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Income Tax Act 2007

Timing and quantifying rules - Spreading of specific expenditure

EJ 13: Permanently ceasing petroleum mining operations

You could also call this:

“Tax deduction when you permanently stop oil or gas operations”

When you stop digging for oil or gas forever in an area where you have permission to do so, and where you’ve spent money to develop the area, you can get some money back through a tax deduction. This applies to you if you’re the main oil or gas company, or if you’re a partner who has invested in the project.

If you’re the main oil or gas company, the amount you can deduct is the difference between two things. First, the amount you were allowed to deduct for developing the area or for special equipment used only in that area. Second, any part of that deduction that was already counted in earlier years.

If you’re a partner in the project, your deduction works similarly. It’s the difference between the amount you were allowed to deduct for your share of the development costs, and any part of that deduction already counted in earlier years.

You can claim this deduction in the year when you permanently stop your oil or gas operations in that area.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1515130.

Topics:
Money and consumer rights > Taxes
Environment and resources > Farming and fishing
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EJ 12B: Petroleum development expenditure: reserve depletion method, or

“How to calculate deductions for petroleum development costs based on reserve depletion”

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EJ 13B: Dry well drilled, or

“Tax deduction for drilling a well that doesn't produce oil or gas”

Part E Timing and quantifying rules
Spreading of specific expenditure

EJ 13Permanently ceasing petroleum mining operations

  1. This section applies when a petroleum miner and each farm-in party to a farm-out arrangement, if any, to which the petroleum miner is a party, permanently ceases petroleum mining operations—

  2. in a permit area for which the petroleum miner holds a petroleum permit; and
    1. for which petroleum development expenditure has been incurred.

      1. The amount of the deduction that the petroleum miner is allowed is the difference between—

      2. the amount of the deduction allowed for the petroleum miner under section DT 5 (Petroleum development expenditure) and attributable to—
        1. the permit; or
          1. an asset of the kind described in section CT 7(1)(b) or (c) (Meaning of petroleum mining asset) held solely in connection with the permit; and
          2. any part of the deduction for the petroleum miner allocated to, or treated as allocated to, earlier income years under section EJ 12(2) or EJ 12B(3).

            1. The amount of the deduction that the farm-in party is allowed is the difference between—

            2. the amount of the deduction allowed for the farm-in party under section DT 14 (Farm-out arrangements) for petroleum development expenditure, and attributable to—
              1. the permit; or
                1. an asset of the kind described in section CT 7(1)(b) or (c) held solely in connection with the permit; and
                2. any part of the deduction for the farm-in party allocated to, or treated as allocated to, earlier income years under section EJ 12(2) or EJ 12B(3).

                  1. For the purposes of section DT 5(2)(c) (Petroleum development expenditure), the deduction is allocated to the income year in which petroleum mining operations permanently cease.

                  Notes
                  • Section EJ 13: replaced, on , by section 72(1) (and see section 72(2) for application) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).