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DT 1: Petroleum exploration expenditure
or “Money back for oil exploration costs”
You could also call this:

“Rules for claiming deductions on petroleum exploration expenses and property sales”

You can get a deduction for spending money on petroleum exploration, but there are some rules about it. If you or someone connected to you might sell property as part of this deal, the deduction might be limited. The property can’t be things like exploratory material or a petroleum permit.

The amount you can deduct is based on a calculation. It’s the difference between what you spent and what you got for selling the property, but it can’t be less than zero.

If you sell the property and get money for it, you might have to reduce the deductions you claimed in earlier years. This is to make sure you don’t get more deductions than you should.

There are specific formulas to work out these amounts. They look at how much you spent, how much money you got for the property, and how much you’ve already claimed as deductions.

If you need to reduce your earlier deductions, it’s done in the order you would have claimed them.

The tax office can change your tax assessment at any time to make sure these rules are followed correctly.

These rules are more important than the general rule about petroleum exploration deductions. They work with the general permission for deductions but override the capital limitation. Other general limitations still apply.

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Next up: DT 3: Acquisition of privileges and permits

or “Tax rules for buying oil exploration permits or privileges”
Next

Part D Deductions
Petroleum mining expenditure

DT 2Arrangement for petroleum exploration expenditure and disposal of property

  1. This section applies to a person and an arrangement if—

  2. the person may incur expenditure under the arrangement and would be allowed a deduction for the expenditure under section DT 1; and
    1. the person or a person associated with them may dispose of property—
      1. under the arrangement; or
        1. under a right given by the arrangement to the person or the associated person; or
          1. in meeting an obligation of the person or the associated person arising from a right given by the arrangement; and
          2. the property is not—
            1. exploratory material; or
              1. a petroleum permit; or
                1. material or a permit that relates to petroleum mining operations undertaken outside New Zealand, and that material or permit are substantially the same as those described in subparagraphs (i) or (ii), with necessary modifications made to this subpart and the Crown Minerals Act 1991.

                2. The person is allowed a deduction in an income year for the expenditure described in subsection (1)(a) but only to the extent of an amount equal to the greater of zero and the amount calculated using the formula—

                  expenditure − (consideration − lesser amount).

                  Where:

                  • If consideration for the property is derived in an income year, the person’s deductions in earlier income years for the expenditure described in subsection (1)(a) are reduced so that the total of those deductions is equal to the greater of zero and the amount calculated using the formula—

                    previous expenditure − consideration.

                    Where:

                    • In the formulas in subsections (2) and (3),—

                    • expenditure is the amount of expenditure for which the person would be allowed a deduction in the income year under section DT 1(1):
                      1. consideration is the total consideration for the property that is derived before or during the income year:
                        1. lesser amount is the lesser of—
                          1. the amount of consideration; and
                            1. the amount of expenditure for which a person would be allowed a deduction in earlier income years under section DT 1(1):
                            2. previous expenditure is the amount of expenditure for which a person would be allowed a deduction in earlier income years under section DT 1(1).

                              1. When an adjustment under subsection (3) is being made, deductions are treated as denied in the same order in time as they would have been allowed under section DT 1(1).

                              2. Section 44A of the Tax Administration Act 1994 applies to a person to whom this section applies.

                              3. Despite the time bar, the Commissioner may amend an assessment at any time in order to give effect to this section.

                              4. This section overrides section DT 1.

                              5. This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.

                              Compare
                              Notes
                              • Section DT 2 heading: amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on , by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                              • Section DT 2(1)(b): amended, on (applying for the 2010–11 and later income years), by section 98(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                              • Section DT 2(1)(b): amended (with effect on 1 April 2008), on , by section 98(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                              • Section DT 2(1)(c)(ii): substituted (with effect on 1 April 2008), on , by section 98(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                              • Section DT 2(1)(c)(iii): substituted (with effect on 1 April 2008), on , by section 98(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                              • Section DT 2 list of defined terms 1973 version provisions: repealed, on , by section 98(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                              • Section DT 2 list of defined terms 1988 version provisions: repealed, on , by section 98(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                              • Section DT 2 list of defined terms 1990 version provisions: repealed, on , by section 98(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).