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Petroleum

19.A49. The provisions relating to expenditure incurred in prospecting and mining for petroleum are set out in Division 10AA. As with general mining, this applies to operations conducted on the continental shelf, as the definition of ‘Australia’ includes the Australian continental shelf, Papua New Guinea and the continental shelf of that Territory.

19.A50. The scheme of the deductions for capital expenditure incurred in development is the same as that applying under Division 10 in relation to general mining. Certain items of capital expenditure incurred in carrying on prescribed petroleum operations are deductible over the life of the petroleum field, or twenty-five years, whichever is the less. These items are set out in section 124AA and include:

  • (a) The cost of acquiring a ‘petroleum prospecting or mining right’ or ‘petroleum prospecting or mining information’, where the parties to the sale have elected that the deduction entitlement should be transferred from the vendor to the purchaser.
  • (b) Capital expenditure incurred at any time in prospecting or mining operations in Australia for the purpose of obtaining petroleum or on plant necessary for carrying out these operations. This embraces development expenditure incurred in drilling and pumping.



  •   ― 328 ―
    (c) The cost of providing residential accommodation for employees when that accommodation is situated on or adjacent to the site.
  • (d) The cost of providing health, educational, recreational or other similar facilities or facilities for the supply of meals on or adjacent to the site (where provided principally for employees and their dependants and not for the purpose of profit-making).

19.A51. The categories of expenditure not allowed are set out in section 124AA and include:

  • (a) costs incurred on transport facilities which qualify for deduction under Division 10AAA (see above); and
  • (b) ships, railway rolling-stock and road vehicles used for the purpose of transporting petroleum, and refinery plant. These items are subject to depreciation under the normal provisions relating to depreciation.

19.A52. The deduction for accrued residual capital expenditure in any year is limited to the amount of net assessable income from petroleum derived in that year. Any excess is added to the residual capital expenditure deductible in future years. As with general mining, a taxpayer may elect, under section 124AG, that the normal depreciation provisions apply to plant.

19.A53. Sale of prospecting or mining rights or information. As with the general mining sections, provision is made whereby the parties to the sale/acquisition of mining rights or information may elect to transfer from the vendor to the purchaser an amount of undeducted allowable capital expenditure up to or equivalent to the consideration paid by the purchaser.

19.A54. Section 122B (general mining) and section 124AB (petroleum mining) were added to enable the purchaser of a mining right or information to obtain a deduction in respect of at least some part of the cost incurred by him. Under both sections, by giving notice to the Commissioner, certain allowable capital expenditure which would eventually have been deductible by the vendor will, to the extent of the amount nominated, but not exceeding the purchaser's expenditure in acquiring the mining rights, be deductible by the purchaser over the life of the mine or petroleum field, as the case may be. The vendor's allowable capital expenditure is correspondingly reduced.

19.A55. Disposal of mining and petroleum mining assets. Sections 122K and 124AM provide for balancing adjustments where assets in respect of which deductions have been granted on one of the special bases are sold, lost or destroyed.

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