In a decision handed down on Tue 14.8.2012, the Full Federal Court has dismissed a taxpayer’s appeal and upheld the Commissioner’s disallowance of a deduction made in respect of the part of the consideration the taxpayer attributed to a petroleum production field.
In early 2004, Woodside Energy Limited was the holder of an exploration permit granted under the Petroleum (Submerged Lands) Act 1967. Woodside had previously made 3 petroleum discoveries within that area. The area comprising one of the fields extended into parts of 3 adjacent graticular blocks within the permit area. In September 2003, Woodside applied for a production licence which was granted. In March 2004, Mitsui E & P Australia Pty Ltd purchased from Woodside a 40% undivided interest in each of the exploration permit and production licence, and, in respect of each of the 2 mining tenements, entered into a joint operating agreement for the exploration and development of each tenement. In completing its tax return for the 2005 year, the taxpayer apportioned the consideration it had paid to Woodside to acquire an interest in the production licence between the 2 fields on the basis that the amount paid was attributable to having acquired separate rights in respect of each of the 2 fields. The taxpayer claimed a depreciation deduction under Div 40 of the ITAA 1997 in respect of the amounts attributed to the acquisition of the interest in respect of the 2 fields on different bases.
The Commissioner’s view was that in acquiring a 40% interest in the production licence, the taxpayer had acquired only one depreciating asset, namely, an interest in a mining title, being the production licence in question. In Mitsui & Co (Australia) Ltd v FCT [2011] FCA 1423, the Federal Court (Siopis J) found in favour of the Commissioner.
The Full Federal Court was of the view that the primary judge had made no error in dismissing the taxpayer’s appeal from the Commissioner’s objection decision. It therefore ordered that the taxpayer’s appeal be dismissed.
(Mitsui & Co (Australia) Ltd v FCT [2012] FCAFC 109, Full Federal Court, Emmett, Bennett and Gilmour JJ, 14 August 2012.)
[LTN 156, 14/8]