Senate

Supplementary Explanatory Memorandum

Circulated by the authority of the Treasurer, the Hon Wayne Swan MP

Glossary

The following abbreviations and acronyms are used throughout this supplementary explanatory memorandum.

General outline and financial impact

Amendments to the Excise Legislation Amendment (Condensate) Bill 2008 and the Excise Tariff Amendment (Condensate) Bill 2008

These amendments ensure that the measure applying the crude oil excise to production of condensate commences from midnight 13 May 2008 as announced by the Government. Further, two technical amendments are made to improve the operation of the Bills.

Date of effect : Midnight 13 May 2008.

Proposal announced : Not previously announced.

Financial impact : Nil.

Compliance cost impact : Nil.

Chapter 1

Amendments to the Excise Legislation Amendment (Condensate) Bill 2008 and the Excise Tariff Amendment (Condensate) Bill 2008

Excise Legislation Amendment (Condensate) Bill 2008

Amendment 1

1.1 Amendment 1 links the commencement date for the Excise Legislation Amendment (Condensate) Bill 2008 (Excise Legislation Bill) with the commencement for the Excise Tariff Amendment (Condensate) Bill 2008 (Excise Tariff Bill). In particular, the amendment ensures that Schedules 1 to these Bills commence at the same point in time. This amendment is a consequential change flowing from amendments 5 to 9 to the Excise Legislation Bill and amendment 3 to the Excise Tariff Bill. A similar amendment is made to the Excise Tariff Bill (see paragraph 1.12).

Amendments 2, 3 and 4

1.2 The Excise Legislation Bill inserts Part IA into the Petroleum Excise (Prices) Act 1987. The new Part enables interim and final volume weighted average realised prices (or VOLWARE prices) to be determined for condensate. It does so by treating references in the Petroleum Excise (Prices) Act 1987 and in the Petroleum Excise (Prices) Regulations 1988 to 'excisable crude petroleum oil' as references to 'excisable condensate', and references to 'stabilised crude petroleum oil', 'crude petroleum oil' and 'oil' as references to 'condensate'.

1.3 Amendments 2, 3 and 4 limit the application of the new Part IA to the Petroleum Excise (Prices) Act 1987. The purpose of these amendments is to remove doubt in respect of the operation of Schedule 1 to the Petroleum Excise (Prices) Regulations 1988 (which specifies the oil producing region, the production area and the VOLWARE commencement date) in the case where a production area may produce both stabilised crude petroleum oil and condensate.

Amendments 5, 6 and 7

1.4 Section 7 of the Petroleum Excise (Prices) Act 1987 requires the Minister (or delegate) to declare a VOLWARE price within one month after the end of a month in which excise is payable. The VOLWARE price is used in calculating the amount of excise duty payable. The approach for determining the VOLWARE price for condensate is exactly the same as the approach for determining the VOLWARE price for crude oil.

1.5 Amendments 5, 6 and 7 amend the Petroleum Excise (Prices) Act 1987 to ensure that an interim VOLWARE price can be set for all months between 13 May 2008 and the date of Royal Assent. This enables crude oil excise on production of condensate to be collected from midnight 13 May 2008 as announced by the Government.

1.6 In particular, the amendments insert a new section into the Petroleum Excise (Prices) Act 1987. This new section applies to a prescribed condensate production area and to the period from 30 April 2008 to the last day of the last month prior to the commencement of the Excise Tariff Bill (called the 'pre-commencement period'). Where these circumstances apply, the transitional provisions are substituted for the current subsections 7(2) to (4). The replacement subsection 7(2) allows the Minister (or delegate) to set an interim VOLWARE price for condensate within two months of the date of commencement of the Excise Tariff Bill for each month in the pre-commencement period.

1.7 Further, subsection 7(3) of the Petroleum Excise (Prices) Act 1987 is proposed to be amended to allow for the Minister (or delegate) to determine a final VOLWARE price for condensate with respect to interim VOLWARE prices determined for the pre-commencement period within a six-month period after the interim VOLWARE price is determined. Subsection 7(4) of the Petroleum Excise (Prices) Act 1987 is proposed to be amended to allow the Minister (or delegate) to determine the final VOLWARE price once complete and accurate information is available or once five months and 20 days has passed since the interim VOLWARE price was determined. These are the same periods that normally apply in determining the final VOLWARE price relative to determining the interim VOLWARE price.

Amendment 8

1.8 An application provision in both the Excise Legislation Bill and the Excise Tariff Bill enables a condensate producer to enter condensate into home consumption without having to first pay or settle their excise liability. These Bills provide producers a grace period from the commencement of the measure (which is from midnight 13 May 2008) to two months from the 'first day' (specified as the date of introduction of the Bills into Parliament (which was 15 May 2008)) to become a licensed producer of condensate and to obtain a formal permission from the Commissioner of Taxation (Commissioner) under section 61C of the Excise Act 1901. In this respect, these Bills assume that they receive Royal Assent before 15 July 2008 (which is before the end of the two-month transitional period).

1.9 Amendment 8 extends the grace period in the Excise Legislation Bill by allowing the last day of the grace period to be worked out in accordance with the transition period, in relation to the day on which Schedule 1 to the Excise Tariff Bill commences. This period is aligned with the proposed amendment to the period to obtain a licence to produce condensate (see paragraphs 1.10 and 1.11).

Amendment 9

1.10 The Excise Act 1901 requires all manufacturers or producers of excisable goods to obtain a licence from the Commissioner. Section 15 of the Excise Act 1901 provides a transition period of two months from the 'first day', being the date on which the Excise Tariff Bill was introduced into Parliament, for condensate producers to obtain a licence to produce condensate. In effect, this section allows condensate producers to produce condensate as if the producer held a manufacturer's licence, for a specific period.

1.11 In order to extend the transition period for licencing purposes, a referential amendment to section 15 of the Excise Act 1901 is made which has the effect of setting the last day of the transition period by reference to the commencement of the Excise Tariff Bill. This means, for example, that condensate producers can lawfully produce condensate without a licence for a period of two months after the day the Excise Tariff Bill commences.

Excise Tariff Amendment (Condensate) Bill 2008

Amendment 1

1.12 Amendment 1 links the commencement date of the Excise Tariff Bill with the Excise Legislation Bill. In particular, the amendment ensures that Schedules 1 to these Bills commence at the same point in time. This amendment is a consequential change flowing from amendment 1 and amendments 5 to 9 to the Excise Legislation Bill and amendment 3 to the Excise Tariff Bill. A similar amendment is made to the Excise Legislation Bill (see paragraph 1.2).

Amendment 2

1.13 Item 13 of the Excise Tariff Bill adds the term 'condensate' to the definition of relevant accumulation. A relevant accumulation is defined in the Excise Tariff Act 1921 in terms of a discrete accumulation of oil or gas. The term relevant accumulation is used in the context of the definition of 'prescribed condensate production area' in section 6CA of the Excise Tariff Bill 2008.

1.14 Amendment 2 repeals item 13 of the Excise Tariff Bill. This is because condensate does not exist as a discrete accumulation in its own right. Condensate is derived from gas or from gas associated with crude oil.

Amendment 3

1.15 Similar to amendment 8 in the Excise Legislation Bill (see paragraphs 1.8 and 1.9), amendment 3 amends the Excise Tariff Bill by substituting certain references to 'first day' as the day on which Schedule 1 to the Excise Tariff Bill commences. The effect of this amendment is to make the grace period from commencement of the measure (which is from midnight 13 May 2008) to two months after the date on which the Excise Legislation Bill commences. This amendment aligns the grace period with the proposed amendment to the period to obtain a licence to produce condensate (see paragraphs 1.10 and 1.11).