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Industry guidelines Ngā aratohu ahumahi

Petroleum industry

Registration and filing obligations

If you have an interest in a petroleum mining or exploration permit or licence, including any interest received through a farm-in arrangement, you should register with us. You can do this by completing an IRD number application - resident non-individual (IR596).

If you are intending to employ people in New Zealand, you will also be required to complete an Employer registration (IR334) form.

In New Zealand, companies are required to charge GST on any goods and services supplied. To be able to obtain any refunds for GST paid on goods and services acquired, you will need to register for GST by completing the GST registration (IR360) form.

Companies are required to file income tax returns on an annual basis. The standard income year starts on 1 April and ends on 31 March. A company may request a change to the balance date. Filing dates depend on whether the company has a tax agent.

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Income tax issues specific to petroleum miners

Acquisition and disposal of petroleum mining permits and exploratory materials

The consideration received by the seller is income and a deduction is available to the purchaser.

New Zealand legislation

Income Tax Act 2007

  • Sections CT 1 (income), DT 3 and DT 4 (deductions)

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Exploration and development expenditure

Exploration expenditure is generally deductible in the income year it is incurred.

There are two methods of allocating development expenditure:

  • development expenditure may be allocated on a straight line method spread over seven years from the year the expenditure is incurred, or
  • on a "units of production" basis (ie the reserve depletion method).

The reserve depletion method means all development expenditure can be allocated over the life of the field (based on proven and probable 2P reserves) as the petroleum reserves deplete. In this way, deductions for development expenditure better match the field’s decline in value. However this method is only able to be used:

  • once the field commences production, and
  • only in relation to petroleum development expenditure incurred from the first year the field goes into production.

It is also important to note any election to use this method is irrevocable.

Development expenditure allocated to future income years may become deductible in full in the income year in which the permit is relinquished or disposed of for consideration. Special provisions will apply if the permit is disposed of to an associated person or a person holding the permit on behalf of the petroleum miner or a person associated with them.

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Production wells

Costs relating to failed production wells are deductible in the year of abandonment, instead of deductions being spread over seven years. Where a dry production well is drilled, an immediate deduction can be claimed in the year that the well is abandoned. A deduction for the remaining well development expenditure can be claimed in the year that the production well ceases producing and is abandoned, if the taxpayer is allocating development expenditure under the reserve depletion method.

New Zealand legislation

Income Tax Act 2007

  • Deductions from exploration and development expenditure - sections DT 1 to DT 8
  • Timing of development expenditure deductions - sections EJ 12 to EJ 20

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Decommissioning expenditure

A petroleum miner, who has a net loss, is eligible for a tax credit for the following:

  • any decommissioning expenditure in the year it is incurred; and
  • any development expenditure that has not been deducted at the time commercial production permanently ceases.

The maximum tax credit will be limited to income tax paid by the petroleum miner (or a consolidated group it is a member of) in prior years.

The tax credit applies for the 2018-19 and subsequent income years.

A petroleum miner must notify Inland Revenue before filing a return that includes this tax credit.

Restarting production

If production restarts, any expenditure that was accelerated due to the permanent cessation of production will be added back as income in the year commercial production restarts irrespective of whether it qualified for a tax credit, but only to the extent the expenditure was on assets used in the restarted production.

New Zealand legislation

Income Tax Act 2007

  • Decommissioning
    • section CT 5B
    • section DT 16
    • section EJ 13
    • subpart LT

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Petroleum mining operations outside New Zealand

Any expenditure incurred in relation to a foreign petroleum mining operation is only able to be offset against foreign-sourced income from petroleum mining operations.  A tax credit for decommissioning of foreign petroleum mining operations is limited to New Zealand income tax paid on those operations.

New Zealand legislation

Income Tax Act 2007

  • Sections DT 1A, DT 20 (deductions), CT 5 (income) and LT 2

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Other tax compliance considerations for petroleum miners

Non-resident contractors

If you are a person, company or other entity who:

  • is not a tax resident in New Zealand, and
  • has a contract, agreement or arrangement to perform contract activity which can be for services or supply of equipment under a lease in New Zealand

then it is likely that you will have withholding tax implications.

Note

This does not apply to contracts of service between an employer and employee.

Find out more about your obligations as a non-resident contractor