clause 2). Expenses payable in relation to the sale would include, for example, freight charges, marketing costs and demurrage. For the purposes of the paragraph, "petroleum" has, by clause 2, the meaning given to it in the Petroleum (Submerged Lands) Act 1967 - broadly, any naturally occurring hydrocarbon or mixture of hydrocarbons including mixtures containing hydrogen sulphide, nitrogen, helium and carbon dioxide. The petroleum (or constituent of petroleum) referred to is that recovered from the production licence area or areas in relation to the project. Where a project relates to a single production licence, the area would be the area of that production licence. In the case of a combined project, the areas would be those of the production licences specified in the project combination certificate (see notes on clause 20). The petroleum recovered from any particular area will include amounts which, by the operation of clause 3, are taken to have been recovered from that area. Clause 3 will apply, broadly, in cases where the boundary or boundaries of a production licence or licences straddle a petroleum pool.

By paragraph (b), assessable petroleum receipts are to include the consideration receivable, less any expenses payable, in relation to the sale of any marketable petroleum commodity (defined in clause 2 as including stabilised crude oil, sales gas, condensate, etc.) that becomes an excluded commodity by virtue of being sold. The term "excluded commodity" is defined in clause 2 to mean, so far as is relevant, a marketable petroleum commodity that has been sold. The relevant marketable petroleum commodities are those produced from petroleum recovered from the production licence area(s) referred to in paragraph (a). Proceeds from the sale of stabilised crude oil directly from a stabilisation plant would thus be included as an assessable petroleum receipt by the operation of paragraph (b). Unsold stabilised crude oil that is stockpiled at a site adjacent to its place of production would not, at that point, be an excluded commodity and its market value would not be included as an assessable petroleum receipt.

Where paragraph (c) applies - for example, where a marketable petroleum commodity is moved away from its place of production other than to an adjacent storage site or is moved from that adjacent storage site - the market value of the petroleum commodity immediately before it thus became an excluded commodity will be included as an assessable petroleum receipt. Where there is insufficient evidence of that value, the amount will be such amount as the Commissioner of Taxation considers fair and reasonable. In cases where two or more persons are entitled to receipts from the sale of marketable petroleum commodities from the project, clause 26 will operate to apportion the notional amount between them on the basis of their respective entitlements to proceeds from the sale of marketable petroleum commodities.

Clause 25: Assessable exploration recovery receipts

This clause operates to determine assessable receipts in respect of petroleum, petroleum constituents or marketable petroleum commodities recovered or produced from within the eligible exploration or recovery area (other than from a production licence area) in relation to a petroleum project. It will apply, for example, to petroleum recovered while drilling, for exploration purposes, in an exploration permit area from which a production licence is later drawn.

Paragraph 25(a) includes as an assessable exploration recovery receipt consideration receivable, less any expenses payable, by a person in relation to the sale, before a marketable petroleum commodity is produced, of processed or unprocessed petroleum (or a constituent of petroleum) recovered from the eligible exploration or recovery area in relation to a project. The eligible exploration or recovery area in relation to a project is determined under clause 5. Broadly, in the case of a production licence drawn from an exploration permit, the eligible exploration or recovery area is the area covered by the exploration permit including (by the operation of paragraph 5(2)(c)) the area of any production licences in relation to the project. Paragraph (a) excludes from its scope any petroleum (or constituent) recovered from a production licence area while the relevant production licence is in force. Proceeds from the sale of petroleum (or constituent) recovered from a production licence area while the production licence is in force are included as an assessable petroleum receipt by the operation of clause 24.

Because of the operation of sub-clause 5(2), where marketable petroleum commodities cease (except temporarily) to be produced from a project and recovery of petroleum continues in the exploration permit area (say, at a non-commercial level for testing purposes), receipts from the sale of such petroleum recovered after that time will not be taken to be assessable exploration recovery receipts in relation to that project. If subsequently a production licence drawn from the permit area comes into force, those receipts would be assessable exploration recovery receipts in relation to the subsequent project.

Paragraph (b) includes as an assessable exploration recovery receipt consideration receivable, less any expenses payable, for the sale of a marketable petroleum commodity produced from the recovered petroleum referred to in paragraph (a). The paragraph applies where that marketable petroleum commodity becomes an excluded commodity (as defined in clause 2) by virtue of being sold.

In a similar manner to paragraph 24(c), paragraph (c) of this clause will include a notional amount as an assessable exploration recovery receipt where a marketable petroleum commodity becomes an excluded commodity otherwise than by reason of its being sold, re-injected, destroyed or used on the project. That is, the paragraph will apply where the marketable petroleum commodity has been further processed or treated, has been moved from its place of production other than to an adjacent storage site or has been moved from an adjacent storage site. The notional amount to be included will be, broadly, the market value of the commodity immediately before it became an excluded commodity or, in the absence of sufficient evidence to determine that value, such amount as the Commissioner considers is fair and reasonable.

Clause 26: Amounts notionally derived where no sale of petroleum &c.

Clause 26 operates for the purposes of paragraphs 24(c) and 25(c) so that, where either of the paragraphs apply, the market value of (or the amount determined by the Commissioner of Taxation in respect of) a marketable petroleum commodity referred to in those paragraphs will be taken to be derived by the person or persons entitled to receive the proceeds of the sale of marketable petroleum commodities produced from petroleum recovered under the project. Where more than one person is so entitled each person is taken to have derived the relevant notional receipt under whichever of the paragraphs apply in the same proportion as the person is entitled to receipts from the sale of marketable petroleum commodities produced under the project.

Clause 27: Assessable property receipts

A person's deductible expenditure for petroleum resource rent tax purposes will include the full amount of capital expenditure on property used exclusively in carrying on operations for the recovery of petroleum and in a range of other activities associated with petroleum projects. Where property is for use only partly on a petroleum project, a proportionate amount will be allowable as deductible expenditure - see notes on clauses 37 to 39 and 42. This clause will include as assessable property receipts certain amounts receivable in respect of the disposal, loss or destruction of property for which a deduction in respect of capital expenditure has been allowed or is allowable in relation to a project. Where the use of such property on a project is simply terminated, the value of the property will be treated as an assessable property receipt. Also covered by the clause are insurance, etc. recoveries for damage to such property and amounts receivable for the hire, lease or grant of rights to use such property. In broad terms, where the property was purchased for use only partly on a project and, accordingly, only a proportion of the cost of the property has been allowed as a deduction (see notes on clause 42), only a corresponding proportion of the receipts will, by the operation of clause 30, be included as assessable property receipts.

Subject to the operation of clause 30, clause 27 will also treat as assessable property receipts any amounts receivable for providing information obtained as a result of incurring deductible expenditure.

By sub-clause (1), a reference to assessable property receipts derived by a person in relation to a petroleum project is to be taken to refer to those receipts or deemed receipts specified in paragraphs (a) to (e).

Paragraph (a) deals with property, capital expenditure on which qualified as deductible expenditure, that is disposed of, lost or destroyed. The consideration, or, where clause 30 applies, a proportion of the consideration, receivable in respect of such disposal, loss or destruction constitutes an assessable property receipt. Accordingly, for example, where an asset that was purchased for use exclusively on a petroleum project is sold, the consideration receivable will, by this paragraph, be included as an assessable property receipt. Where two or more projects are combined and capital expenditure was incurred in relation to property purchased for use on one of the projects, the consideration receivable on disposal, loss or destruction of that item of property after the combination certificate comes into force will be taken to be an assessable property receipt in relation to the combined project.

Paragraph (b) will apply where the use of property on a project is terminated otherwise than by disposal, loss or destruction. In these circumstances, the value of the property or, where clause 30 applies, a proportion of that value as at the date of termination will be included as an assessable property receipt. For example, expenditure on the purchase of an item of plant for use exclusively on a particular project would qualify as deductible expenditure in relation to that project. If that item of plant was subsequently diverted to use on another project, its value at that time would be included as an assessable property receipt in that year in respect of the project against which the expenditure was initially deductible. (Correspondingly, by the operation of sub-clause 43(1), an amount equal to the value of the plant would be deductible expenditure in relation to the project to which use of the plant is diverted).

Paragraph (c) includes as assessable property receipts of a project any amounts receivable under an insurance policy or otherwise where property, expenditure on which constituted deductible expenditure, is damaged. For example, amounts recovered under a negligence action in respect of such damaged property would be included as an assessable property receipt. As with the preceding paragraphs, a proportionate amount only will be included where clause 30 applies.

Paragraph (d) includes as assessable property receipts amounts receivable from the hiring, leasing out or granting of rights to use project property. Accordingly, for example, where the full amount of expenditure on a pipeline has been included as deductible expenditure for the purpose of this Part, any amounts received by way of a charge for the use of that pipeline by another person would be included as an assessable property receipt.

By paragraph (e), a receipt from the sale of information obtained from any survey, appraisal or study the expenditure on which constituted deductible expenditure, or of information otherwise obtained as a result of incurring deductible expenditure, is an assessable property receipt. If, for example, as a result of a seismic survey in an exploration permit area, a person obtains information relevant to an adjoining area and sells that information to another person, the amount receivable would be an assessable receipt by virtue of this paragraph.

Sub-clause (2) describes what is meant by the expression "consideration in respect of the disposal, loss or destruction" of property for the purposes of paragraph (1)(a).

In the case of property sold for a specified price, paragraph (a) treats the consideration as that specified price less the expenses of the sale. Accordingly, the specified price reduced by those expenses would be included, by the operation of paragraph (1)(a), as an assessable property receipt. Where the property is sold together with other property, the expenses of the sale attributable to the property will be such part of the total expenses of the sale as the Commissioner of Taxation determines. Where property is sold, but not at an arm's length price, the anti-avoidance provisions of clause 57 would operate to bring to account the amount that would have been the assessable receipt had the transaction been at arm's length.

Paragraph (b) deals with property that is sold with other property without a specified price being allocated to it. In those instances, the amount to be treated as consideration under paragraph (1)(a) is such part of the sale price, reduced by an amount for expenses of the sale, as the Commissioner determines. It could be expected that the Commissioner would ordinarily determine the consideration by reference to the sale price of the properties and the proportion that the value of the property in question bears to the total value of the properties sold.

Paragraph (c) applies to a disposal of property other than by sale. In such a case the value of the property at the date of the disposal is to be included as an assessable property receipt. For example, where an item of plant for which a deduction had been allowed in full is disposed of by way of gift, the value of the item of plant at the date of the gift would be included as an assessable receipt.

Paragraph (d) will make it clear that, in the case of property lost or destroyed, the amount to be included as an assessable receipt is the amount receivable under a policy of insurance or otherwise. That amount may comprise damages recovered under a court action in relation to the destruction of the property.

Clause 28: Assessable miscellaneous compensation receipts

This clause specifies the meaning, for the purposes of the Bill, of references to assessable miscellaneous compensation receipts derived by a person in relation to a petroleum project. Assessable miscellaneous compensation receipts include, by paragraph (a), various amounts receivable by way of insurance, compensation or indemnity.

Sub-paragraph (i) deals with such amounts receivable in respect of the loss or destruction (or in respect of the loss of any profit caused by the loss or destruction) of petroleum (or constituent of petroleum) before it has been processed to the stage of being a marketable petroleum commodity. For example, if crude oil was destroyed prior to it entering a crude oil stabilisation plant, any proceeds under a policy of insurance would be an assessable miscellaneous compensation receipt. Where there is a combined project, amounts receivable, either before or after the combination, in relation to the loss or destruction of petroleum from a pre-combination project will be assessable miscellaneous compensation receipts in relation to the combined project.

Sub-paragraph (ii) includes as an assessable miscellaneous compensation receipt any insurance, compensation or indemnity receipt derived by a person in respect of the loss or destruction of a marketable petroleum commodity before it became an excluded commodity (as defined in clause 2). The commodity would become an excluded commodity when sold, further processed or treated after being produced, moved from the place of production otherwise than to an adjacent storage site or moved from that storage site.

Sub-paragraph (iii) includes as assessable miscellaneous compensation receipts amounts receivable by way of insurance, compensation or indemnity in respect of the loss of amounts that would otherwise have been assessable receipts in relation to a project. The sub-paragraph would apply, for example, where a project participant recovers an amount in an action for damages against a third party whose actions have resulted in diminished assessable receipts.

Paragraph (b) refers to certain amounts receivable by project participants in relation to exploration expenditure, general project expenditure or closing-down expenditure (defined as eligible real expenditure in clause 2) incurred in relation to the project. Where such amounts are incurred and a person is indemnified for all or part of the expenditure or becomes entitled to compensation for having incurred the expenditure, the amount of the indemnity or compensation is to be included as an assessable miscellaneous compensation receipt (sub-paragraph (i)). Where a person incurs eligible real expenditure and subsequently becomes entitled to a refund of the expenditure because, for example, an item of plant was defective, the refund will be included as an assessable miscellaneous compensation receipt (sub-paragraph (ii)). Similarly, where a person becomes entitled to an amount by way of a rebate, discount or commission in relation to eligible real expenditure, that amount will be included as an assessable miscellaneous compensation receipt (sub-paragraph (iii)). This may occur, for example, where an item of plant is purchased by a person from a supplier and the manufacturer allows a rebate to the person in respect of that purchase.

Clause 29: Assessable employee amenities receipts

Expenditure on certain employee amenities will qualify as eligible real expenditure - i.e., deductible expenditure under clauses 37, 38 or 39. This clause includes as assessable employee amenities receipts amounts receivable for or in respect of the provision of employee amenities in respect of which such expenditure has been incurred. The term "employee amenities" is defined in clause 2 to mean non-profit housing, health, educational, recreational, welfare or similar facilities and services for project employees or their dependants and facilities and services for the provision of meals to project employees or their dependants. Where, for example, in relation to subsidised employee housing in respect of which eligible real expenditure has been incurred, a project participant makes a nominal charge to the employees, the charges would constitute assessable employee amenities receipts. If the eligible real expenditure was made in relation to a project that was subsequently combined with another project, charges in the year of the combination would be taken to be assessable employee amenities receipts in relation to the combined project.

Clause 30: Reduction of amount of assessable property, &c., receipts

This clause provides for the reduction, in certain cases, of the amount that, because eligible real expenditure has been incurred in relation to property, would otherwise be included as an assessable property receipt (clause 27), an assessable miscellaneous compensation receipt (clause 28) or an assessable employee amenities receipt (clause 29) of a person in relation to a petroleum project (paragraph (a)). The circumstances in which such a reduction may be effected are specified in paragraph (b) - as being where the Commissioner of Taxation considers that, because clause 42 applied in relation to the eligible real expenditure or for any other reason, a proportion only of the assessable amount is attributable to the eligible real expenditure. Under clause 42, the amount of deductible expenditure in relation to an item of property will be reduced where the property is to be used only partly in relation to a petroleum project. Clause 30 provides for the reduction of the assessable amount to the same proportion as was allowed as deductible expenditure. Where, for example, clause 42 was applied to allow only 50% of expenditure on an item of property as deductible expenditure, clause 30 would ordinarily be applied to include as an assessable receipt only 50% of the amount received (or deemed to be received) on disposal of the property.

The clause could also apply in cases where property is brought into a project without any deductible expenditure having been incurred (for example, where the property was gifted to the project participant). If the participant subsequently sold the property after having made capital improvements, the cost of which qualified as eligible real expenditure, the amount that would otherwise be included as an assessable receipt might be reduced by the operation of this clause to reflect the fact that no amount was included as deductible expenditure when the property was originally acquired by the participant.

Clause 31: Time of derivation of receipts

This clause makes it clear that assessable petroleum receipts, assessable exploration recovery receipts, assessable property receipts, assessable miscellaneous compensation receipts or assessable employee amenities receipts may be taken to relate to a project notwithstanding that the new Act had not commenced at the time the receipts were derived or that the project has not commenced or has ceased. By the operation of clause 19, a project will be taken to commence when its eligible production licence - or, in the case of a combined project, the project combination certificate - comes into force. Receipts prior to a project commencing will, in the year in which they are receivable, be offset against deductible expenditure for the purposes of determining the amount of augmented bond rate general expenditure (clause 33), augmented bond rate exploration expenditure (clause 34) or GDP factor expenditure (clause 35) to be compounded in relation to a financial year.

Division 3 - Deductible expenditure

Under this Division, a person's entitlement to deductions for expenditure on a petroleum project will be determined for petroleum resource rent tax purposes. Broadly, expenditure of both a capital and revenue nature directly related to a project will be deductible in the year in which the liability for payment is incurred against any assessable receipts (see notes on Division 2 of Part V) for the year from the project. Capital expenditure on property for only partial use on a project will attract a proportionate deduction.

Where there is an excess of deductible expenditure (other than closing-down expenditure) over receipts at the end of a year, that excess will be compounded forward for deduction against future receipts from the project. As explained in earlier notes, the rate of compounding will depend on the time at which the relevant liability was incurred - expenditure incurred more than 5 years before the first production licence in the exploration permit area came into force being compounded at the GDP deflator rate and other expenditure being compounded at the long-term bond rate plus 15 percentage points.

Deductible expenditure (under clause 32 made up of 4 classes - augmented bond rate general expenditure, augmented bond rate exploration expenditure, GDP factor expenditure and closing-down expenditure) is of 3 basic types. They are exploration expenditure, general project expenditure and closing-down expenditure. In general terms, the distinction is drawn between the 3 types because, first, exploration expenditure in an exploration permit area will be able to be offset against any project in that area whereas the general project and closing-down expenditures are project-specific and, secondly, any excess of closing-down expenditure over assessable receipts from a project in a year may attract a tax credit.

Certain expenditure will be specifically excluded from petroleum resource rent tax deductibility - including interest payments and repayments of principal in respect of borrowings, dividend payments, share issue costs, private royalties, equity capital repayments and payments made under a cash bidding system. In addition, because deductions are allowable for capital expenditure on property, there will be no deduction for depreciation of plant or equipment used in a petroleum project. Petroleum resource rent tax payments will be deductible for income tax purposes but income tax payments and fringe benefits tax payments will not be deductible for petroleum resource rent tax purposes.

In ascertaining the deductibility of expenditure in respect of a project, an important distinction is drawn between the concept of a combined project and that of a project group. Broadly, a combined project is a single project consisting of two or more production licence areas (and associated operations, facilities, etc.) in respect of which a project combination certificate has been issued under clause 20. A project group, on the other hand, is made up of separate projects which are the subject of production licences related to the same exploration permit. Where a combined project exists, all of a person's expenditures and receipts in relation to each of the production licence areas will be taken into account in determining the person's taxable profit from the project. In relation to project groups, exploration expenditure by a person in the common permit area will be able to be set off against the person's receipts from any project in the group.

Clause 32: Deductible expenditure

This clause lists the classes of expenditure, the total amounts of which will, if incurred in a financial year, qualify as deductible expenditure for the purposes of ascertaining a person's taxable profit in that year in relation to a petroleum project. For this purpose, expenditure will be taken to be incurred when the liability for payment arises (see notes on clauses 37 to 39). Expenditure during a financial year on a project that is an ineligible project in relation to that year (because a project combination certificate was issued during the year under clause 20 - see the notes on the definition, in clause 2, of an ineligible project) will be taken to be expenditure of the combined project.

Deductible expenditure comprises the total of -

•

augmented bond rate general expenditure (paragraph (a)) - see notes on clause 33;

•

augmented bond rate exploration expenditure (paragraph (b)) - see notes on clause 34;

•

GDP factor expenditure (paragraph (c)) - see notes on clause 35; and

•

closing-down expenditure (paragraph (d)) see notes on clause 39.

Clause 33: Augmented bond rate general expenditure

This clause describes, for the purposes of Part V of the Bill, the meaning of references to the augmented bond rate general expenditure incurred by a person in a financial year in relation to a petroleum project. Such expenditure is described by reference to amounts of general project expenditure by a person. In broad terms, general project expenditure (as specified in clause 38) consists of either capital or revenue expenditure incurred by a person in carrying on operations and providing facilities in establishing a petroleum project and in carrying on the operations and providing the facilities comprising the project.

Sub-clause (1) deals with augmented bond rate general expenditure of a petroleum project other than a combined project, being a petroleum project to which sub-clause 19(2) applies - i.e., a project made up of 2 or more eligible production licences specified in a project combination certificate issued under clause 20.

The amount of a person's augmented bond rate general expenditure for sub-clause (1) purposes is the sum of two amounts. The first of these is, under paragraph (a), any amount of general project expenditure actually incurred by the person on the project in the financial year, other than expenditure incurred more than 5 years before the project's production licence came into force - this latter expenditure constitutes GDP factor expenditure in terms of clause 35. Added to the first-mentioned amount is, by paragraph (b), any amount that is taken by sub-clause (3) or Division 5 (dealing with the transfer of a person's entitlement to assessable receipts and deductible expenditures - see notes on clauses 48 and 49) to be augmented bond rate general expenditure incurred by the person in relation to the project in the financial year. Sub-clause (3) effectively compounds general project expenditure which remains undeducted at the end of a financial year and deems that compounded amount to have been incurred, in relation to the project, on the first day of the next succeeding financial year.

Under sub-clause (2), the amount of augmented bond rate general expenditure incurred by a person in a financial year in relation to a combined project is ascertained. The amount of that expenditure is the sum of -

•

any amount of general project expenditure actually incurred, other than expenditure incurred before the project combination certificate came into force - paragraph (a);

•

any amount that is taken by sub-clause (3) or Division 5 to be augmented bond rate general expenditure in relation to the project in the financial year - paragraph (b); and

•

where the financial year is the year in which the project combination certificate came into force - any amount that, in effect, is expenditure referred to in paragraph (a) or (b) but which has been incurred by the person in the financial year in relation to pre-combination projects (as defined in clause 2).

As a project combination certificate can only issue where 2 or more production licences are in force, no GDP factor expenditure can be actually incurred in relation to a combined project (but see notes on clause 35).

Where the augmented bond rate general expenditure incurred by a person in a financial year in relation to a project exceeds the person's assessable receipts from the project in that year, sub-clause (3) will, for the purposes of sub-clauses (1) and (2), effectively compound that excess at the augmented bond rate and deem the compounded amount to be augmented bond rate general expenditure incurred by the person in relation to the project on the first day of the subsequent financial year. The amount deemed to have been so incurred will be ascertained using the formula

A*(1.15 + B)


where -

A

is the excess of the augmented bond rate general expenditure in that year over assessable receipts of the year; and

B

is the long-term bond rate (as defined in clause 2) in relation to the financial year.

For example if, in relation to the 1984-85 financial year, a person's augmented bond rate general expenditure exceeded assessable receipts by $1m, the augmented bond rate general expenditure deemed to be incurred by that person on the first day of the 1985-86 financial year would be -

$1m * (1.15 + 0.1341) = $1.2841m


.

Compounding of general project expenditure will only occur in those cases where there remains an excess of that expenditure (including previously compounded amounts) over assessable receipts from a project in a financial year.

Clause 34: Augmented bond rate exploration expenditure

The amount of augmented bond rate exploration expenditure incurred by a person in a financial year in relation to a petroleum project will be determined under this clause. In general terms, exploration expenditure consists of capital or revenue payments liable to be made in carrying on or providing operations and facilities involved in or in connection with exploration for petroleum in the exploration permit area of a project. It may include expenditure on certain operations and facilities for recovering and processing petroleum obtained prior to the coming into force of a production licence in respect of the exploration permit area (see notes on clause 37). Augmented bond rate exploration expenditure incurred in a permit area will be able to be offset against assessable receipts from any petroleum project in that area - the circumstances, and the order, in which that offsetting occurs being governed by clause 36.

The clause will apply in a similar manner to the preceding clause under which the amount of a person's augmented bond rate general expenditure is determined. Augmented bond rate exploration expenditure will effectively be deducted from assessable receipts of the person after augmented bond rate general expenditure has been deducted.

Sub-clause (1) describes, for the purposes of the Bill, what is meant by a reference to the augmented bond rate exploration expenditure incurred by a person in a financial year in relation to a petroleum project, not being a combined project (see notes on clause 20). The amount of that expenditure is the sum of -

•

any amount of exploration expenditure actually incurred by the person in relation to the project in the financial year, other than expenditure incurred more than 5 years before the project's production licence came into force - which expenditure, by the operation of clause 35 constitutes GDP factor expenditure (paragraph (a)); and

•

any amount that is taken by sub-clause (3), sub-clause 36(1) or Division 5 to be augmented bond rate exploration expenditure incurred by the person in relation to the project in the financial year (paragraph (b)).

Broadly, sub-clause (3) operates to compound exploration expenditure undeducted at the end of a financial year and deem the compounded amount to have been incurred on the first day of the following year. Sub-clause 36(1) operates in the case of project groups to deem certain expenditure to have been incurred in relation to projects within that group, while Division 5 deals with the transfer of entitlements to assessable receipts and deductible expenditure.

In general terms, therefore, the augmented bond rate exploration expenditure of a project (other than a combined project) in relation to a financial year will be expenditure actually incurred on exploration in the production licence area plus expenditure in previous years which, because of insufficient assessable receipts, has not been deducted and has therefore attracted compounding.

The amount of augmented bond rate exploration expenditure incurred by a person in a financial year in relation to a combined project is determined by reference to sub-clause (2) - being the sum of the amounts referred to in paragraphs (a) to (c) of the sub-clause.

Paragraph (a) refers to amounts of exploration expenditure actually incurred by the person in relation to a combined project in that year, other than expenditure incurred prior to the project combination certificate coming into force (that expenditure is brought to account by the operation of paragraph (c)). As a project combination certificate can only issue where 2 or more production licences are in force, no GDP factor expenditure can be actually incurred in relation to a combined project (but see notes on clause 35).

By paragraph (b), augmented bond rate exploration expenditure in relation to a combined project will also include amounts taken, by reason of sub-clause (3), sub-clause 36(1) or Division 5 to be augmented bond rate exploration expenditure incurred by the person in relation to the project in that financial year. This paragraph operates in the same manner as paragraph (1)(b) operates in relation to projects other than combined projects.

In the financial year in which the project combination certificate for the combined project came into force, paragraph (c) will operate to include in the augmented bond rate exploration expenditure of the combined project amounts of exploration expenditure incurred or deemed to be incurred in that year in relation to pre-combination projects. That is, if a project combination certificate in relation to projects A and B comes into force part way through a year to form combined project C, actual and deemed exploration expenditures in relation to both projects A and B in that year will be included by this paragraph in the augmented bond rate exploration expenditure of project C.

Sub-clause (3) will apply to compound forward, at the augmented bond rate, a person's augmented bond rate exploration expenditure that has not been deducted as at the end of a financial year in relation to a project. The sub-clause will operate in a similar manner to sub-clause 33(3) and will apply for the purposes of sub-clauses (1) and (2) where the sum of the augmented bond rate general expenditure and the augmented bond rate exploration expenditure incurred by a person in a financial year in relation to a project exceeds the assessable receipts derived by the person from that project. The amount of augmented bond rate exploration expenditure to be taken by the sub-clause to be incurred by the person in relation to the project on the first day of the next succeeding financial year is ascertained using the formula

A*(1.15 + B)


where -

A

is so much of the excess of the sum of the augmented bond rate general expenditure and augmented bond rate exploration expenditure over assessable receipts as does not exceed the augmented bond rate exploration expenditure; and

B

is the long-term bond rate (ascertained by reference to clause 2) in relation to the financial year.

By way of example, in a year (say, 1985-86) in which a person's augmented bond rate general expenditure was $2m, augmented bond rate exploration expenditure was $1m and assessable receipts were $1.5m, sub-clause (3) would operate to deem augmented bond rate exploration expenditure of $1.2865m [

$1m * (1.15 + .1365)


] to have been incurred on the first day of the 1986-87 financial year.

Clause 35: GDP factor expenditure

In broad terms, GDP factor expenditure is any exploration or general project expenditure incurred by a person in relation to a project more than 5 years before the project's production licence came into force. Although GDP factor expenditure cannot be actually incurred in relation to a combined project (because, by definition, there must always be two or more production licences in force when a project combination certificate issues), it can be deemed to be incurred in relation to such a project.

GDP factor expenditure undeducted as at the end of a year in relation to a project will be compounded forward by the GDP factor ascertained under this clause, with the compounded amount being taken to be incurred on the first day of the next financial year. GDP factor expenditure will effectively be deducted from a person's assessable receipts after both augmented bond rate general expenditure and augmented bond rate exploration expenditure have been deducted.

The amount of GDP factor expenditure incurred by a person in a financial year in relation to a project other than a combined project will be ascertained under sub-clause (1). That amount is the sum of any amount of exploration or general project expenditure (as defined in clauses 37 and 38 respectively) actually incurred by the person in relation to the project more than 5 years before the coming into force of the production licence in relation to the project (paragraph (a)) and any amount that is taken by sub-clause (3), sub-clause 36(1) or Division 5 to be GDP factor expenditure incurred by the person in relation to the project in the financial year. Sub-clause (3) operates to compound GDP factor expenditure undeducted at the end of a financial year and deem the compounded amount to have been incurred on the first day of the following year. Sub-clause 36(1) provides an order for offsetting of GDP factor expenditure against projects in a project group, while Division 5 deals with the transfer of entitlements to assessable receipts and deductible expenditure.

Sub-clause (2) will apply to determine the amount of GDP factor expenditure incurred by a person in a financial year in relation to a combined project. That amount is the sum of the amounts referred to in paragraphs (a) and (b). Paragraph (a) refers to any amount that is taken by sub-clause (3), sub-clause 36(1) or Division 5 to be GDP factor expenditure incurred by the person in relation to the project in the financial year. The paragraph will operate in the same manner as paragraph (1)(b). Where the financial year in respect of which the GDP factor expenditure is being ascertained is the year in which the project combination certificate in relation to the combined project came into force, paragraph (b) will apply to add to the paragraph (a) amount any amount that is taken to be GDP factor expenditure incurred in relation to any of the pre-combination projects in relation to the combined project. In essence, that is where, in the absence of a combination certificate having issued in relation to a project in a financial year, there would have been taken to have been incurred for sub-clause (1) purposes GDP factor expenditure in relation to that project. Because of the issue of a combination certificate, however, that expenditure becomes expenditure in relation to the combined project in that year.

Sub-clause (3) will apply, for the purposes of sub-clause (1) or (2), where in a financial year in relation to a petroleum project the sum of the augmented bond rate general expenditure, the augmented bond rate exploration expenditure and the GDP factor expenditure incurred by a person exceeds the assessable receipts derived by the person in that financial year in relation to the project. In that case, the person will, by this sub-clause, be taken to have incurred GDP factor expenditure on the first day of the following financial year of an amount ascertained under the formula

A*B


where -

A

is so much of that excess as does not exceed the GDP factor expenditure (that is, if the excess is $2m but GDP factor is only $1m, A would be represented by the latter amount); and

B

is the GDP factor in relation to the financial year (ascertained under sub-clause (4)).

By sub-clause (4), the GDP factor in relation to a financial year is the number calculated to 3 decimal places (rounded in terms of sub-clause (7)) ascertained by dividing the GDP deflator in relation to the financial year (ascertained by reference to sub-clause (5)) by the GDP deflator in relation to the immediately preceding financial year. Sub-clause (5) defines the GDP deflator in relation to a financial year as being the Implicit Price Deflator for Expenditure on Gross Domestic Product first published by the Australian Statistician in respect of the financial year. As sub-clause (5) refers to the first published Implicit Price Deflator, any deflator published in substitution for that first published is to be disregarded. Sub-clause (6) requires that, if at any time the Australian Statistician changes the reference base for the GDP deflator, the GDP factor calculated after that time will be determined by reference only to the GDP deflator in terms of the new base. Sub-clause (7) specifies the basis for rounding to 3 decimal places the factor calculated in accordance with sub-clause (4). Where, if calculated to 4 decimal places, the GDP factor would end with the number 5 or more, the calculation to 3 decimal places is to be rounded up.

The GDP deflators for the 1979-80 to 1985-86 financial years are as follows -

On the basis of the above figures, the GDP factor ascertained under sub-clause (4) (and rounded to 3 decimal places under sub-clause (7)) for the 1985-86 financial year is 1.068. If, for example, undeducted GDP factor expenditure as at the end of the 1985-86 financial year was $1,000, sub-clause (3) would operate to deem GDP factor expenditure of $1,068 to have been incurred on the first day of the 1986-87 financial year.

Clause 36: Augmented bond rate exploration and GDP factor expenditures in relation to project groups

This clause provides for augmented bond rate exploration expenditure and GDP factor expenditure incurred by a person in relation to a project that is within a project group (broadly, projects within the same exploration permit area) to be offset against assessable receipts of that person from any project within that group, on the basis that such expenditure is not project-specific but can be taken to relate to any project within the group. The order in which such expenditure is to be set off against assessable receipts of projects in the group will also be determined by this clause. In general terms, the expenditure is offset against assessable receipts of the first occurring project and will only attract compounding if it remains undeducted after having been offset in turn against receipts of all subsequent projects in the group.

Sub-clause (1) applies where there is a project group in relation to a person in relation to a year of tax. The existence of such a group will be ascertained by reference to sub-clause (3) and, broadly, will occur where a person has an interest in 2 or more petroleum projects and the production licence (or one of the production licences) in relation to each of the projects is related to the same exploration permit. By paragraph (a), in these circumstances, and in relation to any project in the group other than the last occurring project (determined under sub-clause (3)), where there is a carry forward expenditure amount (broadly, by sub-clause (4), the amount of the person's undeducted augmented bond rate exploration or GDP factor expenditure as at the end of a year of tax), that amount shall be taken to be either augmented bond rate exploration expenditure or GDP factor expenditure (as appropriate) incurred by the person in the year of tax in relation to the next occurring project. The paragraph specifically precludes the operation of sub-clauses 34(3) and 35(3), which would otherwise have operated to compound the expenditure and deem the compounded amount to have been incurred by the person in respect of the project to which it relates on the first day of the next succeeding financial year.

Paragraph (b) applies to the last occurring project in the group where, but for the application of the paragraph, the person would have been taken to have incurred an amount of augmented bond rate exploration expenditure or GDP factor expenditure in relation to the project on the first day of the next succeeding year (by virtue of sub-clauses 34(3) and 35(3) respectively). In these cases, the paragraph will operate to deem that expenditure to have been incurred on that day in relation to the first occurring project in the group, rather than the last occurring project.

By the combined application of paragraphs (a) and (b), augmented bond rate exploration expenditure and GDP factor expenditure will be set off in a project group against assessable receipts of the projects in the order in which they occur. If at the end of a year of tax there remains an amount of either of these types of expenditure that has not been deducted against assessable receipts of projects in the group, it will be compounded under whichever of sub-clauses 34(3) or 35(3) is appropriate and the compounded amount will be deemed to have been incurred on the first occurring project, on the first day of the next succeeding year. In relation to that succeeding year, there will be a further application of the sub-clause in relation to the expenditure.

Sub-clause (2) provides that, where 2 or more project groups in relation to a person in relation to a financial year are related project groups, sub-clause (1) applies as if the projects formed a single group. Project groups are, in terms of paragraph (3)(d), related if, broadly, one or more of the projects in a group is also a project in another group. Where this sub-clause applies, sub-clause (1) will apply to all projects in the related groups.

Sub-clause (3) is an interpretative provision for the purposes of clause 36. Paragraph (a) determines whether projects are in a project group in relation to a person in relation to a year of tax. Such a group will exist where a financial year is a year of tax (as defined in clause 2) in relation to a person in relation to 2 or more petroleum projects (other than ineligible projects, as defined in clause 2) and the production licence, or at least one of the production licences, in relation to each of the projects is related to the same exploration permit. The relationship between production licences and exploration permits is determined by reference to paragraph 4(a).

Paragraph (3)(b) describes what is meant by a reference to the relevant production licence in relation to a petroleum project - a term used in determining, under paragraph (c), the order in which projects occur. It means, in the case of a combined project, the production licence in relation to the project that first came into force (sub-paragraph (i)) and, in any other case, the production licence in relation to the project (sub-paragraph (ii)).

The order in which projects in a project group are taken to occur for the purposes of sub-clause (1) is established by paragraph (3)(c). By that paragraph, projects in a project group in relation to a person in relation to a year of tax will be taken to occur in the order in which the relevant production licences in relation to the projects came into force.

Whether project groups are related (for the purposes of sub-clause (2)) is determined by reference to paragraph (3)(d). A project group, in relation to a person in relation to a financial year, will be taken to be a related project group in relation to another project group, if -

•

one or more of the projects in the first-mentioned group is a project in the second-mentioned group (sub-paragraph (i)) - this would occur, for example, where a project combination certificate has issued in respect of two production licences that relate to different exploration permit areas; or

•

one or more of the projects in the first-mentioned group is a project in another project group that is related to the second-mentioned project group under sub-paragraph (i) or (ii) (sub-paragraph (ii)) - for example, where there are 3 project groups (A, B and C) and -

•

one of the production licences from group A has been combined with a production licence from group C; and

•

groups B and C are also related by an application of sub-paragraph (i),

project groups A and B would be related under sub-paragraph (ii)

Sub-clause (4) determines the carry forward expenditure amount for the purposes of sub-clause (1). Sub-clause (4) will apply where, but for the application of sub-clause (1), sub-clause 34(3) or 35(3) would have applied, in relation to a person in relation to a project in a year of tax, to deem an amount of augmented bond rate exploration expenditure or GDP factor expenditure to have been incurred by the person on the first day of the next succeeding year of tax. In these circumstances, sub-clause (4) will, for the purposes of sub-clause (1) in determining the amount of augmented bond rate exploration or GDP factor expenditure to be set off in that year against the next occurring project, deem there to be an amount of carry forward expenditure. In the case of augmented bond rate exploration expenditure, the carry forward expenditure amount will, under paragraph (a), be the amount ascertained using the formula in sub-clause 34(3) as if that formula consisted only of component A - that is, so much of the excess of the sum of augmented bond rate general expenditure and augmented bond rate exploration expenditure over assessable receipts as does not exceed the augmented bond rate exploration expenditure. Similarly, in the case of GDP factor expenditure, paragraph (b) operates to deem the carry forward expenditure amount to be only the amount of component A in the sub-clause 35(3) formula - that is, so much of the excess of the sum of augmented bond rate general expenditure, augmented bond rate exploration and GDP factor expenditure over assessable receipts as does not exceed the GDP factor expenditure.

Clause 37: Exploration expenditure

This clause outlines the meaning of exploration expenditure incurred by a person in relation to a petroleum project. What constitutes exploration expenditure is relevant for determining the amount of a person's augmented bond rate exploration expenditure and GDP factor expenditure. Exploration expenditure incurred in an exploration or recovery area will be able to be offset against assessable receipts of any project in that area.

By sub-clause (1), exploration expenditure in relation to a petroleum project will be taken to have been incurred when certain payments (other than of excluded expenditure in terms of clause 44) of either a capital or revenue nature are liable to be made. The payments include, in terms of paragraph (a), those liable to be made in carrying on or providing operations and facilities involved in, or in connection with, exploration for petroleum in the eligible exploration or recovery area in relation to the project. Whether exploration is in the eligible exploration or recovery area is determined by reference to sub-clause 5(2) (see notes on that sub-clause). Broadly, the eligible exploration or recovery area in relation to a project is -

•

where, in relation to the project, there is a permit derived production licence (that is, in general terms, a production licence derived from an exploration permit area) the exploration permit area;

•

where, in relation to the project, there is a lease derived production licence (in essence, a production licence drawn from a retention lease area) - the retention lease area; and

•

the production licence area(s) of the production licence(s) in respect of the project.

Paragraph (b) lists a number of operations, facilities, etc., payments in respect of which also constitute exploration expenditure in relation to a petroleum project. Expenditure on operations and facilities involved in recovering any petroleum from the eligible exploration or recovery area (other than any production licence area) in relation to the project will form part of a person's exploration expenditure (sub-paragraph (i)). As a project comes into existence when a production licence comes into force, expenditure on recovery of petroleum from the production licence area, being a project-specific cost, would form part of the person's general project expenditure - see notes on clause 38. By sub-paragraphs (ii) and (iii), payments made in carrying on or providing operations and facilities for moving recovered petroleum to or between storage or processing facilities prior to the production of a marketable petroleum commodity or for storing, processing or treating recovered petroleum to produce any marketable petroleum commodity (as defined in clause 2) will form part of a person's exploration expenditure.

By sub-paragraph (iv), payments in respect of operations and facilities involved in moving or storing a marketable petroleum commodity produced from petroleum recovered from the eligible exploration or recovery area and before that commodity becomes an excluded commodity (as defined in clause 2), will form part of a person's exploration expenditure.

Exploration expenditure will also consist of payments liable to be made in providing services, or facilities for the provision of services, in connection with the operations, facilities, amenities and services referred to in the clause (sub-paragraph (v)). Services, such as water and power, provided in treating or processing petroleum recovered in terms of sub-paragraph (b)(i) would, as a result of their connection with the operations and facilities referred to in sub-paragraph (b)(iii), qualify as exploration expenditure in terms of this sub-paragraph. By sub-paragraph (vi), expenditure in providing employee amenities (such as subsidised housing) in connection with exploration for petroleum in the exploration permit area would constitute exploration expenditure.

Also specifically included as exploration expenditure is the amount of any exploration permit fee, retention lease fee or other fee (for example under the Petroleum (Submerged Lands) Act 1967) liable to be paid in relation to carrying on or providing the operations, etc. referred to in the clause. Specifically excluded (as "excluded fees") are those fees which are cash bidding payments paid under the cash bidding system introduced into the Petroleum (Submerged Lands) Act 1967 in 1985 or payments under the similar cash bidding/work programme system in existence under that Act since 1967.

Sub-clause 37(2) provides for the apportionment of any exploration permit fee between an exploration permit area and a retention lease area in circumstances where sub-clause 5(3) applies. That sub-clause operates to treat certain exploration and recovery of petroleum as occurring in a retention lease area notwithstanding that the retention lease is not yet in force at the time the exploration or recovery is undertaken. By sub-clause 37(2), the liability to pay exploration permit fees will be taken to relate to the carrying on of operations in the respective areas in proportion to the areas comprised by each - i.e., the apportioned amounts will be able to be offset against projects in the exploration permit area and retention lease area respectively. If, for example, at the time the liability to pay the fee was incurred the permit area was constituted by 50 blocks and a retention lease was granted in respect of 5 of those blocks, one-tenth of the fees would be taken to relate to exploration for petroleum in the retention lease area.

Clause 38: General project expenditure

This clause describes amounts of expenditure which constitute general project expenditure incurred by a person in relation to a petroleum project. That expenditure, unlike exploration expenditure, is project-specific although it can include general project expenditure incurred prior to the granting of a production licence (for example, expenditure on a feasibility study prior to the grant of that licence).

Payments of a capital or revenue nature liable to be made by a person (not being excluded expenditure, exploration expenditure or closing-down expenditure in terms of clauses 44, 37 and 39 respectively) will be taken by paragraph (a) to be general project expenditure where they are liable to be made in carrying on or providing operations and facilities involved in establishing the project. Specifically included in such expenditure are payments liable to be made in carrying out any feasibility or environmental study.

By paragraph (b), general project expenditure includes payments liable to be made in carrying on or providing the operations, facilities and other things (for example, amenities and services) which comprise the project. The operations, facilities, etc. comprising the project will be determined by reference to sub-clause 19(4). In broad terms, general project expenditure will include expenditure incurred in recovering petroleum from a production licence area and in moving the recovered petroleum (by, for example, pipeline) to a storage or processing facility prior to the production of a marketable petroleum commodity. In addition, costs associated with producing a marketable petroleum commodity (stabilised crude oil, condensate, liquefied petroleum gas, etc.) from the recovered petroleum will constitute general project expenditure, as will expenditure incurred on operations and facilities for storing that commodity at a site adjacent to its place of production and in providing services (light, power, communications, etc.) to the production and storage facility and to any employee amenities related to the project. Expenditure on the employee amenities themselves would also be classified as general project expenditure.

Clause 39: Closing-down expenditure

This clause describes, for the purposes of the Bill, what is meant by references to closing-down expenditure incurred by a person in relation to a petroleum project. This is relevant for determining a person's entitlement (if any) to a credit in respect of that expenditure by virtue of clause 46.

Closing-down expenditure consists of capital or revenue payments (other than expenditure specifically excluded from deductibility by the operation of clause 44) liable to be made in carrying on operations involved in closing down a petroleum project. For this purpose, a project would not be taken to be closing down by reason of a temporary cessation of activities. Specifically included as closing-down expenditure are payments liable to be made on environmental restoration made necessary by the project's closure. Expenditure on the removal of, for example, a drilling platform from a production licence area would ordinarily qualify as closing-down expenditure, although the deductibility of such expenditure (as closing-down expenditure) in relation to a combined project would depend on whether the platform was merely being moved to another production licence area of the project or whether activities for petroleum recovery in all licence areas of the combined project had ceased. Expenditure related to the transport of property from a closed-down project and its relocation in some other area would not qualify as closing-down expenditure in relation to the project.

Clause 40: Bad debts

Clause 40 ensures that, where debts are not actually received and are written off as bad debts, a deduction is available for the amount so written off.

The deduction would ordinarily be allowable to the person in whose assessable receipts the amount was originally included. However, where a person's entire interest in a project has been transferred to another person (the purchaser), clause 48 will ensure that the deduction is available to the purchaser.

Paragraphs (a) and (b) of sub-clause 40(1) outline the conditions which must be satisfied before the deduction for a bad debt will be available in any financial year. Paragraph (a) requires that there be a debt which is a bad debt and that the debt be written off as such during the financial year. The requirements parallel those under section 63 of the Income Tax Assessment Act 1936 which allows a deduction under that Act for certain "debts which are bad debts and are written off as such" during a year of income. It is not sufficient that a debt merely be characterised in the accounts as a doubtful debt.

By paragraph (1)(b) a deduction for a bad debt will only be available to a person where the debt has been brought to account, during a financial year in relation to a project, as an assessable receipt of one of the kinds referred to in clauses 24, 25, 27, 28 and 29.

The petroleum project against which a deduction will be available is determined by reference to paragraphs (c) and (d). Unless a project combination certificate has been issued under clause 20, the deductible expenditure will be deemed to have been incurred in relation to the petroleum project in respect of which the debt was included as an assessable receipt (paragraph (c)). Where the petroleum project is combined with another project by virtue of the issue of a project combination certificate, the amount of expenditure will be taken to be incurred in relation to the resulting combined project (paragraph (d)).

Paragraphs (1)(e), (f) and (g) of clause 40 characterise the deduction for a bad debt as exploration expenditure (see notes on clause 37), general project expenditure (clause 38) or closing-down expenditure (clause 39) respectively.

Paragraph (e) will apply where the debt is written off before any general project expenditure or closing-down expenditure has been incurred in relation to the project (or, where paragraph (d) applies, the combined project). Where no such expenditure has been incurred before the time at which the debt is written off, the clause will operate to deem the person to have incurred, at that time, an amount of exploration expenditure equal to the debt.

Paragraph (f) will apply where the person has incurred general project expenditure but has not incurred closing-down expenditure in relation to the project or the combined project. The person will be deemed to have incurred (again, at the time the debt is written off) an amount of general project expenditure equal to the debt.

Where the person has incurred closing-down expenditure at the time the debt is written off, paragraph (q) will deem the person to have incurred, at that time, an amount of closing-down expenditure equal to the debt.

Sub-clause 40(2) will apply where a debt has been brought to account in terms of paragraph (1)(b) and the debtor becomes bankrupt or executes a deed of assignment or deed of arrangement for the benefit of creditors. By paragraph (2)(a), where the Commissioner of Taxation is of the opinion that no amount will be paid on account of the debt, the full amount of the debt is deemed to be a bad debt. By paragraph (b), where the Commissioner forms the opinion that an amount less than the full amount will be paid on account of the debt, the balance is deemed to be a bad debt.

Sub-clause 40(3) will operate to bring to account as assessable receipts amounts received in respect of debts to which sub-clause (1) applies. Accordingly, if an amount is allowed as a deduction for a bad debt and the debt is repaid in whole or in part, the amount so repaid is taken to be an assessable receipt derived by the person. The amount will be included as an assessable receipt in relation to the project in respect of which the debt was originally brought to account as an assessable receipt (paragraph (a)). Where that project has been combined with another project, the amount will be taken to be derived in relation to the resulting combined project (paragraph (b)). The receipt will be taken to be of the same kind (assessable petroleum receipt, assessable exploration recovery receipt, assessable property receipt, assessable miscellaneous compensation receipt or assessable employee amenities receipt) as was originally brought to account in terms of paragraph (1)(b).

Clause 41: Effect of procuring the carrying on of operations, &c., by others

This clause will apply where a person (the "eligible person") is liable to pay another person (for example, a contractor) to carry on or provide the operations, facilities or other things the expenditure on which constitutes exploration expenditure, general project expenditure or closing-down expenditure by virtue of clauses 37, 38 and 39 respectively. Where a liability to make such a payment has been incurred, paragraph (a) will operate to deem the operations, facilities or other things to have been carried on or provided by the eligible person rather than by the other person. By paragraph (b), the payment liable to be made by the eligible person to procure the carrying on or provision of the operations, facilities, etc. will be taken to have been made in carrying on or providing the operations, facilities, etc. As a consequence, the expenditure incurred by the eligible person will qualify as deductible expenditure for the purposes of determining any petroleum resource rent tax liability of the eligible person.

Clause 42: Expenditure on property for partial project use

This clause will apply to reduce the amount of the capital expenditure deduction that would otherwise be allowable to a person in respect of property used on a petroleum project where the property is to be used only partly on that project.

Where a person has incurred eligible real expenditure (that is, by virtue of the definition in clause 2, exploration expenditure, general project expenditure or closing-down expenditure) in relation to a project (paragraph (a)), being capital expenditure on property for use only proportionally (the "eligible proportion") in carrying on or providing the operations and facilities which resulted in the expenditure being eligible real expenditure on the project (paragraph (b)), clause 42 will operate to limit the deduction allowed for the eligible real expenditure to the eligible proportion of that expenditure.

In circumstances where, for example, a person purchases a generator, the expenditure on which would qualify as general project expenditure under clause 38, and that generator is to be used to generate electricity only 50% of which is to be used in relation to a petroleum project, clause 42 would operate to limit the amount of the expenditure qualifying as general project expenditure to 50% of the amount paid for the generator. By the operation of clause 30, where that generator was sold or its use on the project terminated, only 50% of the proceeds or of the generator's value at the time, as appropriate, would be treated as an assessable property receipt.

Clause 42 will also apply where, for example, capital expenditure is incurred on an item of property which is for use on more than one petroleum project, but exclusively on those projects. In these cases, the amount of the expenditure attributable to each project will be based on the proportion of intended use on the respective projects. The amount receivable on disposal of the property and to be included in assessable receipts would, by the combined operation of clauses 27 and 30, be apportioned between the projects on the basis of the proportion of the capital expenditure that qualified as eligible real expenditure of each project. If use on one of the projects is terminated, its use on the other project(s) being maintained, clause 30 would operate to bring to account as an assessable receipt of that one project only the relevant proportion of the value of the property at that time. There would be no alteration to the eligible real expenditure of the other project(s). On termination of use on any of the remaining project(s) (otherwise than as a result of disposal, loss or destruction), a proportionate amount (based on the proportion of eligible real expenditure originally allowed as a deduction) of the value of the property at the time of termination would be an assessable receipt of that project(s). If, subsequent to that termination of the property's use, the property commenced to be re-used on a petroleum project (which may or may not be one of the projects on which it was previously used), clause 43 would apply to determine the amount of the capital expenditure that is to be taken to have been incurred in respect of that property and that project (or those projects).

Clause 43: Deferred use of property on project, &c.

This clause will apply to determine the extent to which capital expenditure incurred on property is deductible for the purposes of the Bill where the property is either -

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for use on a project or projects and that use is terminated (although the property is not sold or otherwise disposed of), but the property is re-used on a project or projects; or

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for use other than on a petroleum project and subsequently the property is used on a project or projects.

Sub-clause (1) will operate where the conditions specified in paragraphs (a) to (c) have been satisfied. By paragraph (a), a person is required to have incurred capital expenditure on property, being expenditure that qualifies as eligible real expenditure (i.e., exploration, general project or closing-down expenditure) in relation to a project or projects. Paragraph (b) requires that, although the person terminates the use of the property in relation to the project or all of the projects, the property be retained - that is, the property be not sold or otherwise disposed of. If, therefore, the property is still being used on one of a number of projects, clause 43 will have no application. By paragraph (c), clause 43 will apply only where immediately after termination of the use of the property, or at a later time, the person uses the property in such a manner that, had the capital expenditure on it been then incurred, it would qualify as exploration, general project or closing-down expenditure in relation to a petroleum project or projects.

Where paragraphs (a) to (c) are satisfied, paragraphs (d) and (e) will apply for the purposes of the Bill - including clause 43 itself. Consequently, there can be a number of successive applications of the clause if the use of property is deferred a number of times.

Paragraph (d) will result in the person being taken to have incurred capital expenditure, immediately after the termination or at the later time referred to in paragraph (c) (as appropriate), in carrying on or providing the operations, facilities, etc. referred to in that paragraph in relation to the project(s) also referred to in that paragraph. That is, the person will effectively be taken to have incurred exploration, general project or closing-down expenditure as appropriate in relation to the project(s). The amount of the expenditure taken to have been incurred by the person will be taken, by paragraph (e), to be equal to so much of the value of the property, at the time that the expenditure is taken by paragraph (d) to have been incurred, as the Commissioner considers is attributable to the expenditure incurred and referred to in paragraph (a). The expenditure taken to have been incurred under paragraph (e) cannot, therefore, exceed the expenditure actually incurred.

If, for example, a person incurred expenditure of $50,000 on the acquisition of property for use on a petroleum project and (not having incurred any further capital expenditure on the property) subsequently terminated its use on that project but used it on another project (at which time its value was $25,000), the person would, by the application of sub-clause (1), ordinarily be taken to have incurred $25,000 on that other project. By the operation of clause 27, $25,000 would be included as an assessable property receipt of the person in relation to the project on which the property was previously used.

Sub-clause (1) also provides for the situation where, for example, a person acquired (at no cost) property with a value of $10,000 for use on a project, spent (say) $20,000 of capital expenditure on the property after acquisition, then terminated its use on that project and commenced to use it on another project, at which time its value was $15,000. In those circumstances, the person would ordinarily be taken to have incurred $10,000 (the proportion of the subsequent value of $15,000 represented by the proportion that the expenditure of $20,000 bears to the sum of that $20,000 and the original value of $10,000) on that other project. Similarly, $10,000 would be included as an assessable receipt of the first-mentioned project, by the combined operation of clauses 27 and 30. As the expenditure taken to have been incurred on a project cannot exceed the expenditure actually incurred, if in the foregoing example the subsequent value of the property was $45,000, the deductible expenditure would be limited to $20,000 (and not $30,000, which on a strictly proportional basis would otherwise be the case). Similarly, the amount of the assessable property receipt would, by the application of clause 30, be limited to $20,000.

Sub-clause (2) will apply where expenditure on property previously acquired by a person did not qualify as exploration, general project or closing-down expenditure in terms of clauses 37, 38 or 39 (paragraph (a)) and subsequently the person commenced to use the property in such a manner that, had the expenditure been incurred at that time, it would have qualified as expenditure for the purposes of one of those clauses (paragraph (b)). In these cases, sub-clause (2) will effectively deem the person to have incurred relevant expenditure at the later time of an amount equal to so much of the value of the property at that later time as, in the opinion of the Commissioner, is attributable to the expenditure referred to in paragraph (a). As with sub-clause (1), the deemed expenditure cannot exceed the expenditure actually incurred.

If, for example, a person incurred $20,000 of capital expenditure on property for use other than on a petroleum project but subsequently used it on a petroleum project (at which time its value was $15,000), the $15,000 would, by the application of sub-clause (2), ordinarily be taken to have been incurred on the project. If the property value at the time was $30,000, only $20,000 would be taken to have been so incurred.

Sub-clauses (1) and (2) are both capable of application in respect of the one item of property - such as where capital expenditure is incurred on property for use other than on a petroleum project, the property is subsequently used on a petroleum project for a period during which further capital expenditure is incurred and the property is then transferred for use on another petroleum project.

Clause 44: Excluded expenditure

This clause provides an exhaustive prescription of what is meant by the term "excluded expenditure", as used in the Bill. Excluded expenditure, which is specifically not taken into account for the purposes of ascertaining amounts of exploration, general project and closing-down expenditure, means -

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payments of principal or interest on a loan or other borrowing costs, as well as interest components of hire-purchase payments (paragraphs (a) and (b)) - expenditure of moneys borrowed would, however, be deductible where appropriate, as would the principal component of a hire-purchase payment;

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payments of dividends, the cost of issuing shares or the repayment of equity capital (paragraphs (c) and (d));

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payments of a kind known as private override royalty payments (paragraph (e)) - for this purpose, a private override royalty is taken to be a payment in the nature of a royalty made to a person other than a government or government body, usually calculated by reference to a percentage or share of the gross or net value or the quantity of petroleum produced;

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payments to acquire, or to acquire an interest in, an exploration permit, a retention lease, a production or pipeline licence or an access authority, other than payments by way of fees (for example, under the Petroleum (Submerged Lands) Act 1967) for the grant of the permit, lease, licence or authority (paragraph (f)) - although permit, etc. fees generally are not excluded expenditure and may therefore qualify for deduction, payments made under a cash bidding (or similar) system ("excluded fees" as defined in clause 2) are specifically non-deductible in terms of clauses 37 and 38;

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payments to acquire interests in petroleum project profits, receipts or expenditures (paragraph (q));

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income tax and fringe benefits tax payments (paragraph (h));

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payments of administrative or accounting costs, wages, salary or other work costs incurred only indirectly in carrying on or providing the operations, facilities and other things that give rise to exploration, general project or closing-down expenditure (paragraph (j)) - by way of example, general administrative costs incurred in the head office of a company with diverse interests including a petroleum project would therefore be excluded expenditure and not deductible; or

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payments in respect of land or buildings for use in connection with project-related administrative and accounting activities, other than where the location of the land or buildings is at, or adjacent to, the project site or sites (paragraph (k)) - this paragraph will, for example, bring within the scope of excluded expenditure payments in respect of office buildings in, say, a capital city but not payments in respect of project-related employee amenity buildings adjacent to the project site.

Clause 45: Time of incurring of expenditure

This clause will make it clear that eligible real expenditure may be incurred by a person in relation to a petroleum project even where it was incurred before the project commenced or after the project ceased (paragraph (a)) or where it was incurred before the Bill commences (paragraph (b)).

A project will, by the operation of clause 19, be taken to have commenced at the time an eligible production licence comes into force or, in the case of a combined project, at the time the relevant project combination certificate comes into force. The project, or the combined project, will be taken to have ceased when the production licence, or the combination certificate, as the case may be, ceases to be in force. This clause will ensure, for example, that exploration expenditure or general project expenditure incurred in the period prior to a production licence coming into force in relation to a commercial discovery can qualify as deductible expenditure. Similarly, expenditure after the production licence ceases to be in force - for example, closing-down expenditure outside the former production licence area (but within the project boundaries) - may qualify for deduction.

In terms of clause 32, eligible real expenditure incurred in a "financial year" (defined in clause 2 to mean a financial year commencing on or after 1 July 1979) is to qualify as deductible expenditure. Clause 45 therefore provides for the situation where expenditure is incurred after 1 July 1979 but before the Bill comes into operation (on the twenty-eighth day after it receives the Royal Assent).

Division 4 - Tax credits

This Division will authorise credits in respect of closing-down expenditure on a petroleum project where, after taking into account other deductible expenditure in the year of tax, it exceeds the person's assessable receipts from the project in that year. The amount of the credit is 40% of the undeducted closing-down expenditure but it cannot exceed the total petroleum resource rent tax paid by the person in respect of that project. Any credit will only be available where the whole project is being closed down. It would not be available in respect of expenditure on closing down only one of the production licence areas comprising a combined project while petroleum was still being recovered in another of the project's production licence areas. Such expenditure (for example, the cost of dismantling a drilling platform) would not be closing-down expenditure, in terms of clause 39, of the combined project but would form part of the project's general project expenditure.

Clause 46: Credits in respect of closing-down expenditure

By this clause will be determined the situations in which a credit is available in respect of the closing-down of a project and the amount of that credit. A person will be entitled to a credit in relation to a petroleum project where, in a year of tax, the sum of the closing-down expenditure and any other deductible expenditure (by clause 32, augmented bond rate general expenditure, augmented bond rate exploration expenditure or GDP factor expenditure) incurred by the person exceeds the assessable receipts derived by the person in that year. The amount of the credit will be equal to the lesser of -

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40% of so much of the excess as does not exceed the closing-down expenditure (paragraph (a)) - for example, if the excess of closing-down expenditure and other deductible expenditure over assessable receipts in a year of tax was $250,000 but closing-down expenditure was $100,000, paragraph (a) would operate to limit the possible credit to $40,000 (i.e., 40% of $100,000); or

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the total amount of any tax paid by the person in respect of the project in previous years, reduced by the total amount of any credits previously allowable under clause 46 to the person in relation to the project (paragraph (b)) - if, in the example in paragraph (a), total petroleum resource rent tax paid by the person in respect of the project had been $50,000, with a credit of $20,000 being allowed in the previous year, paragraph (b) would operate to limit the credit entitlement to $30,000.

Clause 47: Application of credits

This clause specifies how amounts available as credits by the operation of the preceding clause may be applied.

By sub-clause (1), the amount of a credit to which a person is entitled under Division 4 is a debt due and payable to the person by the Commissioner of Taxation on behalf of the Commonwealth. However, the Commissioner may, by sub-clause (2), apply the whole or a part of the credit to discharge (totally or partially) any Commonwealth taxation liability (including a petroleum resource rent tax liability) of the person entitled to the credit. Where all or part of a credit has been applied by the Commissioner under sub-clause (2), sub-clause (3) will deem the person entitled to the credit to have paid the amount applied at the time at which, and for the purpose for which, the credit was applied. If, for example, the credit was applied to fully discharge the person's income tax liability, any additional tax for late payment would cease to be imposed from the time of the application of the credit.

Sub-clause (4) will authorise the Commissioner to treat as tax due and payable (and as recoverable accordingly) any amount or amounts applied or paid as a credit under the Division in excess of the person's entitlement to a credit. This sub-clause could apply (for example) where, as a result of an amended assessment having issued to the person in relation to the project, the person's credit entitlement under clause 46 was reduced but there had previously been an application or payment of a credit of the higher amount.

Division 5 - Effect of certain transactions

Clause 48: Transfer of entire entitlement to assessable receipts

This clause contains rules for determining the position under the Bill of parties to a transaction which results in the entirety of one person's interest in a petroleum project (i.e., that of the "vendor") being transferred to another person (the "purchaser"). The time at which the transfer occurs is referred to in the clause as the "transfer time". This time may be any time before or after the commencement of the new Act and may occur before the vendor has begun to derive assessable petroleum receipts from the project (i.e., before the vendor's first "year of tax", as defined in clause 2).

The effect of the clause will be to place the incoming participant (the purchaser) in the same position as the vendor would have been in but for the transfer. Accordingly, paragraph (a) will treat the purchaser (or, if more than one, the purchasers in proportion to their acquired interests) as having derived any assessable receipts and incurred any deductible expenditure that the vendor would have derived or incurred, as appropriate, in relation to the project during the financial year in which the transfer took place but prior to the transfer time (sub-paragraph (i)) . Sub-paragraph (ii) will ensure that the purchaser(s) receives the benefit of any instalments of tax paid by the vendor in relation to that part of the financial year prior to the transfer, while providing that the purchaser(s) is liable for any instalments that remain unpaid at the transfer time. Paragraph (b) of the clause is complementary to paragraph (a) and effectively provides that, where any purchaser is taken to have derived a receipt, incurred expenditure, paid an instalment or incurred a liability to pay an instalment, the vendor will be taken not to have done so.

Paragraph (c) provides that the vendor will not, by reason of the transfer, be taken to have derived any assessable property receipts (as ascertained under clause 27) in relation to property held by the vendor and used on the project at the time of the transfer. But for this paragraph, as the vendor's use of the property has terminated, clause 27 would apply to treat as an assessable property receipt of the vendor the value of the property at that time, even though, in the absence of the transfer, there would have been no such receipt at that time. The paragraph will therefore achieve the intended purpose of placing the purchaser in the same position as the vendor would have been in but for the transfer. Similarly, paragraph (d) will ensure that the purchaser or purchasers will not be taken to have incurred any eligible real expenditure (exploration expenditure, general project expenditure or closing-down expenditure in terms of clauses 37, 38 and 39 respectively) in relation to the property by reason of the transfer. In the absence of this paragraph, expenditure by the purchaser in taking over the project might otherwise qualify as deductible expenditure of the purchaser.

Where project property is disposed of, lost or destroyed, clause 27, 28 or 29 may apply to bring to account an assessable property receipt, an assessable miscellaneous compensation receipt or an assessable employee amenities receipt (see notes on those clauses). The amount brought to account is, in broad terms, based on the eligible real expenditure incurred by the person on the project property (see also the notes on clause 30). Paragraph (e) applies to property acquired by the purchaser under a transfer to which clause 48 relates and ensures that, for the purposes of the application of clause 27, 28 or 29 in respect of that property after the time of transfer, any eligible real expenditure of the vendor is to be taken to be expenditure by the purchaser.

Under clause 40, persons will be taken, broadly, to have incurred deductible expenditure where debts that have been brought to account as assessable receipts are written off as bad debts. Paragraph (f) ensures that clause 40 operates where a bad debt is written off after the time at which a person's interest in a project is transferred under this clause and the debt was included in the assessable receipts of the vendor. By deeming debts brought to account as assessable receipts by the vendor to have been brought to account by the purchaser, this paragraph ensures that, if such a debt is subsequently written off as bad by the purchaser, the purchaser will, under clause 40, be taken to have incurred at the time the debt is written off, expenditure of a kind determined in accordance with clause 40.

There may be cases where the entirety of an interest in a project changes hands more than once during a financial year. In such cases, clause 48 would apply successively, so that (for example) amounts of deductible expenditure taken to have been incurred by a purchaser by the operation of the clause may include amounts that the vendor was taken to have incurred by a previous application of the clause when the vendor purchased the interest in the project.

Clause 49: Transfer before 1 July 1984 of partial entitlement to assessable receipts

In the absence of a pre-1 July 1984 agreement, where a person (the purchaser) acquires a partial interest in a petroleum project (i.e., an interest in future assessable receipts) from another person (the vendor), deductible expenditure and assessable receipts will be taken, by the operation of Divisions 2 and 3, to be incurred and derived, respectively, by the party actually making the expenditure or deriving the receipt. In other words, after the acquisition (e.g., a farm-in), expenditure by the vendor and by the purchaser will, subject to Division 3, be deductible to the party concerned and receipts of the vendor and of the purchaser (i.e., the project receipts the interest in which was acquired by the purchaser) will, subject to Division 2, be assessable receipts of the party concerned. The consideration for the acquisition will be neither deductible expenditure of the purchaser (paragraph (f) of clause 44) nor an assessable receipt of the vendor (in terms of clause 23).

Clause 49 will vary that general position to recognise, subject to a number of conditions (contained in paragraphs (a) to (c)), agreements entered into prior to 1 July 1984.

By paragraph (a), the clause will apply provided that there has been a transaction entered into prior to 1 July 1984 that had the effect of transferring from the vendor to the purchaser(s) a part of the vendor's entitlement to receive future assessable receipts from the project. Paragraph (b) stipulates a further condition for the application of the clause - that there was, at or before the time of the transaction, a written agreement in connection with the transaction to the effect that a whole or a part of the exploration expenditure incurred by the vendor before the transfer should be taken to have been incurred by the purchaser(s) in accordance with the agreement. By paragraph (c), the purchaser (or one of a number of purchasers) must give a copy of the agreement to the Commissioner of Taxation within 30 days after the Bill comes into operation.

Where paragraphs (a), (b) and (c) are complied with, paragraph (d) will operate to treat, for the purposes of the Bill (including clause 49 itself - i.e., there may be successive applications of the clause), exploration expenditure incurred by the vendor prior to the transfer as having been incurred by the purchaser(s) in accordance with the agreement. This paragraph will ensure that the purchaser(s) and not the vendor is entitled to deductions for the exploration expenditure in question. It will also ensure (in a similar manner to paragraph 48(e)) that clause 27, 28 or 29 applies, where appropriate, to bring to account assessable receipts in respect of property acquired by the purchaser(s) under the transaction. In a similar manner to paragraphs 48(c) and (d), paragraph (e) will operate to ensure that, where any of the exploration expenditure incurred by the vendor prior to the transfer related to property transferred to the purchaser(s) under the transaction, the vendor is not taken to derive assessable property receipts (under clause 27) by reason of the transfer and that the purchaser(s) is not taken to have incurred exploration expenditure in relation to the property by reason of the transfer.

Division 6 - Anti-avoidance

Subdivision A - Arrangements to obtain tax benefits

This Subdivision will include in the petroleum resource rent tax law general anti-avoidance provisions similar in effect to Part IVA of the Income Tax Assessment Act 1936. The Subdivision will apply where, on an objective view of a particular arrangement and its surrounding circumstances, it would be concluded that the arrangement was entered into for the sole or dominant purpose of having an amount either omitted from a person's assessable receipts or included in a person's deductible expenditure in relation to a petroleum project.

Clause 50: Arrangements

Sub-clause (1) of this clause defines, for the purposes of Subdivision A, the meaning of the term "arrangement". The term is given an extended meaning, common to provisions of other taxation laws, to include any agreement, arrangement, understanding, promise or undertaking, either express or implied and whether or not legally enforceable or intended to be so enforceable (paragraph (a)). By paragraph (b), "arrangement" is further extended to include any scheme, plan, proposal, action or course of action or conduct, whether or not unilateral. Sub-clause (2) makes it clear that a reference in the Subdivision to the carrying out of an arrangement by a person extends to an arrangement carried out with one or more other persons.

Clause 51: Tax benefits

A pre-condition to the application of the Subdivision is that there be an arrangement for the obtaining by a person of a tax benefit in relation to a petroleum project. This clause describes the circumstances in which such a tax benefit will have been obtained and the amount of that benefit.

A tax benefit will have been obtained in connection with an arrangement where an amount of assessable receipts is not derived by a person in a financial year in relation to a project and that amount would have been derived or might reasonably be expected to have been derived as an assessable receipt if the arrangement had not been entered into or carried out (paragraph (a)). Similarly, by paragraph (b), a tax benefit will have been obtained in connection with an arrangement where an amount of deductible expenditure is incurred by a person in a financial year in relation to a project and that amount would not have been incurred or might reasonably be expected not to have been incurred as deductible expenditure if the arrangement had not been entered into or carried out.

The amount of the tax benefit obtained will be taken to be the amount referred to in whichever of paragraph (a) or (b) is appropriate.

Clause 52: Arrangements to which Subdivision applies

Those arrangements to which the Subdivision will apply are described in this clause. Where an arrangement has been entered into on or after 1 July 1984 or has been carried out (or commenced) on or after that date (not having been entered into before that date), the Subdivision will apply if -

•

a person (the "eligible person") has obtained, or would, but for clause 53, obtain a tax benefit in connection with the arrangement (paragraph (a)); and

•

having regard to the matters listed in paragraph (b), it would be concluded that the person, or one of the persons, who entered into or carried out the arrangement (or any part of it) did so for the sole or dominant purpose of enabling the eligible person to obtain, or of enabling the eligible person and one or more other persons each to obtain, a tax benefit (in terms of clause 51) in connection with the arrangement.

The matters to which regard is to be had in terms of paragraph (b) are, broadly, the manner in which the arrangement was entered into or carried out, the form and substance of the arrangement, the time at which the arrangement was entered into and the length of the period during which it was carried out, the petroleum resource rent tax result that, but for this Subdivision, would be achieved by the arrangement, any change in the financial position of, or other consequence for, the eligible person or any connected person and the nature of any connection between affected persons.

Clause 53: Cancellation of tax benefits, &c.

This clause will, in effect, authorise the Commissioner of Taxation to determine precisely what tax adjustments should be made in the assessments of the person concerned and of other persons affected by any arrangement which has resulted in a person obtaining a tax benefit.

In the case of a tax benefit that is obtained as a result of an amount of assessable receipts not being derived by the person in a financial year in relation to a petroleum project, the Commissioner may determine that the whole or a part of the amount of the tax benefit (ascertained by reference to clause 51) shall be assessable receipts derived by the person in the financial year in relation to the project (paragraph (1)(a)). Paragraph (1)(b) will operate in a similar manner in relation to a tax benefit referable to an amount of deductible expenditure being incurred by a person and will authorise the Commissioner to determine that the whole or a part of the amount of the tax benefit shall not be deductible expenditure incurred by the person in relation to the project.

By paragraph (1)(c), the Commissioner will be authorised to determine, in any case, that appropriate compensating adjustments be made to the assessable receipts or deductible expenditure of -

•

the person obtaining the tax benefit - in respect of the same project in relation to another financial year or in respect of another project in respect of any financial year (sub-paragraph (i)); or

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any other person - in respect of the same project or another project in relation to any financial year (sub-paragraph (ii)).

A person who considers that the Commissioner should make a determination in relation to that person under paragraph (1)(c) will, by sub-clause (2), be able to post to or lodge with the Commissioner a written request for the Commissioner to make such a determination. Sub-clause (3) requires the Commissioner to consider any such request and serve on the person a written notice of decision. A person dissatisfied with the decision may, in terms of sub-clause (4), lodge with the Commissioner within 60 days a written detailed objection. By sub-clause (5) the relevant objection, review and appeal provisions contained in Part VII of the Bill are to apply in relation to such an objection.

Clause 54: Amendment of assessments

This clause will override the general power of amendment contained in clause 64. It will authorise the amendment of an assessment, at any time within the period of 6 years after the date on which the tax became due and payable, to give effect to a determination of the Commissioner under paragraph 53(1)(a) or (b) to cancel a tax benefit (sub-clause (1)). Sub-clause (2) will authorise an amendment at any time to give effect to a compensating adjustment under paragraph 53(1)(c).

Clause 55: Operation of Subdivision

This clause makes it clear that the operation of the anti-avoidance provisions in Subdivision A of Division 6 of Part V is not limited by the operation of any other provisions of the Bill or of the Income Tax (International Agreements) Act 1953. In particular, the clause will ensure that the mere fact that a specific safeguarding provision elsewhere in the Bill is found not to apply to a particular arrangement will not prevent the Subdivision from applying. The clause will also ensure that the operation of the Subdivision is not limited by the operation of the comprehensive taxation agreement between Australia and Austria (Schedule 27 to the Income Tax (International Agreements) Act), which applies to petroleum resource rent tax.

Subdivision B - Non-arm's length transactions

Subdivision B will apply in relation to transactions which, although not entered into for the sole or dominant purpose of obtaining a tax benefit for Subdivision A purposes, are not at arm's length - with the result that, in relation to a petroleum project, the assessable receipts of a person are less than could have been expected or the person's deductible expenditure is greater than could have been expected.

Clause 56: Arm's length transaction

This clause defines, for the purposes of Subdivision B, the term "arm's length transaction" as meaning a transaction where the parties are, in relation to that transaction, dealing with each other at arm's length. In this context, the fact that parties to a particular transaction are not related does not of itself determine whether the dealing is at arm's length.

Clause 57: Non-arm's length receipts

This clause will apply to a transaction which is not at arm's length, as a consequence of which the person derives no, or a reduced amount of, receipts of a kind referred to in clauses 24, 25 or 27 to 29 - i.e., assessable petroleum receipts, assessable exploration recovery receipts, assessable property receipts, assessable miscellaneous compensation receipts or assessable employee amenities receipts.

Sub-clause (1) will apply where, under a transaction, a person has derived receipts (of the kind referred to above) in relation to a petroleum project (paragraph (a)) and the conditions set out in paragraphs (b) to (d) have also been satisfied. Paragraph (b) will require that the Commissioner of Taxation, having regard to any connection between the parties to the transaction or to any other relevant circumstances, be satisfied that the transaction is not an arm's length transaction within the meaning of that term in clause 56. It must also be shown that the amount of the receipts is less than the amount (called the "increased receipts") that could reasonably have been expected to be the amount of those receipts if the transaction had been an arm's length one (paragraph (c)) and the Commissioner must determine that sub-clause (1) should apply in relation to the person and the transaction (paragraph (d)). Where these conditions have been satisfied, the amount of receipts derived by the person from the transaction will be taken to be equal to the increased receipts.

Sub-clause (2) will operate on a similar basis in those cases where, under a transaction, a person has not derived any receipts but it could be reasonably expected that, had the transaction been at arm's length, the person would have derived an amount (termed the "notional receipts") of receipts of the kind referred to in paragraph (1)(a). In these circumstances and where the Commissioner determines that the sub-clause should apply in relation to the person and the transaction, the person will be taken to have derived receipts of the particular kind and of an amount equal to the notional receipts.

Clause 58: Non-arm's length expenditure

This clause of Subdivision B will apply to a non-arm's length transaction under which a person incurs deductible expenditure in excess of that which could reasonably have been expected to otherwise have been incurred.

The clause will apply where, under a transaction, a person has incurred eligible real expenditure (defined to mean exploration expenditure, general project expenditure or closing-down expenditure in terms of clauses 37, 38 and 39 respectively) in relation to a petroleum project (paragraph (a)) and the conditions specified in paragraphs (b) to (d) have been met. Paragraph (b) requires that the Commissioner of Taxation, having regard to any connection between the parties to the transaction or any other relevant circumstances, be satisfied that the transaction is not an arm's length transaction within the meaning of that term in clause 56. In terms of paragraph (c), the amount of the expenditure incurred must be more than the amount (the "reduced expenditure") that could reasonably have been expected to have been incurred in an arm's length transaction. In those circumstances and where the Commissioner determines that the clause should apply (paragraph (d)), the deductible exploration expenditure, general project expenditure or closing-down expenditure (as the case may be) will be limited to the amount of the reduced expenditure.

PART VI - RETURNS AND ASSESSMENTS

Division 1 - Returns

Clause 59: Annual returns

By sub-clause (1) of this clause, a person will, unless a return for the year has previously been furnished in compliance with clause 60, be required to furnish to the Commissioner of Taxation a return of assessable receipts derived from a petroleum project during the year of tax. The return will have to be furnished within 21 days after the end of the year of tax or by such later date as the Commissioner allows. A year of tax is, by virtue of the definition of that term in clause 2, the first financial year 1 July to 30 June in which the person derived assessable petroleum receipts from the project and any subsequent financial year or in relation to a combined project where assessable receipts have been derived in relation to any of the pre-combination projects, the financial year in which the project combination certificate comes into force and any subsequent year.

Sub-clause (2) sets out the requirements that must be met in relation to the annual return. That return must be in the form provided or authorised by the Commissioner (paragraph (a)), be furnished in accordance with any relevant regulations (paragraph (b)) and be signed by or on behalf of the person furnishing the return (paragraph (c)). In addition, the amount of the assessable receipts and deductible expenditure of the person in relation to the petroleum project for the year must be specified in the return (paragraph (d)) and the return must contain any other information called for (paragraph (e)).

Clause 60: Other returns

Where the Commissioner has, by notice in writing served on a person, required the person to furnish a return in relation to a year of tax, the person must, in terms of sub-clause (1) of this clause, comply with the requirement, irrespective of whether an annual return has been lodged in accordance with clause 59. The form and content of the return (similar to that required for an annual return) is described in sub-clause (2).

The imposition of statutory additional tax for failure to furnish returns as and when required is provided for in Part IX of the Bill. The relevant offence provisions of the Taxation Administration Act 1953 will also extend to non-compliance with the requirements of the Bill .

Clause 61: Certificate of sources of information

This clause will, in a similar way to section 165 of the Income Tax Assessment Act 1936, require a person who charges any fee for preparing or assisting in the preparation of a petroleum resource rent tax return to sign a certificate setting out the sources available for the compilation of the return. A person not furnishing a certificate with a return must also furnish details of relevant sources of information.

Division 2 - Assessments

Clause 62: Assessments

By this clause, the Commissioner of Taxation will, on the basis of returns furnished and any other information available, be required to make an assessment of both the taxable profit of a person in relation to a petroleum project (determined in accordance with clause 22) and the petroleum resource rent tax payable.

Clause 63: Default assessments

If a petroleum resource rent tax return is not furnished as required, the Commissioner of Taxation will be authorised by this clause to make an assessment of the taxable profit on which, in the Commissioner's opinion, tax is payable by a person and an assessment of the tax payable (paragraph (a)). This power will also be available where the Commissioner is not satisfied with a return furnished by a person (paragraph (b)) or where the Commissioner has reason to believe that a person who has not furnished a return is liable to pay tax (paragraph (c)).

Clause 64: Amendment of assessments

Where an assessment has been made of a person's petroleum resource rent tax liability, the Commissioner of Taxation will be authorised to amend the assessment in accordance with the provisions of this clause.

The general rule, contained in sub-clause (1), is that an amendment may be made at any time within 3 years from the date upon which the tax became due and payable under the assessment. By sub-clause (2), an assessment may be amended after 3 years from that date subject to the conditions specified in sub-clauses (3) to (7).

By sub-clause (3), where a person does not make a full and true disclosure of all the material facts necessary for an assessment of the tax payable by the person, the Commissioner makes an assessment and there is an avoidance of tax, the Commissioner will be able to amend the assessment within 6 years from the date on which the tax became due and payable under the assessment. If, however, the Commissioner is of the opinion that the avoidance of tax is due to fraud or evasion, the assessment may be amended at any time. Sub-clause (4) will preclude the amendment of an assessment more than 3 years from the date on which tax became due and payable under that assessment, where it would reduce a person's liability.

Sub-clause (5), which will apply in a similar way to sub-section 170(5) of the Income Tax Assessment Act 1936, provides for the Commissioner, in respect of an assessment that has been amended in any particular, to make, within 3 years from the date on which tax became due and payable as a result of that amendment, a further amendment in respect of that particular to effect such reduction in a person's liability as is just. Sub-clause (6) has the effect of extending the general 3 year period for the making of an amended assessment in circumstances where a person has applied for an amendment within the 3 years and has supplied the Commissioner with sufficient information to enable the application to be processed.

By sub-clause (7), the Commissioner may amend an assessment at any time if the amendment -

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is to give effect to a decision on a review or appeal;

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effects a reduction in any particular resulting from consideration of an objection against the assessment or pending an appeal or review; or

•

is to give effect to clause 5 (e.g., where it is found that, contrary to what was originally determined, the production of marketable petroleum commodities in relation to a project had, in fact, permanently ceased - see notes on sub-clause 5(2)) or clause 20 (e.g., where a project combination certificate has been cancelled under sub-clause 20(7)).

Sub-clause (8) authorises the Commissioner, at any time, to amend an assessment of additional tax imposed under the penalty tax provisions of Part IX of the Bill.

Clause 65: Payment of interest where assessment amended

This clause provides for the payment of interest where a person's assessment is amended to increase tax payable and the increase does not attract additional tax under the provisions (other than clause 101 - for failure to furnish a return or information) of Part IX of the Bill - that is, broadly, additional tax payable as a result of a false or misleading statement or the entering into of a tax avoidance arrangement. The rate of interest payable by the person will be the same as that applicable from time to time under the Taxation (Interest on Overpayments) Act 1983. Interest will be calculated from the date on which the underpaid tax should have been paid (usually the due date for payment of the original assessment for the relevant year of tax) to the date on which the amended assessment is made. The Commissioner of Taxation will be able to remit interest payable by a person in appropriate circumstances.

By sub-clause (1), a person will, subject to the other provisions of the clause, be liable to pay interest on an increase in tax under an amended assessment. The amount (referred to as the "principal amount") in respect of which interest is to be payable is the amount by which the tax payable under the amended assessment exceeds the tax payable under the assessment that was amended. Tax payable means the gross amount of tax assessed in respect of taxable profit less credits such as those applicable to closing-down expenditure. Credits for instalments of tax will not reduce the amount of tax payable on which interest is to be charged.

Sub-clause (2) will ensure that interest is not payable where a person is subject to additional tax in respect of a false or misleading statement or tax avoidance arrangement to which the particular increase in tax payable relates. It provides that interest is not payable under sub-clause (1) where the person is liable to additional tax under Part IX of the Bill (other than a penalty under clause 101) in respect of the matter giving rise to the increased tax payable. Nor will interest be payable where such additional tax has been fully remitted (under sub-clause 104(3)) or where a person has been prosecuted in relation to the same act or omission giving rise to the underpayment of tax (i.e., where the additional tax is not payable by virtue of sub-section 8ZE(1) of the Taxation Administration Act 1953).

Sub-clause (3) deals with situations where, as a result of an increase in tax payable on which interest is to be charged under sub-clause (1), the amount of Part IX additional tax that was based on the original tax payable is increased. This could occur where, for example, an assessment of increased additional tax under clause 101 is made as a result of an amendment of the assessment of primary tax. Under the formula in sub-clause (3), interest will be payable on the increased additional tax in the same proportion as the increased primary tax on which interest is payable bears to the total increase in primary tax.

Sub-clause (4) sets out the basis of calculating interest payable under sub-clause (1) or (3). The period for which interest is to be payable is specified by paragraph (a) as commencing on the day upon which tax first became due and payable by the person under an assessment for the particular year of tax and ending on the day on which the amended assessment is made. This is the period in respect of which the revenue is to be recompensed in respect of the tax underpaid. By paragraph (b), the rate of interest payable is to be the same as that applicable under regulations made for the purpose of specifying the rate of interest payable by the Commissioner of Taxation under the Taxation (Interest on Overpayments) Act 1983 (see notes on sub-clause (7)).

Sub-clause (5) provides for the determination of the period in respect of which interest is payable under sub-clause (4) in cases where the original tax was payable under an instalment arrangement or where the original due date for payment was extended. Where an extension of time for payment of tax has been granted or an instalment arrangement has been agreed to under clause 84, the commencement of the period in respect of which interest is payable is to be a date (not earlier than the original due date for payment) to be determined by the Commissioner of Taxation. In effect, this ensures that instalment payment arrangements and extensions of time for payment may be authorised subject to the payment of interest in the event that tax is subsequently found to have been underpaid.

Sub-clause (6) is necessary because, technically, a notice advising a person that no tax is payable (because the taxable profit is nil for a particular year of tax) is not an assessment for the purposes of the new Act. It will ensure that a person is liable to pay interest in respect of the amount of tax payable on subsequent assessment where the person had previously been notified that no tax was payable. For this purpose, sub-clause (6) deems a notice by the Commissioner of Taxation to the effect that there was no taxable profit to have been a notice of ("notional") assessment (paragraphs (a) and (c)) and the subsequent assessment of taxable profit and tax payable to have been an amendment of that notional assessment (paragraphs (b) and (d)). Interest is then calculated under sub-clause (4) in respect of the period commencing 21 days after service of the notice and ending on the day on which the actual assessment is made.

Sub-clause (7) sets the rate of interest payable under the clause at 14.026% per annum, until such time as regulations are made prescribing a different rate for the purposes of the Taxation (Interest on Overpayments) Act 1983. The present rate of interest payable under that Act is 14.026% per annum. Paragraph (4)(b) provides for the making of regulations under that Act to prescribe a different rate, so that the interest rate payable by a person under this clause will be that which, from time to time, is payable to a person in respect of an overpayment of tax. That rate of interest is set having regard to the rate payable on the longest term Treasury bonds.

Consistent with the Taxation (Interest on Overpayments) Act 1983, sub-clause (8) provides that interest is not payable under sub-clause (1) or (3) where the amount otherwise payable would be less than 50 cents.

Sub-clause (9) will require the Commissioner of Taxation to serve on a person liable to pay interest under the clause a notice in writing specifying the period in respect of which the interest is payable, the amount of the interest and the date on which the interest is due and payable. At least 21 days must be allowed for payment of the interest.

Sub-clause (10) provides for the sub-clause (9) notice of interest payable to be incorporated in a notice of assessment. Generally, the interest payable will be notified in the notice of amended assessment.

By sub-clause (11), the Commissioner of Taxation will be able to remit the whole or any part of the interest payable by a person. It is not intended that the power of remission be exercised in the general run of cases. However, the sub-clause acknowledges that there will be situations where the statutory imposition of full liability to interest is not warranted. An example of where the remission power may be exercised would be where a person claims a deduction having regard to a decision of a court and, subsequent to an assessment being made, a court of higher authority overturns that decision. The effect of this could be an unintended, but nevertheless valid at the time, understatement of taxable profit by the person.

Sub-clause (12) is a drafting device that provides for references to "tax" in certain provisions of the Bill to be read as including references to interest payable under this clause. This will enable the collection and recovery of interest payable in the same way as primary tax. In particular, it will mean that interest -

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may be paid by instalments or by an extended due date if the Commissioner of Taxation approves (clause 84); and

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can be recovered from the trustee of the estate of a deceased person (clause 89) or from the liquidator of a company (clause 88).

Sub-clause (13) provides that the calculation of an amount of interest payable by a person under the clause is deemed not to be an assessment for the purposes of any provisions of the new Act. An effect of this is that it will not be open to a person to object against the imposition of interest, although a right of objection will be available in respect of the amended assessment that gave rise to the liability to the interest.

Clause 66: Refund of amounts overpaid

This clause, which is to the same effect as section 172 of the Income Tax Assessment Act 1936, treats a reduction in tax as a result of an amendment of an assessment as never having been payable (so that there can be no penalty tax on account of it not being paid), and requires the Commissioner of Taxation to either refund any tax overpaid or apply it against any other Commonwealth taxation liability of the person and refund the balance. For the purposes of the clause, tax includes additional tax imposed for late payment or under the penalty tax provisions of Part IX of the Bill.

Clause 67: Amended assessment to be an assessment

This clause is a technical measure to ensure that an amended assessment will be treated as an assessment for all purposes of the new Act.

Clause 68: Notice of assessment

This clause will require the Commissioner of Taxation to serve written notice of an assessment on the person liable to pay the tax as soon as practicable after making the assessment.

Clause 69: Validity of assessment

Clause 69 is a customary provision in taxation laws and declares that an assessment is valid notwithstanding that a provision of the Bill has not been complied with. The purpose is to ensure that, in any objection or dispute relating to an assessment, the objector may challenge the correctness of the assessment but not any act or omission of the Commissioner of Taxation in making the assessment.

PART VII - OBJECTIONS, REVIEWS AND APPEALS

Under this Part, a person will have rights, broadly consistent with those available under the income tax law, to object against a petroleum resource rent tax assessment made by the Commissioner of Taxation.

A person dissatisfied with an assessment may lodge an objection in writing with the Commissioner within 60 days after notice of the assessment is served. The Commissioner may, however, extend the 60 day time limit upon an application by the person. The Commissioner will be required to consider an objection and either disallow it or allow it wholly or in part. The person objecting, if dissatisfied with that decision, may within a further 60 days request the Commissioner to refer the decision to the Administrative Appeals Tribunal or to the Federal Court of Australia.

Appeals from Tribunal decisions are provided for in the Administrative Appeals Tribunal Act 1975. Section 44 of that Act provides a right of appeal to the Federal Court of Australia on a question of law from any decision of the Tribunal.

Clause 70: Interpretation

By this clause, a reference in Part VII to the "Federal Court" means the Federal Court of Australia.

Clause 71: Objections

Sub-clause (1) of this clause provides that a person may object against an assessment within (subject to clause 73) 60 days after service of the notice of the assessment. The objection must be lodged with the Commissioner of Taxation in writing, and set out fully the grounds on which the person relies. By sub-clause (2), the Commissioner will be required to consider the objection and either disallow it or allow it wholly or in part, while sub-clause (3) will require the Commissioner to serve on the person concerned notice in writing of the decision.

Sub-clauses (4) and (5) are to the same effect as sub-sections 185(2) and (3) of the Income Tax Assessment Act 1936.

Sub-clause (4) makes it clear that the subject matter of an objection against an amended assessment is limited to issues relevant to the amendment - i.e., issues that could not have been raised in respect of the original assessment. For example, where an assessment is amended to include additional assessable petroleum receipts of $10,000 in a person's assessable receipts, the person may object on grounds relating only to those additional receipts of $10,000.

Sub-clause (5) provides that where, under sub-clause 104(2), notice of an assessment of additional penalty tax payable by a person is incorporated in the notice of assessment of the primary amount of petroleum resource rent tax payable by the person, there is deemed to be only one assessment for the purposes of the objection, review and appeal provisions of Part VII of the Bill. Clause 104 provides for the separate assessment of additional tax payable under Part IX of the Bill. Accordingly, in the absence of sub-clause 71(5), the assessments of primary tax and additional tax would, notwithstanding sub-clause 104(2), constitute two assessments. The effect of sub-clause (5) is that a person will not be entitled to appeal, in respect of the same year of tax, to the Federal Court in relation to (say) the assessment of the petroleum resource rent tax and to the Tribunal against the incorporated assessment of additional tax.

Clause 72: Request for reference

By this clause, a person who is dissatisfied with a decision on an objection under the preceding clause may request the Commissioner of Taxation to refer the decision to the Administrative Appeals Tribunal or to the Federal Court for review. The request must be in writing and be lodged within (subject to clause 73) 60 days after service of notice of the decision. A person will thus have access to the Tribunal - or, alternatively, to the Federal Court of Australia - for review of a decision on an objection. In either case the subject of the review will be the decision on the objection and not the assessment itself.

Clause 73: Applications for extension of time

This clause, together with clauses 74 and 75, will enable an extension of time to be granted for the lodgment of objections and of requests for review by the Administrative Appeals Tribunal or the Federal Court.

By sub-clause (1), a person may apply to the Commissioner of Taxation for an extension of time in which to lodge an objection (effectively to treat the objection as having been duly lodged) notwithstanding that the 60 day time limit under clause 71 has elapsed. The application is to be in writing and must be accompanied by the objection itself. Similarly, under sub-clause (2), an application - in writing and accompanied by the request for reference - may be lodged for an extension of time to lodge a request under clause 72 for reference of a decision on an objection to either the Tribunal or to the Federal Court.

Sub-clause (3) will require a person, in applying for an extension of time under either sub-clause (1) or (2), to provide full details of the reasons why the objection or request was not lodged within the 60 day time limit.

Clause 74: Consideration of applications for extension of time for lodging objections

This clause will enable the Commissioner of Taxation to grant an extension of the usual 60 day time limit for lodgment of an objection against an assessment.

Under sub-clause (1), the Commissioner will have the power to grant or refuse an application for an extension of time. It is intended that the accepted principles applied by judicial or quasi-judicial bodies in extending time will be applied in determining whether or not an extension of time is to be granted. The kind of circumstances in which it might be expected that an extension would be granted would generally be limited to factors that could be demonstrated as being outside the person's control. A person would generally have to satisfy the Commissioner that the objection, together with the application for an extension, was lodged as soon as circumstances permitted. Delays in the post would also generally be grounds for the granting of an extension of time. It is not envisaged that persons could delay for an unreasonable period of time the lodgment of objections and applications for extension of time. By sub-clause (2), the Commissioner is required to give to the person written notice of the decision on an application for extension of time .

Under sub-clause (3), a person may apply to the Administrative Appeals Tribunal for review of a refusal by the Commissioner to grant the person's application for an extension of time. An application for review made in accordance with this sub-clause is to be made direct to the Tribunal and is not, as with requests for reference on objection decisions, to be lodged with the Commissioner.

Sub-clause (4) will ensure that, where an application for an extension of time is granted, the objection is treated as having been lodged in time.

Clause 75: Consideration of applications for extension of time for lodging requests for reference

This clause will confer on the Administrative Appeals Tribunal or the Federal Court, as appropriate, a discretion to extend the time for lodging a request for reference of an objection decision of the Commissioner to the Tribunal or the Court.

Under sub-clause (1), an extension of time application under sub-clause 73(2) relating to a request for reference to the Tribunal is to be sent by the Commissioner to the Tribunal. Where the application relates to an appeal to the Federal Court, the Commissioner is required to refer the application to that Court.

By sub-clause (2), once an application is sent to the Tribunal by the Commissioner, it is to be treated as an application to the Tribunal to extend the time for lodgment with the Commissioner of a request for reference of an objection decision to the Tribunal. This will have the effect of bringing into operation sub-sections 29(7) to (10) of the Administrative Appeals Tribunal Act 1975 and, if the Commissioner wishes to oppose the granting of the extension, require the Tribunal to conduct a hearing into the matter. Sub-clause (3) similarly provides that an application sent to the Federal Court is to be treated as an application to the Federal Court to extend the time for the lodgment with the Commissioner of a request for reference to that Court.

Sub-clause (4) will authorise the Tribunal or the Federal Court to grant or refuse an application for an extension of time. In considering an application, the Tribunal or Court would rely on the accepted principles applied by the courts in entertaining applications for extensions of statutory time limits. In brief, those principles include questions of public interest in the finality of decision-making, the likelihood or otherwise of prejudice to the respondent, the extent of the delay in the application for an extension of time and the question of the onus on an applicant to prove that an extension of time should be granted.

Sub-clause (5) ensures that, where an application for an extension of time to lodge a request is granted by the Tribunal or Court, the request is to be treated as having been lodged in time for the purposes of Part VII.

Clause 76: Reference to Tribunal or Court

If a request for reference to the Administrative Appeals Tribunal or the Federal Court is received within the 60 day limit or is treated as having been received in time by reason of an extension of time being granted, the Commissioner of Taxation will be obliged by sub-clause (1) of this clause to refer the request to the Tribunal or Court in accordance with the request.

By sub-clause (2), a reference received by the Tribunal from the Commissioner is to be treated by the Tribunal in the same manner as an application for review of a decision made direct to the Tribunal. The provisions of the Administrative Appeals Tribunal Act 1975 relating to the review of decisions, as modified for taxation reviews by Part IVB of the Taxation Administration Act 1953, will therefore apply in reviewing the Commissioner's decision on the objection.

Under sub-clause (3), the reference of a decision on an objection to the Federal Court will constitute an appeal by the taxpayer to the Court against the Commissioner's decision on the objection.

Clause 77: Notice to refer

Under sub-clause (1) of this clause, if the Commissioner of Taxation does not refer a person's request for reference or appeal to the Administrative Appeals Tribunal or the Federal Court, the person may, at any time after the expiration of 60 days from the time the Commissioner received the request, give written notice to the Commissioner to do so. The Commissioner must then refer the request within 60 days after being given notice. Sub-clause (2) will ensure that, where an extension of time to lodge a request has been granted, the 60 day period (after which a person is entitled to give notice to the Commissioner under sub-clause (1) to have the request sent on to the Tribunal or Court) commences on the day the extension application was granted..

Sub-clause (3) will have the effect that, if the Commissioner makes a written request to a person for information relating to that person's objection within 60 days of receiving the request for reference or appeal, the Commissioner is not obliged to refer the request to the Tribunal or Court until the expiration of 60 days after the receipt of the information requested.

Clause 78: Procedure on review or appeal

This clause provides, by paragraph (a), that, in a review before the Administrative Appeals Tribunal or in an appeal to the Federal Court or to the High Court, a person is limited to the grounds stated in the person's objection - unless the Tribunal or the court orders otherwise - and, by paragraph (b), that the burden of proving that the assessment is excessive lies with that person.

It is expected that, in allowing grounds of objection to be amended, the general principles on which courts have permitted amendments of pleadings in other areas of the law will generally be applied. For example, the discretion is likely to be exercised where the need for an amendment of the grounds of objection arises as a result of the Commissioner of Taxation relying on arguments in defence of an assessment where the particular basis was not adverted to in the adjustment sheet accompanying the notice of assessment.

Clause 79: Powers of Federal Court on appeal

Under this clause, the Federal Court will be empowered to confirm or vary an objection decision or make any other order in relation to the decision. It is clear that the Federal Court may make an order only in relation to the decision of the Commissioner of Taxation on the objection that has been referred to the Court. The Commissioner will, under clause 80, be required to give effect to the Court's order including, where appropriate, by amending the assessment.

The powers of the Administrative Appeals Tribunal are specified in section 43 of the Administrative Appeals Tribunal Act 1975. Broadly, for the purpose of reviewing a decision, the Tribunal has all the powers and discretions of the decision-maker and it may confirm, vary or set aside the decision. However, the Tribunal will not be empowered to directly make or amend assessments.

Clause 80: Implementation of decisions

As explained in the notes on clause 79, the powers of the Administrative Appeals Tribunal and the Federal Court will, broadly, be limited to confirming or varying a decision on an objection and will not extend to making or amending assessments. Sub-clause 80(1) will require the Commissioner of Taxation, where necessary, to give effect to a decision of the Tribunal or a court (for example, by amending an assessment) no later than 60 days after the decision on the review or appeal has become final.

Under sub-clause (2), a Tribunal or Federal Court decision will not be regarded as having become final until all subsequent appeals, if any, have been finalised. Where no appeal has been lodged against a decision of the Tribunal, or of the Federal Court constituted by a single judge, within the time allowed for lodging an appeal, the decision will become final upon the expiration of that time (paragraph (a)). As a decision of the Full Federal Court is only able to be appealed from by special leave of the High Court and because, technically, special leave may be applied for at any time, paragraph (b) makes it clear that such a decision of the Full Federal Court will be taken as having become final upon the expiration of 30 days after the decision is given, unless an application for special leave to appeal has been lodged with the High Court within that time.

Sub-clause (3) makes it clear that clause 80 applies to orders of the Federal Court made under clause 79 in relation to appeals under Part VII.

Clause 81: Pending review or appeal not to affect assessment

This clause stipulates that liability to pay tax or additional tax under a petroleum resource rent tax assessment is not suspended pending the outcome of a review or appeal relating to the assessment - i.e., the Commissioner of Taxation will be empowered to recover outstanding tax, even though a review or appeal is pending.

PART VIII - COLLECTION AND RECOVERY OF TAX

Division 1 - General

Clause 82: When tax payable

This clause stipulates the time for payment of tax payable under the Bill. Tax assessed in respect of a year of tax is to be due and payable on the date specified in the notice of assessment, being a date not less than 21 days after service of the notice. Where no date is specified in the notice, the tax is due and payable on the twenty-first day after service of the notice (sub-clause (1)). Additional tax will, in terms of clause 85, accrue on amounts unpaid after the relevant time. By virtue of sub-clause (2), additional tax imposed under the penalty provisions of Part IX is also within the scope of sub-clause (1). Each relevant clause of Part VIII provides that "tax" referred to in the clause includes Part IX additional tax.

Clause 83: Persons leaving Australia

This clause is to the same effect as section 205 of the Income Tax Assessment Act 1936 and will override the ordinary operation of clause 82 where the Commissioner of Taxation believes a person liable to pay tax (including additional tax under Part IX) may leave the country before the due date for payment. In such a case, the Commissioner may require payment of the tax by a date notified to the person.

Clause 84: Extension of time and Payment by instalments

The Commissioner of Taxation may, under this clause, extend the time otherwise permitted for payment of petroleum resource rent tax and Part IX additional tax (sub-clause (1)). The Commissioner may also allow such tax to be paid in instalments (sub-clause (2)), by dates determined by the Commissioner. If an instalment is not paid by its due date, the whole of the tax owing becomes due and payable at that time (sub-clause (3)).

Clause 85: Penalty for unpaid tax

Sub-clause (1) of this clause is similar in operation to provisions of other taxation laws that impose additional tax for late payment - e.g., section 207 of the Income Tax Assessment Act 1936. It will impose penalty tax at the rate of 20% per annum on tax (petroleum resource rent tax or additional tax under Part IX) that remains unpaid after the due date for payment.

Sub-clause (2) will apply, in a similar way to sub-section 207(1A) of the Income Tax Assessment Act 1936, to authorise the Commissioner of Taxation to remit additional tax for late payment in specified circumstances. They are, broadly, where the delay in payment was beyond the person's control and the person has taken action to mitigate the cause or, in other circumstances, where the Commissioner is satisfied that it would be fair and reasonable to do so.

Sub-clause (3) will ensure that additional tax for late payment of tax continues to accrue notwithstanding that judgment for its payment has been given or entered in a court. Where the judgment debt itself carries interest, the additional tax otherwise payable is to be reduced by the amount of interest that relates to the unpaid tax.

Clause 86: Recovery of tax

This clause, which is of a kind commonly found in taxation laws, - e.g., in section 34 of the Bank Account Debits Tax Administration Act 1982 - gives petroleum resource rent tax (including Part IX and late payment additional tax) that is due and payable the status of a debt due to the Commonwealth and requires that such tax be paid to the Commissioner of Taxation (paragraph (1)(a)). The Commissioner or a Deputy Commissioner will also have authority to sue for recovery of the tax in a court of competent jurisdiction (paragraph (1)(b)).

Clause 87: Substituted service

This clause will enable the Commissioner of Taxation, when taking any recovery action, to serve a document in a case where a person is absent from Australia or cannot be found. Service may be effected, without leave of the court, by posting the document or a sealed copy of it to the person's last known private or business address in Australia.

Clause 88: Liquidators &c.

This clause follows the principles of section 215 of the Income Tax Assessment Act 1936 and applies for the purpose of determining the status of taxation debts in company liquidations and in the winding up of the assets or businesses of non-residents. Broadly, it will require a liquidator, a receiver (or a receiver and manager) or, in the case of a non-resident, an agent to notify the Commissioner of Taxation of his or her appointment within 14 days of that appointment and the Commissioner in turn to notify the liquidator, receiver or agent as soon as possible of the amount of tax (including Part IX and late payment additional tax) that is or will become payable. The liquidator, receiver or agent must, as provided for in clause 88, then set aside sufficient assets to pay the amount of tax notified by the Commissioner.

A maximum fine of $1,000 will apply on conviction for failure to comply with the requirements of clause 88 and the liquidator, receiver or agent will, to the extent of the value of assets required by the clause to have been set aside, be personally liable to pay the tax in question.

Clause 89: Recovery of tax from trustee of deceased person

This clause will apply where, at the time a person dies, tax (including Part IX and late payment additional tax) is outstanding, whether not yet assessed or assessed but not paid. In those circumstances, the trustee of the deceased person's estate will be required to furnish any returns or information which the Commissioner of Taxation may require in order to determine the deceased's outstanding liability. The Commissioner has the same powers and remedies for the assessment and recovery of tax after the person's death as would have existed if the person had not died.

Clause 90: Where no administration of deceased person's estate

Clause 90 is similar in operation to section 220 of the Income Tax Assessment Act 1936. If probate or administration has not been granted within 6 months of a person's death, the Commissioner of Taxation will be authorised to make an assessment of the deceased's taxable profit or profits, and of the amount of tax payable thereon. Such an assessment is subject to rights of objection, review and appeal by a person who has an interest in the deceased person's estate. After making an assessment, the Commissioner may authorise the distress and sale of any of the deceased's property in order that the tax liability may be met.

Clause 91: Commissioner may collect tax from person owing money to person liable to tax

This clause is the counterpart of "garnishee" provisions in other taxation laws, notably section 218 of the Income Tax Assessment Act 1936. It authorises, and provides procedures for, the Commissioner of Taxation to collect a person's liabilities arising under the Bill from any other person (the debtor) who, broadly, owes money to the taxpayer or has authority to pay money to the taxpayer. The Commissioner may by written notice require the debtor, at or before a time specified in the notice, to pay so much of such money as will meet the tax due. Payment may be required to be made in a lump sum or by instalments. The maximum penalty on conviction for failure to comply with a notice is $1,000, and a convicted person may also be ordered to pay the amount which he or she previously refused or failed to pay. The amount specified in the notice will become a debt due to the Commonwealth from the time it becomes payable and may be recovered in a court of competent jurisdiction.

Money deposited with a building society, where the deposit is part of the society's share capital, will be treated in the same way as investments in other financial institutions for the purposes of this clause. Notwithstanding that some pre-condition for the obtaining of money (such as the production of a passbook) has not been fulfilled, that money will be treated as being due or repayable on demand. Where a notice is to be served on the Commonwealth or a State or Territory, that notice may be served on an employee who is responsible for disbursing public moneys.

Clause 92: Person in receipt or control of money of non-resident

This clause will empower the Commissioner of Taxation to collect tax (including Part IX and late payment additional tax) payable by a non-resident from any person who has the control, receipt or disposal of money belonging to the non-resident. For that purpose, a person who is liable to pay money to a non-resident is deemed to be in control of that money. The clause will also apply where the Commonwealth, a State or a Territory (or an authority thereof) has the receipt, control or disposal of any of a non-resident's money.

Division 2 - Collection by instalments

This Division contains rules for the collection of petroleum resource rent tax by instalments. Instalments will be cumulative, taking into account actual receipts and expenditure in that year of tax up to the end of the instalment period, a proportionate amount of previously undeducted expenditure and the amount of any prior instalments in that year of tax. Effectively, each instalment period (combined with any previous instalment period or periods in that year of tax) is treated as a year of tax for the purposes of calculating the tax payable in respect of that instalment. The first instalment period will end on 30 September in a year of tax, the second on 31 December and the third on 31 March.

Clause 93: Interpretation

Sub-clause (1) of this clause makes it clear that an instalment of tax is to be treated as tax for the purposes only of clauses 84, 85, 86, 87, 92, 109, 110 and 111 - which relate to extensions of time, penalty tax and recovery. Sub-clause (2) is a technical measure that deems the processes of ascertaining the amount of an instalment of tax (or what is termed the notional tax amount - broadly, the amount of tax that is payable in an instalment) to not constitute the making of an assessment. By sub-clause (3), all instalment amounts are to be calculated to the nearest dollar.

Clause 94: Liability to pay instalments of tax

This clause will impose an obligation on a person to pay three instalments of tax in respect of a petroleum project in each year of tax commencing on or after 1 July 1987. As explained in the notes on clause 2, a year of tax is the first financial year in which assessable petroleum receipts are derived by a person and any subsequent financial year or, in relation to a combined project where assessable receipts have been derived in relation to any of the pre-combination projects, the financial year in which the project combination certificate comes into force and any subsequent year.

Clause 95: When instalment of tax is payable

The 3 instalments of tax mentioned in the previous clause are to be due and payable, by the operation of this clause, on 21 October, 21 January and 21 April respectively in a year of tax.

Clause 96: Amount of instalment of tax

This clause specifies the amount that is to be payable by a person as an instalment of tax in relation to an instalment period. That amount is referred to as the "notional tax amount" and is ascertained under clause 97.

Clause 97: Notional tax amount

Sub-clause (1) of this clause provides the formula by which a person's notional tax amount in relation to an instalment period is ascertained for the purposes of the preceding clause. An instalment period is defined in clause 2 to be the period commencing at the beginning of the year of tax and ending at the end of the month preceding the month in which the instalment is due and payable. That is, the instalment period is the 3 month, 6 month or 9 month period ending on 30 September, 31 December or 31 March in a year of tax.

The notional tax amount is ascertained using the formula

A-B


, where -

A

is an amount equal to the tax that would be assessed if the instalment period (that is, the relevant 3, 6 or 9 month period) were a year of tax and if amounts of previously undeducted expenditure (that is, augmented bond rate general expenditure (see notes on clause 33), augmented bond rate exploration expenditure (clause 34) and GDP factor expenditure (clause 35) deemed to have been paid on the first day of the year of tax were the relevant instalment percentages of those amounts - instalment percentages are defined in clause 2 to mean 25%, 50% and 75% in relation to the first, second and third instalment periods respectively; and

B

is the notional tax amount or the sum of the notional tax amounts of the person for any prior instalment period or periods in the year of tax.

EXAMPLE The following example illustrates the manner in which a person's notional tax amount in relation to each of the 3 instalment periods in a year of tax in relation to a project is to be calculated. Assume that, as at the start of the relevant year of tax, the person has:

Based on the above example, instalments of $1.3m, $1.7m and $1.3m would, by the operation of clause 75, have been due and payable on 21 October, 21 January and 21 April in the year of tax.

In terms of sub-clause 97(2), the Commissioner of Taxation may determine a person's notional tax amount (in accordance with the provisions of sub-clause (1)) in circumstances where a person has not furnished an instalment statement as required by clause 98 (see notes on that clause) - paragraph (a) - or where the Commissioner is not satisfied with the information contained in an instalment statement - paragraph (b). Where the Commissioner makes a determination under sub-clause (2) in relation to a person, sub-clause (3) will require the Commissioner to serve, as soon as practicable after making the determination, a notice of that determination on the person.

Clause 98: Instalment statement

Sub-clause (1) of this clause will require a person who is liable to pay an instalment of tax to furnish to the Commissioner of Taxation, in accordance with an approved form, the information relating to the basis of the calculation of the instalment that is required by the form. That information must be furnished no later than the date on which the relevant instalment is due (that is 21 October, 21 January or 21 April) or by such later date as the Commissioner may allow.

By sub-clause (2), an instalment statement will not be required to be furnished under sub-clause (1) where the amount of the instalment in question, and the amount of any earlier instalment, is nil. In other words, no instalment statement is required until such time as there is an amount payable by way of instalment. Once there is an instalment amount payable, a statement must be furnished in respect of that instalment period and each subsequent instalment period, notwithstanding that the instalment amount for a subsequent period is nil.

Clause 99: Application of payments of instalments of tax

This clause will determine the manner in which instalments of petroleum resource rent tax are to be applied by the Commissioner of Taxation. It will apply where a person has paid the whole or a part of an instalment of tax for a year of tax in relation to a petroleum project, including any pre-combination project (as defined in clause 2) in a combined project (paragraph (a)) and an assessment has been made of the amount of tax payable in respect of that year in relation to that project (paragraph (b)). In those instances, the Commissioner will be required to credit the amount paid in payment, successively, of any tax payable by the person in respect of the year of tax and the project (paragraph (c)) and of any other Commonwealth taxation liability of the person (paragraph (d)). Any amount not so credited will be refunded to the person.

Clause 100: Unpaid instalments

This clause deals with situations where instalments remain unpaid on the date when the amount of petroleum resource rent tax assessed for a year of tax becomes due and payable. (By the operation of clause 85, penalty tax would be imposed on the amount of an unpaid instalment.)

Under sub-clause (1), if one instalment or part of one instalment remains unpaid on that date, there are three possible outcomes -

•

if none of the assessed tax has been paid, only so much of the unpaid instalment as does not exceed the annual tax liability will remain payable on that date (paragraph (a));

•

where some but not all of the assessed tax has been paid, so much of the unpaid instalment as does not exceed the unpaid balance of the annual amount will remain payable on that date (paragraph (b)); and

•

where all of the assessed tax has been paid, the unpaid instalment ceases to be payable on that date (paragraph (c)).

Under sub-clause (2), if two or more instalments remain wholly or partly unpaid as at the date the assessed tax becomes due and payable, the following rules apply -

•

if any of the assessed tax remains unpaid, the Commissioner of Taxation may determine the extent to which each of the unpaid instalments is no longer payable (paragraph (a)); or

•

if all of the assessed tax has been paid, the unpaid instalments cease to be payable on that date (paragraph (b)).

In making a determination under sub-clause (2), the Commissioner will be required, by sub-clause (3), to have due regard to the amounts of unpaid instalments and the amount of unpaid assessed tax (paragraph (a)) and any other relevant matters (paragraph (b)).

Sub-clause (4) will require the Commissioner to notify a person in writing of the fact that an instalment has been reduced or is not payable as a consequence of a determination under sub-clause (2).

PART IX - PENALTY TAX

Clause 101: Penalty for failure to furnish return

Sub-clause (1) of this clause will impose, as a penalty, additional tax equal to double the amount of tax payable by a person in respect of a year of tax if the person refuses or fails to furnish, as and when required under the Bill a petroleum resource rent tax return for that year or any information relevant to ascertaining the person's tax liability. By sub-clause (2), the minimum penalty will be $20.

Clause 102: Penalty for false or misleading statements

Sub-clause (1) will apply where a person makes a statement to a taxation officer or other person in connection with the Bill that is false or misleading in a material particular or that, by the omission of some matter, is rendered misleading. If, in such a case, the tax properly payable by the person exceeds the tax that would be payable were the statement correct, the person will be liable, as a penalty, to additional tax equal to double the excess. By the operation of sub-clause (2), the minimum penalty will be $20.

For the purposes of sub-clause (1), sub-clause (3) explains that a statement made to a taxation officer covers an oral or written statement, or one made on a data processing device or in any other form. In particular, such a statement includes one made in any document furnished under the Bill (for example, in a return or objection), in a question asked or in information provided under the Bill. A statement made in a document furnished otherwise than under the Bill is also included. Specifically excluded is a statement in a book, document or paper furnished pursuant to paragraph 108(1)(c) of the Bill. That paragraph obliges a person, when required by the Commissioner of Taxation, to attend and give evidence and to produce books, documents and other papers in his or her custody or under his or her control (see notes on clause 108). But for this exclusion, a person may decline to produce books, etc. required on the basis that their production would give rise to the imposition of additional tax for false or misleading information contained in them.

A statement made to a person other than a taxation officer in connection with the Bill will, by sub-clause (4), include statements - made orally, in writing, in a data processing device or otherwise - in a document given to the person, in answer to a question asked by the person or in any information furnished to the person.

Sub-clause (5) defines the following terms used in clause 102.

"data processing device" is any article or material (e.g., computer tapes or discs) from which information is capable of being reproduced with or without the aid of any other article or device.

"taxation officer" is a person exercising powers, or performing functions, under or in connection with the proposed Petroleum Resource Rent Tax Assessment Act.

Clause 103: Penalty tax where arrangement to avoid tax

This clause will impose on participants in tax avoidance arrangements that are the subject of clause 53 penalty tax of double the tax sought to be avoided. It will apply where -

•

in making an assessment or considering an objection, the Commissioner of Taxation has calculated the amount of a tax liability of a person (paragraph (a));

•

in making that calculation, the Commissioner has, in terms of sub-clause 53(1), taken into account a tax benefit obtained by reason of a tax avoidance arrangement (paragraph (b)); and

•

the amount of tax payable is greater than it would have been had the adjustment in respect of the tax benefit not been made (paragraph (c)).

Where those conditions apply, the person concerned will be liable, as a penalty, to additional tax equal to double the tax sought to be avoided under the tax avoidance arrangement (paragraphs (d) and (e)).

Clause 104: Assessment of additional tax

Sub-clause (1) of this clause will require the Commissioner of Taxation to make an assessment of the additional tax payable by a person under a provision of this Part and serve written notice of the assessment on the person. Notice of the additional tax assessment may, under sub-clause (2), be incorporated in notice of another assessment being made in respect of the person.

By sub-clause (3), the Commissioner may, either before or after making an assessment of additional tax, remit the whole or any part of the additional tax payable by a person.

PART X - MISCELLANEOUS

Clause 105: Judicial notice of signature

This clause requires that judicial notice be taken of the signature of a person who holds or has held the office of Commissioner of Taxation, Second Commissioner of Taxation or Deputy Commissioner of Taxation where that signature is on an official document relevant to the new Act. Section 4 of the Evidence Act 1905 requires that judicial notice be taken of the signature of the certifying Minister.

Clause 106: Evidence

Sub-clauses (1) to (5) of this clause specify the evidentiary value of certain documents and copies of documents issued or given, or purporting to be issued or given, under the hand of the Commissioner of Taxation, a Second Commissioner or a Deputy Commissioner, while sub-clause (6) applies similarly to a petroleum resource rent tax return made or signed by or on behalf of a person.

The rules in sub-clauses (1) to (5) are as follows -

•

the production of a notice of assessment or document purporting to be a copy of such a notice is conclusive evidence of the due making of the assessment and that the amounts and all particulars are correct - except (in relation to amounts and particulars) in proceedings relating to an objection, reference or appeal concerning an assessment;

•

the production of a document purporting to be a copy of another document issued or given by the Commissioner, a Second Commissioner or Deputy Commissioner is prima facie evidence that the other document was issued or given;

•

the production of a document purporting to be a copy of, or extract from, a return or notice of assessment is evidence of the matter in the document to the same extent that the original document, if produced, would be evidence of that matter;

•

the production of a written certificate signed by the Commissioner, a Second Commissioner or Deputy Commissioner that a specified sum was due and payable at the date of the certificate as tax, an instalment of tax or penalty tax is prima facie evidence of the matters stated; and

•

the production of a Gazette containing a notice purporting to be issued by the Commissioner is prima facie evidence that the notice was issued.

The rule in sub-clause (6) is that a petroleum resource rent tax return purporting to be made or signed by or on behalf of a person is prima facie evidence that the return was made by or with the authority of the person.

Clause 107: Access to premises, &c.

Sub-clause (1) of this clause will require that an officer duly authorised by the Commissioner of Taxation be given entry, at all reasonable times, to land or premises, full and free access to all books, records and other documents held by any person, and the right to inspect, examine or make copies or extracts therefrom. By sub-clause (2), an officer is not entitled to enter or remain on land or premises unless a written authority signed by the Commissioner is produced at the request of the occupier.

Sub-clause (3) will require any occupier of land or premises entered or proposed to be entered by a duly authorised officer to provide that officer with all reasonable facilities and assistance to carry out official duties.

The maximum penalty on conviction for failure to comply with clause 107 is a fine of $1,000.

Clause 108: Relevant authority to obtain information and evidence

This clause, which is similar in operation to section 264 of the Income Tax Assessment Act 1936, will enable a "relevant authority" to require, by notice in writing, any person to furnish information, to attend before the relevant authority or an authorised officer and answer questions, on oath or otherwise, or to produce any documents in the custody or under the control of that person. The term "relevant authority" means the Commissioner of Taxation or the certifying Minister (as defined in clause 2).

Clause 109: Agents and trustees

By sub-clause (1), the rules set out in sub-clauses (2) to (6) will apply to persons who, as agents or trustees, derive assessable receipts in relation to a petroleum project. Such a person is referred to in the clause as a "representative".

Sub-clause (2) provides that the representative is liable to pay any petroleum resource rent tax, including (by the operation of sub-clause (5)) any late payment or Part IX additional tax, that is payable in respect of assessable receipts derived by the representative, as agent or trustee (paragraph (b)). Paragraph (a) requires the representative to furnish returns and the sub-clause makes it clear that a separate return is required from the representative relating to each person on whose behalf receipts are derived.

Sub-clause (3) requires and authorises the retention of so much of any money that comes to the representative, as agent or trustee, as is sufficient to pay the tax (paragraph (a)) and (by paragraph (b)) makes the representative personally liable for the amount of tax required to be retained. The representative will be indemnified, by the operation of paragraph (c), for all payments made in compliance with clause 109.

Sub-clause (4) will make it clear that the Commissioner of Taxation has the same remedies against attachable property vested in, or under the control, management or possession of, the representative as would be available against the property of any other person in respect of tax payable by that person.

Clause 110: Recovery of tax paid on behalf of another person

By the operation of this clause, a person who is required to pay to the Commissioner of Taxation an amount of tax (including additional tax) payable by another person may recover the amount from that other person, with costs, or retain or deduct the amount owing out of money of the other person that is on hand.

Clause 111: Right of contribution

This clause will apply where two or more persons are jointly, or jointly and severally, liable for tax (including additional tax) and one of them pays the tax. In that case, the one who paid the tax may recover from the other person or persons such part of the amount as a court of competent jurisdiction considers just and equitable. For example, if a partner pays tax on behalf of a partnership (treated as a person by the operation of clause 12), that partner can recover in court an amount by way of contribution from the other partner or partners.

Clause 112: Records to be kept and preserved

Sub-clause (1) of this clause requires a person to keep records that identify and explain all transactions and acts relevant to ascertaining the person's liability under the Bill. The records are to be retained for a period of 7 years after the completion of the transactions or acts to which they relate. By sub-clause (2), the records must be kept in, or be readily accessible and convertible into (e.g., from computer storage), writing in the English language to enable the person's liability to be readily ascertained.

The maximum penalty on conviction for failure to comply with clause 112 is a fine of $2,000.

Under sub-clause (3), a person (referred to as a "record-keeper") will not be required to keep records of acts or transactions of another person if the record-keeper did not know, and could not reasonably be expected to have known, of the information, unless the act or transaction was under an agreement to which the record-keeper was a party. In that event, records will still not be required provided that the record-keeper made all reasonable efforts to ascertain whether the act or transaction had been effected and to obtain the information. Nor will a person be required to retain records if the Commissioner of Taxation has advised that retention is not necessary or if the person, being a company, is in liquidation or has been finally dissolved (sub-clause (4)).

Clause 113: Service on partnerships and associations

This clause will deem service of a notice or document on a member of a partnership, or on a member of the committee of management of an unincorporated association or other body of persons, to constitute service of that notice or document on each member of the partnership, association or body.

Clause 114: Regulations

This clause will authorise the Governor-General to make regulations prescribing matters that are required or permitted by "this Act" (as defined in clause 2) to be prescribed, or that are necessary or convenient to be prescribed for its administration. It specifically provides for the making of regulations to prescribe penalties, for offences against the regulations, by way of a fine not exceeding $500.

PETROLEUM RESOURCE RENT TAX BILL 1987

This Bill for a new Act will formally impose petroleum resource rent tax on the taxable profit of a person in relation to a petroleum project, as determined under the accompanying Petroleum Resource Rent Tax Assessment Bill 1987. The Bill will also declare the rate of tax - 40%.

Clause 1: Short title

This clause provides for the new Act to be cited as the Petroleum Resource Rent Tax Act 1987.

Clause 2: Commencement

By this clause, the Act is to come into operation on the same day as the proposed Petroleum Resource Rent Tax Assessment Act 1987 comes into operation. As explained in the earlier notes on the Bill for that Act, it will, by virtue of sub-section 5(1A) of the Acts Interpretation Act 1901, come into operation on the twenty-eighth day after it receives the Royal Assent.

Clause 3: Incorporation

This clause specifies that the Act and the complementary Petroleum Resource Rent Tax Assessment Act 1987 are to be incorporated and read as one. This mirrors the position under the income tax law and other taxation laws where there are related assessment and rating Acts.

Clause 4: Imposition of tax

By this clause, petroleum resource rent tax will be formally imposed in respect of the taxable profit of a person of a year of tax in relation to a petroleum project.

The terms "taxable profit", "year of tax" and "petroleum project" are defined in the accompanying Petroleum Resource Rent Tax Assessment Bill (see earlier notes on that Bill). Briefly, the taxable profit is the excess of assessable receipts from a petroleum project during a year of tax over deductible expenditure for the year and a petroleum project is a project for the recovery of petroleum and the production of a marketable petroleum commodity. The year of tax is, broadly, the first financial year commencing on or after 1 July 1986 in which assessable petroleum receipts are received or any subsequent financial year.

Clause 5: Rate of tax

The rate of petroleum resource rent tax to be imposed is declared by this clause to be 40%.

PETROLEUM RESOURCE RENT TAX (MISCELLANEOUS PROVISIONS) BILL 1987

This Bill for a new Act proposes the amendment of various existing Acts consequential upon the accompanying legislation to introduce petroleum resource rent tax.

Clause 1: Short title

By this clause, the new Act is to be cited as the Petroleum Resource Rent Tax (Miscellaneous Provisions) Act 1987.

Clause 2: Commencement

By this clause, the Act is to come into operation on the same day as the proposed Petroleum Resource Rent Tax Assessment Act 1987. As explained in the earlier notes on the accompanying Bill for that Act, it will, by virtue of sub-section 5(1A) of the Acts Interpretation Act 1901, come into operation on the twenty-eighth day after it receives the Royal Assent.

Clause 3: Amendments

The Acts specified in the Schedule to the Bill are, by this clause, to be amended as set out in that Schedule.

Clause 4: Transitional

By amendments being made by this Bill to section 59 of the Petroleum (Submerged Lands) Act 1967 (see following notes), directions under that section will be made by the relevant Joint Authority and not, as before, by the Designated Authority. This clause will treat directions given by the Designated Authority before the commencement of the amendments as continuing to have effect as if made by the Joint Authority.

SCHEDULE

An explanation of the amendments of various Acts proposed in the Schedule to the Bill is contained in the following notes.

Administrative Decisions (Judicial Review) Act 1977

The Bill will amend the Administrative Decisions (Judicial Review) Act 1977 to exclude from review under that Act decisions of the Commissioner of Taxation related to liability for petroleum resource rent tax. Consistent with the position under other taxation laws, such decisions will instead be reviewable in accordance with separate objection and appeal provisions contained in the proposed Petroleum Resource Rent Tax Assessment Act 1987.

Crimes (Taxation Offences) Act 1980

The Crimes (Taxation Offences) Act 1980 provides criminal sanctions against persons who engage in stripping transactions designed to ensure that a company or trustee is rendered incapable of paying income tax or sales tax. Such schemes have become known as "bottom of the harbour" schemes.

The Bill will include petroleum resource rent tax within the categories of taxes subject to the Crimes (Taxation Offences) legislation. This will mean that it will be an offence to enter into an arrangement with a purpose of securing that a company or trustee will be, or will be likely to be, unable to pay petroleum resource rent tax that is then payable, or that will or may reasonably be expected to become payable in the future.

Excise Tariff Act 1921

The Bill will amend the Excise Tariff Act 1921 to exclude from the operation of that Act an exploration permit area, retention lease area or production licence area to which the proposed Petroleum Resource Rent Tax Assessment Act 1987 will apply. The effect of the amendment will be to exclude, from the imposition of excise, petroleum recovered from those areas. Taxable profits from petroleum recovered from those areas will instead be subject to petroleum resource rent tax.

Income Tax Assessment Act 1936

Deductions in respect of petroleum resource rent tax payments

The Bill will insert new section 72A in the Income Tax Assessment Act 1936 to provide income tax deductibility for petroleum resource rent tax payments and assessability of certain refunds and credits of petroleum resource rent tax.

New sub-section 72A(1) specifically provides for an amount of petroleum resource rent tax paid in a year of income by a taxpayer personally liable for the tax to be an allowable deduction for income tax purposes. For this purpose, petroleum resource rent tax is (under sub-section 72A(5)) the tax paid on assessment and not an instalment of tax paid under Division 2 of Part VIII of the proposed Petroleum Resource Rent Tax Assessment Act 1987.

Sub-section 72A(2) is complementary to new sub-section (1) and provides that a payment of petroleum resource rent tax by a taxpayer in the capacity of agent or trustee will be an allowable deduction from the taxpayer's assessable income in that capacity. As with sub-section (1), the tax is that paid on assessment and not as an instalment of tax.

New sub-section 72A(3) will include certain amounts as assessable income. By paragraph (a), a refund of an amount paid by a taxpayer as petroleum resource rent tax that has been allowed, or is allowable, as a deduction under sub-section 72A(1) or (2) will be included as assessable income of the taxpayer for the year of income in which the refund is received.

Section 47 of the proposed Petroleum Resource Rent Tax Assessment Act 1987 provides, in certain circumstances, an entitlement to a tax credit in respect of expenditure on closing down a petroleum project. Where a payment is made to a person pursuant to sub-section 47(1) of that Act, the amount paid will be included, by sub-paragraph 72A(3)(b)(i), as assessable income of the taxpayer of the year of income in which the payment is received. Similarly, where under sub-section 47(2) an amount of credit is applied in total or partial discharge of a liability of a taxpayer, the amount so applied will, by sub-paragraph (b)(ii), be included as assessable income of the taxpayer of the year of income in which it is so applied.

Sub-section 72A(4) is to the same effect as sub-section (3), except that it applies where a taxpayer in the capacity of agent or trustee receives a refund or the benefit of a tax credit under the Petroleum Resource Rent Tax Assessment Act 1987.

By sub-section 72A(5), "petroleum resource rent tax", when used in new section 72A, means tax imposed by the proposed Petroleum Resource Rent Tax Act 1987, as assessed under the proposed Petroleum Resource Rent Tax Assessment Act 1987 - i.e., broadly, the amount of tax ascertained on assessment and not amounts paid by way of instalments.

The Bill will also amend the Income Tax Assessment Act 1936 to include petroleum resource rent tax within the categories of taxes in section 215 for which a liquidator or receiver of a company must, out of the assets available for payment of ordinary debts, make provision.

Petroleum (Submerged Lands) Act 1967

Petroleum pool extending into two licence areas

Sub-section 6A(4) of the Act provides for agreements between licensees and a Designated Authority (the relevant State or Northern Territory Minister) determining, for the purposes of sub-section 6A(3), the proportions of petroleum recovered in each of the adjoining licence areas held by the same licensee. The sub-section is to be amended so that the Joint Authority (i.e., the relevant State or Northern Territory Minister and the Minister for Resources and Energy) and not the Designated Authority will be party to the agreements. The change reflects the greater significance the agreements will have for the Commonwealth following the enactment of the proposed Petroleum Resource Rent Tax Assessment Act 1987. Where agreement cannot be reached, either the licensee or the Joint Authority (and not, as before, the Designated Authority) may apply to the Supreme Court of a State to determine the relevant proportions.

Application for licence in respect of surrendered, &c., blocks

Sub-sections 47(2) and (3) set out various requirements concerning instruments under sub-section 47(1). Those instruments are published in the Gazette inviting applications for, broadly, the grant of production licences over areas formerly the subject of production licences, or areas formerly the subject of exploration permits and retention leases and in which the Designated Authority considers there is petroleum.

Sub-sections 47(2) and (3) are to be deleted and substituted by a new sub-section 47(2) which is to have the same effect as the omitted paragraph 47(2)(a). Accordingly, the Designated Authority will be required to state in a sub-section 47(1) instrument that the applicant must specify an amount that the applicant would be prepared to pay for the grant of a licence. The option, under former paragraph 47(2)(b), of requiring the applicant to specify a rate of royalty that exceeds 10% of the well-head value of petroleum will no longer apply.

Paragraphs 47(6)(d) and (e) set out requirements relating to sub-section 47(1) and 47(4) applications respectively. Those paragraphs are to be omitted and replaced by a new paragraph 47(6)(d) which will require that an application specify the amount that the applicant would be prepared to pay for the licence. The requirement applies to applications invited by the Designated Authority under both sub-sections 47(1) and 47(4). The situation differs, however, according to the nature of the invitations. Sub-section 47(1) covers an initial invitation for applications for a licence, whereas sub-section 47(4) covers an "over-the-counter" invitation following notification in the Gazette that, for one reason or another, a licence was not granted in the initial round of invitations for the granting of that licence.

Application fee, &c.

Paragraph 48(1)(b) is to be amended, consequent upon the amendments of section 47, to provide for a deposit of 10% of the amount that the applicant has specified in the application for the granting of a licence, to accompany that application.

Request by applicant for grant of licence

Sub-section 49(2) and paragraphs 49(2)(b) and 49(3)(b) are being amended, consequent upon the amendments of section 47, to remove any reference to the rate of royalty that applicants would be prepared to pay for the grant of a licence.

Unit development

Under section 59, the Designated Authority (i.e., the relevant State or Northern Territory Minister) may give directions to, or enter into agreements with, licensees concerning the unit development of petroleum pools. Section 59 is to be amended to substitute the Joint Authority for the Designated Authority. As with the amendment of section 6A, these changes to sub-sections (3) to (8) and (12) reflect the greater significance that unit development agreements and directions will have for the Commonwealth following the enactment of the proposed Petroleum Resource Rent Tax Assessment Act 1987.

Petroleum (Submerged Lands) (Royalty) Act 1967

Application of Act

Section 4A of the Petroleum (Submerged Lands) (Royalty) Act 1967 is to be omitted and replaced by a new section 4A. The new section will ensure that the Act does not apply to an exploration permit area, retention lease area or production licence area to which the proposed Petroleum Resource Rent Tax Assessment Act 1987 applies. The effect of the amendment will be to exclude, from the imposition of the royalty, petroleum recovered from those areas. Taxable profits from petroleum recovered from those areas will instead be subject to the proposed petroleum resource rent tax.

Taxation Administration Act 1953

Statements made to a taxation officer

Sub-section 8J(2) of the Taxation Administration Act 1953 specifies what is meant by a reference in Subdivision B of Division 2 of Part III of the Act to a statement made to a taxation officer. New paragraph 8J(2)(ma) will exclude from such statements those made in documents produced to the Commissioner of Taxation or to the Minister for Resources and Energy pursuant to paragraph 108(1)(c) of the proposed Petroleum Resource Rent Tax Assessment Act 1987.

Penalty taxes to be alternative to prosecution for certain offences

Section 8ZE of the Act provides that penalty tax is not payable under certain penalty tax provisions where a prosecution is instituted against a person for an alleged offence. New paragraph 8ZE(3)(fa) will include sections 101 and 102 of the proposed Petroleum Resource Rent Tax Assessment Act 1987 (see earlier notes on the Bill for that Act) within the penalty tax provisions to which section 8ZE applies.

Modification of limitation laws applying to the recovery of tax debts

Proposed section 14ZKA of the Act, to be inserted by the Taxation Administration Amendment (Recovery of Tax Debts) Act 1986, modifies certain State and Territory laws described in the section as "limitation laws". Paragraph 14ZKA(2)(b) specifies the provisions of various taxation laws in respect of which tax debts are, broadly, taken not to be penalties for the purposes of the section. That paragraph is to be amended by this Bill to include a new sub-paragraph 14ZKA(2)(b)(via), which refers to penalties under Part IX of the proposed Petroleum Resource Rent Tax Assessment Act 1987.

Taxation (Interest on Overpayments) Act 1983

This Act gives authority to the Commissioner of Taxation to pay interest on certain refunds of tax. The effect of the amendments proposed by the Bill will be to authorise the payment of interest on amounts of petroleum resource rent tax refunded by the Commissioner -

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following a successful objection or appeal by a person against a petroleum resource rent tax assessment; or

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where the Commissioner himself decides to amend a petroleum resource rent tax assessment to reduce a person's liability.

Fringe Benefits Tax Assessment Act 1986

Pay-roll Tax (Territories) Assessment Act 1971

Sales Tax Assessment Act (No. 1) 1930

Tobacco Charges Assessment Act 1955

Wool Tax (Administration) Act 1964

The Bill will amend each of the abovenamed Acts to include petroleum resource rent tax within the categories of taxes for which a liquidator or receiver of a company must, out of the assets available for the payment of ordinary debts, make provision.

PETROLEUM RESOURCE RENT TAX (INTEREST ON UNDERPAYMENTS) BILL 1987

This Bill for a new Act will formally impose an interest charge in respect of underpayments of petroleum resource rent tax. Liability for the interest charge is to be established by section 65 of the proposed Petroleum Resource Rent Tax Assessment Act 1987, the Bill for which accompanies this Bill.

Clause 1: Short title

This clause provides for the new Act to be cited as the Petroleum Resource Rent Tax (Interest on Underpayments) Act 1987.

Clause 2: Commencement

By this clause, the Act is to come into operation on the same day as the Petroleum Resource Rent Tax Assessment Act 1987 comes into operation. As explained in the earlier notes on the Bill for that Act, it will, by virtue of sub-section 5(1A) of the Acts Interpretation Act 1901, come into operation on the twenty-eighth day after it receives the Royal Assent.

Clause 3: Imposition of interest charge

This clause formally imposes the interest charge payable in accordance with section 65 of the Petroleum Resource Rent Tax Assessment Act 1987. As explained in the earlier notes on that provision, until regulations under the Taxation (Interest on Overpayments) Act 1983 prescribe a different rate, the proposed rate of interest is 14.026% per annum.