Private ruling: Transfer time
Published: May 2014
Ruling period: Year ended 30 June 2013 | Year ended 30 June 2014

Ruling: Q1: For the purposes of section 48 of the Petroleum Resource Rent Tax Assessment Act 1987 (PRRTAA), is the transfer time for the transfer of the interest in the specified Authority to Prospect (ATP) to you a date that is on or before 30 June 2013? | A1: No | Q2: Are you the holder of an interest in the ATP on 30 June 2013 under section 4B of the PRRTAA? | A2: No | Q3: Are you entitled to choose a starting base valuation approach under clause 3 of Schedule 2 to the PRRTAA for the interest in the ATP? | A3: No

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. The following facts were provided in a private ruling application and in subsequent correspondence. You signed the Asset Sale Agreement (ASA) for the specified interest on the contract date to purchase an interest in the specified Authority to Prospect (ATP). The interest you acquired in the ATP represents the vendor's whole entitlement in the ATP. ASA The relevant clauses from the ASA provide: The Definitions Clause contains the following definitions: • Effective Date is the specified day in the contract. • Indicative Consent has the meaning given in the Conditions Precedent Clause. • Joint Venture means the ATP Joint Venture as relevant • Joint Venture Assets includes, in respect of the Joint Venture petroleum produced by that Joint Venture on or after the Effective Date • Joint Venture Interests means the Vendor's participating interest in the Joint Venture and the Joint Venture Assets, as modified by any relevant Farmin Agreements. • Sale Assets means Registered Interests, Farmin Interests and Joint Venture Interests. The Sale of Sale Assets Clause provides that, subject to the terms and conditions of the contract, the Vendors agree to sell to the Purchaser and the Purchaser agrees to purchase from the Vendors the Sale Assets free from Encumbrances for the Purchase Price. The Effective Date Clause provides that, subject to the completion taking place and the terms of this document the sale and purchase of the Sale Assets will be deemed to have taken effect on and from the Effective Date; and title to, and the risk of, the Sale Assets will be deemed to have passed to the Purchaser on the Effective Date. The Conditions Precedence Clause provides that, other than that clause and the clauses and parts of clauses required to make it operational do not become binding unless and until: • the Minister giving Indicative Consent for the transfer of the Registered Interests in respect of the Initial Tenement that is (i) unconditional or (ii) subject to conditions that are acceptable to the Purchaser (acting reasonably); • each of the Farmin parties do not exercise, irrevocably waive or become unable to exercise due to the effluxion of time the pre-emptive rights under the terms of the Farmin Agreement and the Joint Venture Agreement, or having exercised its pre-emptive rights, the asset sale agreement for the acquisition of the Sale Assets is terminated; and • each of the stakeholders specified in the clause consents in writing to the assignment of the interests relevant to PL A pertaining to the Sale Assets to the Purchaser. Non-satisfaction of conditions precedent: • If the conditions precedent are not satisfied or waived then the non-defaulting party may, before satisfaction or waiver of the condition, terminate this document by given notice to the other parties. • If this document is terminated then all rights and obligations under this document other than those in the specified clauses and rights that accrue before the date of that notice terminate on the day of the notice. Any revenue received or expenditure incurred between the Effective Date and the Completion Date results in a purchase adjustment as calculated under the ASA Indicative Consent was provided after 30 June 2013. All stakeholders provided written consent in respect of the sale after 30 June 2013. All pre-emptive rights in respect of Farmins lapsed before 30 June 2013. The completion date of the ASA was as per the terms of the contract, that is the number of Business Days after the date that the conditions precedent were satisfied as there was no other agreed date.

Relevant legislative provisions: Section 2 Petroleum Resource Rent Tax Assessment Act 1987 | Section 4B Petroleum Resource Rent Tax Assessment Act 1987 | Section 48 Petroleum Resource Rent Tax Assessment Act 1987 | Subsection 48(1A) Petroleum Resource Rent Tax Assessment Act 1987 | Part V Subdivision 6A Petroleum Resource Rent Tax Assessment Act 1987 | Part V Division 8 Petroleum Resource Rent Tax Assessment Act 1987 | Schedule 2 clause 3 Petroleum Resource Rent Tax Assessment Act 1987 | Schedule 2 paragraph 3(1)(b) Petroleum Resource Rent Tax Assessment Act 1987

Reasons for decision: Summary: For the purposes of section 48 of the PRRTAA, the transfer time for the transfer of the interest in the ATP to you is not a date that is on or before 30 June 2013 because the parties 'commitment to the transaction to transfer the ATP has not been finalised by that date. | Detailed Reasoning - Detailed reasoning: You executed the ASA on the contract date to acquire a petroleum interest in the ATP. An Authority to Prospect is an exploration permit as defined in section 2 of the PRRTAA. An interest in an exploration permit is not an interest in a petroleum project for PRRT purposes. A petroleum project is taken to exist in relation to an eligible production licence only when the eligible production licence is in force. Miscellaneous Taxation Ruling MT 2004/1 Petroleum resource rent tax: effects of transferring an interest in an exploration permit or retention lease provides the Commissioner's view in relation to whether sections 48 and 48A of the PRRTAA apply where a vendor transfers all or a part of an interest in an exploration permit or retention lease at any time when an eligible production licence is not in force. Paragraph 5 of MT 2004/1 states: Sections 48 and 48A of the Act apply to a transaction that has the effect of transferring an entitlement of a vendor to derive assessable receipts in relation to a petroleum project whether or not an eligible production licence is then in force and whether or not an eligible production licence ever comes into force in relation to the project. So the sections apply when there is only the transfer of an interest in an exploration permit or retention lease or in any other entitlement at any time when an eligible production licence is not in force. In your case, you executed the ASA on the contract date to acquire an interest in the ATP from the relevant vendors. The percentage interest you are acquiring in the ATP represent the vendor's whole entitlement in the ATP. Therefore, section 48 of the PRRTAA applies as the vendor is transferring its whole entitlement in the ATP to you under the ASA. Section 48 of the PRRTAA applies if a person enters into a transaction that has the effect of transferring a vendor's whole entitlement to derive assessable receipts to a purchaser in relation to a petroleum project and the purchaser gives consideration for that transfer. Subsection 48(1A) states: 48(1A) This section applies if: (a) at a particular time (the transfer time) a person (the vendor) enters into a transaction in relation to a petroleum project; and (b) the transaction has the effect of transferring to another person or persons (the purchasers): (i) the whole of the vendor's entitlement to derive, after the transaction, assessable receipts in relation to the project; and (ii) any property held by the vendor that is being used in relation to the project; and (c) the purchasers give consideration for the entitlement and property. The transaction may occur at any time (even before the vendor's first year of tax in relation to the project). The transfer time is when the vendor enters into the transaction that has the effect of transferring the vendor's whole entitlement to derive assessable receipts to a purchaser in relation to a petroleum project. Paragraph 5.14 of the Explanatory Memorandum to the Petroleum Resource Rent Tax Assessment Amendment Bill 2006 provides that 'entering into a transaction' for the purposes of section 48 is taken to mean once the commitment to the transaction is finalised. The time when the commitment to the transaction is finalised is a question of fact. In a sale and purchase arrangement, the contractual terms will determine an intention by the parties to commit to the transaction which results in the existence of a binding contract. According to the ASA, the sale and purchase of the interest in the ATP is, subject to Completion, deemed to have effect, and risk and title of the Sale Assets (including the petroleum produced by the Joint Venture after the date of the agreement) to have passed, on and from the Effective Date. The Completion Date is defined in the ASA to be the specified number of days after the conditions precedent pursuant to the ASA have been satisfied or waived or any other date as the parties agree in writing. You advised that there was no other agreed date. Effective Date is defined to mean the specified day. The fact that, upon Completion, the Effective Date is the specified day does not mean that the relevant transfer time, as defined in section 48 of the PRRTAA, is the specified day. Section 48 of the PRRTAA is concerned with when the vendor enters into a transaction that has the effect of transferring the whole of the vendor's entitlement to derive assessable receipts in relation to the project and Clause 5.14 of the Explanatory Memorandum to the Petroleum Resource Rent Tax Assessment Amendment Bill 2006 makes it clear that this is the time once the commitment to the transaction is finalised. There was no such commitment on the specified day. The ASA provides for 'Conditions precedent'. It provides that most clauses of the contract, including that for the sale of Sale Assets, do not become binding unless and until the conditions precedent are satisfied. These are that: • the Minister gives Indicative Consent to the transfer of the Registered Interests in the ATP; • each of the Farmin Parties do not exercise, irrevocably waive or become unable to exercise due to the effluxion of time the pre-emptive rights under the terms of the Farmin Agreement and each Joint Venture Agreement or having exercised its pre-emptive rights, the asset sale agreement for the acquisition of the Sale Assets is terminated; and • stakeholders consented in writing as provided for in the ASA. In terms of the conditions precedent you have advised that: • the Minister gave Indicative Consent to the Transfer of the Registered Interests after 30 June 2013; • all pre-emptive rights in respect of Farmins lapsed before 30 June 2013; and • stakeholders consented in writing as provided for in the ASA after 30 June 2013. Based on the above mentioned contractual terms and facts, it is clear that the ASA was not binding on the parties on or before 30 June 2013 because only one condition precedent was satisfied by that date. This means that the parties have not entered into a transaction that has the effect of transferring a vendor's whole entitlement to derive assessable receipts to a purchaser in relation to a petroleum project on or before 30 June 2013 because a commitment to the transaction has not been finalised by that date. Therefore, the transfer time for the purpose of section 48 of the PRRTAA has not occurred on or before 30 June 2013. | Summary: You are not the holder of an interest in the ATP on 30 June 2013 under section 4B of the PRRTAA because, at that particular time, you do not have an entitlement to receive receipts from the sale of petroleum, or of a marketable petroleum commodity (MPC) produced from petroleum, recovered from the ATP. | Detailed Reasoning - Detailed reasoning: Section 4B of the PRRTAA provides that for the purposes of the PRRTAA, a person is taken to have held, at a particular time, an interest in relation to an exploration permit if the person was, at that time, entitled to receive receipts from the sale of petroleum, or of an MPC produced from petroleum, recovered from the exploration permit area. In relation to the ATP, you were not entitled to receive receipts from the sale of petroleum or MPC produced from petroleum recovered from the ATP on 30 June 2013 because the transfer under section 48 of the PRRTAA has not yet occurred on that day as discussed in answer to Question 1. | Summary: You are not entitled to choose a starting base valuation approach under clause 3 of Schedule 2 to the PRRTAA for the interest in the ATP as you did not hold the interest on 30 June 2013. | Detailed Reasoning - Detailed reasoning: Clause 3 of Schedule 2 to the PRRTAA sets out the circumstances where a person may choose a starting base valuation approach in relation to an interest in a petroleum project, an exploration permit or retention lease. Paragraph 5.22 of the Explanatory Memorandum to the Petroleum Resource Rent Tax Assessment Amendment Bill 2011 explains that the choice is to be made by the person holding the relevant interest on or before 30 June 2013, whether it be an interest in a petroleum project, exploration permit or retention lease. In relation to an exploration permit, paragraph 3(1)(b) of Schedule 2 to the PRRTAA provides that a person may choose the valuation approach for an interest that the person may in the future hold in such a project if: • the project does not exist at the time that the person makes the choice and • the production licence to which the project would relate would, if it later came into existence, be derived from an exploration permit or retention lease in which the person held an interest at that time. Paragraph 3(1)(b) of Schedule 2 to the PRRTAA does not apply to you in relation to your interest in the ATP. This is because you did not hold the interest in this exploration permit on 30 June 2013