In 2013, the PRRT laws were amended in Tax Laws Amendment (2013 Measures No. 2) Act 2013 (the Esso amendments) to address unintended implications arising from Esso Australia Resources Pty Ltd v Commissioner of Taxation  FCAFC 5 (the Esso case). These amendments were intended to ensure:
- 'Mixed' expenditure can be apportioned for the purpose of determining deductible PRRT expenditure
- PRRT taxpayers are not required to 'look through' payments to procure unrelated third parties to undertake petroleum activities to determine deductibility
The PRRT laws do not prescribe an apportionment method. The Australian Taxation Office (ATO) recently published an overview of when it may be necessary to apportion procured service payments and guidance on practices that may assist taxpayers to apportion payments.
The ATO specifies that an arbitrary apportionment method is not a reasonable basis for apportionment of payments for procured services, unless there is evidence to support that this is appropriate in the circumstances. Examples of evidence is service agreements, or if the apportionment is not clear from these, other documentation such as drilling works programs and time-writing.
In addition, the ATO guidance states that where an operator carries on project activities on behalf of JV participants under a JVOA (and as such are related), more detailed operator expenditure breakdowns may be required for participants to meet their PRRT obligations.
These apportionment and look through rules, together with the narrow interpretations of 'exploration expenditure' adopted by the AAT in ZZGN and Commissioner of Taxation  AATA 351 and in the ATO draft PRRT ruling TR 2013/D4 highlight the increased compliance and substantiation obligations currently facing PRRT taxpayers.