Taxes, Royalties and Tariffs
Taxation arrangements in the Victorian petroleum industry depend on whether income is generated onshore or offshore.
Offshore Commonwealth waters
- Offshore beyond the Victorian 3 nautical mile limit is covered by Commonwealth legislation
- The Offshore Petroleum and Greenhouse Gas Storage Act (OPGGS) 2006 and the Petroleum Resource Rent (PRRT) Tax Act 1987 are the relevant Acts.
PRRT is imposed on the taxable profit of a person in relation to a petroleum project. Each person with an interest in a project will be liable for the PRRT. A 'project' consists of facilities in and outside the project title area necessary for the production and initial storage of marketable petroleum commodities such as:
- Stabilised crude oil
- Natural gas
- Liquefied petroleum gas
Value added products, such as LNG, are excluded.
Two or more projects may be treated as a single project if the Minister for Resources, Energy and Tourism issues a combination certificate.
The Minister will issue a combination certificate if he considers the individual projects sufficiently related.
PRRT is levied at a rate of 40 per cent of a project's taxable profit and is paid quarterly.
Taxable profit is the project's income after all eligible expenditures have been deducted from all assessable receipts.
Eligible expenditures include:
- PRRT payments
- Petroleum exploration and all project development and operating expenditures
- Closing-down expenditures, including offshore platform removal and environmental restoration, are also deductible in the year in which they are incurred
Non-eligible expenditures include:
- Financing costs
- Private override royalty payments
- Income tax
- Goods and services tax (GST) and fringe benefits tax
- Cash bidding payments
- Certain indirect administrative costs
Onshore and State waters royalty
- Onshore and within Victorian coastal waters are covered by State legislation
- The Petroleum Act 1998 and the Offshore Petroleum and Greenhouse Gas Storage Act 2010 are the relevant Acts
- Royalties are levied on petroleum production and are collected by the States. The rate of royalty is normally set at about 10% of net wellhead value of the petroleum produced
- Commonwealth crude oil excise is also applied to onshore and coastal waters. The rate of excise is dependent upon the annual rate of production, date of discovery and the date of production commencement.
Onshore, a different rate may be specified in the licence under which the petroleum was extracted or recovered. Royalty rates and collection methods are negotiable with the government in some circumstances, providing flexibility as a field declines or for marginal fields.
The company tax rate is 30% of taxable income. Additional taxes, apply including payroll tax, capital gains tax and fringe benefits tax.
Allowable deductions for companies involved in petroleum exploration and development include:
- Exploration and prospecting expenditure
- Capital expenditure
- Cash bids for petroleum titles and environmental protection expenditure
International agreements prevent double taxation of foreign investors. Taxes paid in Australia are treated as tax credits in the country of residence. Australia has undergone significant tax reform and companies should seek legal advice on the latest state of play.
Further taxation information
Tariffs and customs
The Enhanced Project By-law Scheme provides tariff duty concessions on eligible capital goods for major investment projects in the mining, resource processing, food processing, food packaging, manufacturing, agriculture and gas supply industry sectors and from 1 July 2006 the power supply and water supply industries.
The scheme incorporates an Australian Industry Participation Plan to encourage the use of Australian industry in projects and global supply chains. Further Information on the scheme is on the AusIndustry website.
The Tariff Concession System allows concessional entry of goods beneficial to local industry. Oil and gas companies can take advantage of the concession regarding goods to be used in relation to oil and gas exploration, and well development, as set out under the Customs Tariff Act 1995.
A Tariff Concession Order will be granted on imported goods if substitutable goods are not produced in Australia.
Foreign investment guidelines
Certain developments emerging from petroleum exploration are subject to the Foreign Acquisitions and Takeovers Act 1975 (FATA) and must be notified to the Australian Government for approval.
The Foreign Investment Review Board assesses proposals although final approval lies with the Federal Treasurer.
In summary, exploration ventures will not invoke foreign investment review but developments may, depending on thresholds outlined by Australia's Foreign Investment Policy.
Page last updated: 21 Dec 2020