In a 173-page decision concerning the deductibility of exploration expenditure under the Petroleum Resource Rent Tax Assessment Act 1987, the AAT has affirmed an objection decision by the Commissioner in part, to the extent he allowed the taxpayer a deduction for certain expenditure (Company C Billed Expenditure, Company A Direct Expenditure and Allocated Expenditure). The Tribunal also set aside the Commissioner’s objection decision in part to the extent he did not allow the taxpayer a deduction for the above expenditure objected to by the taxpayer, and remitted the matter to the Commissioner for reconsideration in accordance with the Tribunal’s Reasons for Decision and subject to certain directions.
The complex and lengthy decision concerned the deductibility under the PRRTA Act of exploration expenditure incurred in relation to a petroleum project. It considered, among other things, payments liable to be made in carrying on or providing “operations and facilities involved in or in connection with exploration for petroleum”. The relevant expenditure totalling almost $22.5m was incurred by Company A (a company related to the taxpayer), in relation to Company A’s participation in an offshore petroleum joint venture in the financial years ended 30 June 2002 to 30 June 2005. If the expenditure concerned constituted “exploration expenditure” for the purposes of s 37 of the PRRTA Act, it was required to be transferred from Company A to the taxpayer, pursuant to s 45B, and would be deductible against the taxpayer’s “assessable receipts” from the project, for the purpose of calculating the taxpayer’s “taxable profit” under the PRRTA Act for the 2005 year.
On 23 April 2008, the Commissioner issued the taxpayer with a notice of amended assessment which assessed the taxpayer’s taxable profit in respect of the project in question for the tax year ended 30 June 2005 to be $202,125,538, and disallowed certain additional expenditure claimed by the taxpayer. The taxpayer lodged an objection claiming the assessment of its taxable profit should have been further reduced by allowing an increase in the amount of unused transferable “exploration expenditure” to be transferred from Company A to the taxpayer. The Commissioner only partly allowed the objection.
The central issue for determination by the Tribunal was whether all (or some) of the disputed expenditure, incurred by Company A in relation to its participation in the Joint Venture in the 2002 to 2005 years, which the Commissioner had not permitted to be transferred from Company A to the taxpayer (to be deducted by it against the income of the Project), was “exploration expenditure” within the meaning of s 37(1) of the PRRTA Act.
The Tribunal affirmed the Commissioner’s objection decision in part and gave the parties one month to reach a written agreement (and file a copy of that agreement with the Tribunal) concerning the quantum of each of the amounts of disputed expenditure.
(AAT Case [2013] AATA 351, Re ZZGN and FCT, AAT, Kerr P and Walsh SM, Ref; 2010/4354, 5 April 2013, with a correction added on 10 May 2013.)
[LTN 103, 30/5/13]