Petroleum Resource Rent Tax

PRRT does not apply to the North West Shelf project or to petroleum operations in the Joint Petroleum Development Area between Australia and East Timor. Royalties do not apply to fields chargeable to PRRT, but PRRT is deductible against income tax.

PRRT is a profit based project tax. It is applied at a rate of 40 percent to a project’s taxable profit (project income less project expenditure, project exploration expenditure and exploration expenditure transferred in from other related PRRT projects).

Petroleum projects are generally entitled to deduct exploration expenditure transferred from related projects.

Exploration expenditures that are not deducted in the tax year in which they are incurred can be uplifted and carried forward to be used as deductions in subsequent years.

 All project expenditures and payments of PRRT are tax deductible. In the 2007 Budget, the government announced several changes to the petroleum resource rent tax (PRRT) regime.

These changes are:

• the introduction of a functional currency rule similar to the rule for income tax. The functional currency rule will allow oil and gas producers to elect to work out their PRRT position in a foreign currency and this will reduce the costs of compliance;
• the introduction of a ‘look-back’ rule for exploration expenditure. This change will ensure that all exploration expenditure is deductible for PRRT purposes; and
• the removal of an inconsistency in the ‘external petroleum’ provisions to address the circumstances where two or more petroleum projects are not independent of each other. This will ensure that a tolling fee received is treated as a PRRT receipt and the expense incurred to process the product is treated as a PRRT deduction.

Through its key features it provides a fiscal regime that encourages the exploration and production of petroleum, while ensuring an adequate return to the community for the exploitation of these non-renewable resources. In 2006/2007, PRRT collections were over $1.56 billion, the majority of which came from Bass Strait.

Back to top