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Income Tax Act 2007

Income - Income from petroleum mining

CT 3: Exploratory well used for commercial production

You could also call this:

“Taxing expenses when an exploratory oil well becomes commercially productive”

If you’re a petroleum miner and you start using an exploratory well for commercial production of petroleum, this law applies to you. It doesn’t matter if the well was sealed and abandoned before.

You’ll need to treat some money as income. This money is equal to the amount spent on the exploratory well. But only certain spending counts. It must be directly related to drilling or getting the exploratory well. You or someone who owned the well before must have been allowed to deduct this spending as petroleum exploration expenditure. The spending must also be related to the permit you currently hold, or a previous permit that was swapped for your current one under section 32(3) of the Crown Minerals Act 1991.

You need to count this money as income in the year when you start commercial production from the well.

If you only own part of the exploratory well when it starts commercial production, you only need to count part of the spending as income. The part you count is the same as the part of the well you own.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1512960.

Topics:
Money and consumer rights > Taxes
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Part C Income
Income from petroleum mining

CT 3Exploratory well used for commercial production

  1. This section applies when a petroleum miner uses an exploratory well for commercial production of petroleum, whether or not the well has been sealed and abandoned previously.

  2. An amount equal to the amount of expenditure described in subsection (3) is treated as income of the petroleum miner.

  3. The expenditure is exploratory well expenditure to which all the following apply:

  4. it is directly attributable to drilling or acquiring the exploratory well; and
    1. the petroleum miner or a holder of a previous interest in the well is or has been allowed a deduction for it as petroleum exploration expenditure; and
      1. it is incurred in relation to the permit held currently by the petroleum miner, or a previous permit surrendered in exchange for the permit currently held under section 32(3) of the Crown Minerals Act 1991.

        1. The amount is allocated to the income year in which commercial production from the well starts.

        2. If the petroleum miner has a part interest in the exploratory well when that well is first used for commercial production, the amount of expenditure treated as income under this section must bear the same proportion to the exploratory well expenditure specified in subsection (3) as that part interest bears to all interests in the well.

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