Excise By-law No. 114

Exempt offshore field: Under subsection 3(1) of the Excise Tariff Act 1921, an “exempt offshore field” is defined by reference to fields prescribed by by-law. The term is used to carve out from excise duty certain production from fields that meet specific criteria , typically fields that are geographically remote, technically challenging or where the government has chosen to waive duty for policy reasons. The by-law supplies the positive list. The concept is not defined further in the instrument; the fields are simply named. The definition in the parent Act may also include other criteria (such as location in designated offshore areas beyond territorial limits), but paragraph (a) specifically relies on this by-law. The practical meaning is that any excisable goods manufactured from petroleum obtained from a prescribed field are not subject to the duty that would otherwise apply under the Excise Tariff Act.

Retrospective application: Paragraph 3 deems the by-law to have taken effect on specified dates for each field. This is a form of retrospective legislation, permitted because the instrument was made under a delegation that does not expressly prohibit retrospectivity. However, it imposes a burden on the tax administration to process claims for duty already paid, and it creates legal uncertainty for periods between the actual commencement and the retrospective date if later amendments alter the list. The 2022 amendment changed paragraph 3 from its 2009 form; previously it had applied only to the earlier fields. The amendment history shows that the by-law has been amended seven times, each time either adding a new field or adjusting the retrospective date. This incremental approach means that the exemption list is never static; it can be expanded (or possibly contracted, though no removal has occurred). The by-law does not prescribe any criteria for inclusion, so the decision to add a field is entirely at ministerial discretion, subject to the usual requirements for legislative instruments under the Legislation Act 2003.

Delegated legislation: Made under s 165 of the Excise Act 1901, which empowers the Governor-General or a delegate to make by-laws prescribing matters required or permitted by the Act. As a legislative instrument, it is subject to registration, tabling in Parliament and potential disallowance. The instrument is compiled as at 12 April 2022, and the notes indicate uncommenced amendments are not shown. This comprehensiveness is important for practitioners: the compiled version is the authoritative text only at the compilation date; later changes may have occurred.

The primary group affected is the operators and joint venture participants in the six listed fields. Cossack, Wanaea, Lambert/Hermes, Legendre/Legendre South, Angel and Tidepole are all located on the North West Shelf of Australia, offshore Western Australia. The operators are predominantly large oil and gas companies such as Woodside Energy (operator of multiple North West Shelf projects), BHP (which held interests in Cossack and Wanaea during the early years), and others. For these entities, the exemption lowers their effective excise liability to zero on production from those fields, improving project netbacks and potentially affecting reserve booking and investment decisions. The exemption is not company-specific but field-specific; an operator with multiple fields may have some exempt and some dutiable production, requiring separate accounting and tracing.

The Australian Taxation Office and the Australian Border Force (which collects excise) are affected administratively: they must verify that claimed exemptions relate to the correct fields, process any refunds or remissions for retrospective periods, and ensure no misclassification occurs. Other offshore field operators that are not prescribed face a higher excise burden, creating a competitive distortion. For example, a field with similar geological characteristics but not on the list bears the full excise, raising its breakeven cost. This can affect decisions on exploration and development. New entrants seeking to develop offshore fields must consider whether they can negotiate inclusion in the by-law, adding regulatory risk.

Indirectly, the by-law affects consumers only slightly, because excise duty on crude oil and condensate is generally a business input cost that may flow through to product prices, but the exemption does not necessarily reduce petrol prices. More directly, the forgone excise revenue , which would otherwise go to the Commonwealth , represents a transfer from general taxpayers to the field operators and their shareholders. The amount is not disclosed in the instrument, but for large fields over decades it is material. The retrospective effect also means that past assessments may need revision, affecting both the ATO’s workload and the companies’ tax planning. Finally, the by-law has implications for state and territory royalties, because excise is a federal tax; the exemption does not alter state royalty obligations, but it may alter the total government take from a project.

The by-law itself imposes no duties. It grants a right , the right to have petroleum from the prescribed fields treated as exempt from excise duty. The duty to ensure only eligible production is claimed as exempt arises under the Excise Act 1901 and related provisions, not from this by-law. The key duties for a producer relying on the exemption include:

• Accurate origin documentation: The producer must maintain evidence that the crude oil, condensate or other excisable goods were obtained from a prescribed field. Because fields are defined geographically, this requires production records, well logs, allocation meters and shipment documentation. The ATO may require tracing from reservoir to point of excise payment (typically at the refinery gate or export point). Given that production from multiple fields may be commingled in pipelines or storage, the burden of showing that each unit of duty-free product came from an exempt field can be significant. The by-law does not specify how this is to be done; it relies on the general record-keeping and audit powers.

• Timely claim: If the retrospective application means that excise was overpaid, the producer must apply for refund or remission under the Excise Act 1901 within the prescribed time limits. The by-law gives the right to exemption from those earlier dates, but the procedural mechanism to recover overpaid duty is not automatic. The producer must actively seek revision of past excise returns. The effectiveness of the right is therefore contingent on administrative claims.

• Monitoring amendments: The by-law can be amended to add new fields or potentially to remove or amend existing ones. A producer relying on an existing exemption should monitor the Federal Register of Legislation for amendments. The instrument is not static; the listing for Tidepole only became effective upon the 2022 amendment. If a field’s exemption is retrospective but not yet codified, producers might have operated under uncertainty.

• No right to future inclusion: The by-law does not grant any right or expectation that a particular field will be included. The decision is discretionary. This creates uncertainty for investors: a field may be developed under one tax regime and later become exempt, or may remain dutiable while a neighbour field receives an exemption. This is a source of competitive distortion.

The by-law contains no penalty provisions. Enforcement relies entirely on the Excise Act 1901. Penalties that could apply if a producer claims exemption for products not from a prescribed field include:

• Penalty for incorrect returns (section 129 of the Excise Act 1901): A person who makes an incorrect return may be liable to an administrative penalty of up to 200% of the duty shortfall, depending on whether the conduct was intentional or reckless.

• Evasion offences (section 116 of the Excise Act 1901): Knowingly making a false statement to evade duty can lead to prosecution and fines of up to $500,000 (or five times the duty evaded) and imprisonment for up to five years. The retrospective nature of the by-law does not excuse past honest errors; but if a producer knowingly misrepresented a field as exempt before it was added, that would be evasion.

• Audit and investigation (Part VII of the Excise Act 1901): Authorised officers may enter premises, inspect records and seize goods. The burden of proof that goods are exempt lies on the person claiming exemption. The by-law does not alter that.

• Infringement notices: For minor record-keeping failures, infringement notices may be issued. None of these penalties appear in the by-law.

The practical risk for producers is that misallocation of production to an exempt field could be detected years later, especially if the field’s definition is ambiguous. The by-law names fields but does not define boundaries. For example, Legendre and Legendre South are treated as two fields grouped together; production from one that is more than the other could cause issues. The amendment history showed that in 2001, the by-law was amended to add “Legendre/Legendre South” - prior to that, the treatment may have been unclear. This suggests that the ATO may have raised questions. The retrospective application can complicate enforcement: if a field was not exempt during a period, duty is payable. If the by-law later deems it exempt from that date, the ATO must refund. But if the producer had not paid duty, they may need to pay but then claim exemption? The automatic operation of the by-law should mean no duty is payable, but the administrative system relies on returns; hence retrospective amendment can cause reconciliation burdens.

The by-law is part of a cascade of legislation governing excise on petroleum:

• Excise Tariff Act 1921: The primary source of the exemption definition. The by-law gives content to paragraph (a) of the definition of “exempt offshore field”. That Act also sets the rates of duty on crude oil, condensate, and other petroleum products. The by-law removes those goods from the dutiable category.

• Excise Act 1901: The administrative framework. Section 165 is the enabling power. The Excise Act provides for the collection, refunds, remissions, and penalties. The by-law does not override any provision of that Act; it merely modifies the class of goods subject to duty.

• Petroleum Resource Rent Tax Assessment Act 1987 (PRRT): PRRT applies to offshore petroleum projects. Excise duty is generally a deductible expense for PRRT purposes. If excise is waived, the PRRT base increases, because the deduction is lost. This means the overall tax burden may shift from excise to PRRT, depending on project profitability. The net effect depends on the relative rates. The by-law does not address PRRT; it is a matter of general tax law.

• Offshore Petroleum and Greenhouse Gas Storage Act 2006: The titles regime for offshore petroleum exploration and production. The designation of fields under that Act may affect what constitutes a “field” for excise purposes. However, the by-law uses common names rather than formal title definitions. There may be discrepancies between regulatory field boundaries under the Offshore Petroleum Act and the by-law’s references. This could create uncertainty: if a petroleum discovery extends beyond the named field area, production from that extension may not be exempt, even if it uses the same infrastructure.

• State and Territory royalties: Commonwealth excise is separate from state royalties. The exemption does not affect royalty liabilities, which may still apply to petroleum from those fields.

• Taxation Administration Act 1953: The general provisions for tax audits, objections, and appeals would apply. The retrospective operation may raise issues under the Acts Interpretation Act 1901 regarding retrospectivity of delegated legislation, but the by-law is validly made.

• Legislation Act 2003: As a legislative instrument, it must be registered on the Federal Register of Legislation. The instrument is not a disallowable instrument? Actually, most legislative instruments are disallowable. The by-law’s enabling power under s 165 of the Excise Act 1901 does not exempt it from disallowance unless specified. Users should verify its current disallowance status. In any case, the instrument is subject to sunsetting after 10 years unless exempted.

• Other by-laws: This is one of many excise by-laws; similar instruments may prescribe other fields for exemption (e.g., By-law No. 115, etc). The list in By-law No. 114 is exclusive for the fields named; other fields must rely on different by-laws or be subject to duty.

The by-law has been amended seven times, with the most recent amendment being in 2022. Originally made in 1995, it prescribed only Cossack and Wanaea with a deemed start of 15 November 1995. The first amendment (1997 No. 2) added Lambert/Hermes with effect from 5 November 1997, but the substantive commencement date for Lambert/Hermes in the current compilation is 20 October 1997, which appears in paragraph 3. The next amendment in 1998 (No. 1) is noted in the amendment history but is not reflected in the current text; it may have made a minor adjustment. The 2001 amendment added Legendre/Legendre South with a deemed date of 30 April 2001. The 2008 amendment added Angel with effect from 2 October 2008. The 2009 amendment (No. 1) restructured the by-law: it added paragraph 3 to state the retrospective commencement dates, and also amended paragraph 1 (the name of the by-law) and paragraph 2 (the list). The most recent amendment in 2022 added Tidepole with commencement 1 November 2016, and substituted paragraph 3 in full to include that date.

The amendment history table shows that paragraph 2 has been amended four times (by F2006B11678, F2006B11681, F2007B00016, F2008L04519) and then substituted twice (by F2009L03010 and F2022L00584). Paragraph 3 was added in 2009 and substituted in 2022. The incremental pattern indicates that the government does not use a single comprehensive amendment; it adds fields one by one as circumstances arise. This suggests that the decision to prescribe a field is event-driven, possibly following negotiations or due to project-specific tax incentives. The delay between a field’s commencement and its addition to the by-law can be significant: Tidepole began production about 2016 but was not added until 2022, meaning excise was payable in the interim. The retrospective application then requires refund claims. This creates administrative friction.

The compilation date of 12 April 2022 means that any subsequent amendments (e.g., further fields announced) are not shown. Users should consult the Legislation Register for current text.

The source material contains no reference to any litigation. Based solely on the text, there is no known court case involving Excise By-Law No. 114. This could be because the exemption is straightforward and has not been contested, or because any disputes were resolved administratively without judicial review. The lack of litigation does not mean the instrument is free from legal risk; it may reflect that the commercial stakes are high enough that parties prefer settlement, or that the exemption applies to a narrow set of players. However, because the by-law is a legislative instrument, it could be subject to judicial review for jurisdictional error or unreasonableness. A disgruntled competitor whose field was not listed could challenge the decision to prescribe other fields, arguing that the by-law is ultra vires if it does not serve the purpose of the Excise Tariff Act. But the Excise Tariff Act gives a broad power to prescribe fields; the courts would likely respect the discretion. No such challenge is reported.

The retrospective application might be challenged if it operated to impose a tax (retrospective tax) but here it is a beneficial exemption. The retrospectivity is against the Crown’s revenue, so it is generally less controversial.

Overall, the by-law has a quiet litigation history. This is a notable contrast to many other tax by-laws that generate disputes over definitional boundaries. The lack of litigation may imply that the field names are unambiguous and that operators cooperate with the ATO. However, practitioners should not assume that compliance is undisputed; the absence of reported cases does not guarantee there have been no assessments or objections.

Several features of this by-law can trap the unwary:

Retrospective operation but not automatic refund: The by-law deems itself to have taken effect from specified past dates, but this does not automatically result in a refund of duty already paid. The producer must still lodge amended returns or apply for remission under the Excise Act 1901. The time limit for such applications is generally within four years of the original payment, or a longer period if the ATO allows. For fields like Cossack and Wanaea (commencing 1995), the retrospective application only matters if the producer can still claim; after nearly 30 years, some claims may be statute-barred unless special arrangements apply. The by-law does not preserve the right to claim; it only confirms the exemption existed. This is a timing trap.

Field boundaries undefined: The by-law gives only field names. It does not define the geographical or geological limits. In practice, “Cossack” refers to a specific petroleum accumulation, but its boundaries may not be identical to those defined under title licences. A producer who mistakenly includes production from an adjacent accumulation within the same processing facility may claim exemption incorrectly. The ATO may rely on field development plans and title areas. The burden is on the producer to prove the petroleum came from the prescribed field.

Grouping of fields: Legendre/Legendre South is treated as a single entry. Production from Legendre South only is covered; if an accumulation between them is not part of either, it is not exempt. Similarly, Lambert/Hermes is a single entry encompassing the Lambert and Hermes reservoirs. This grouping may cause confusion if the two were separately licensed.

No sunset clause: The by-law does not have an expiry date. The exemption is permanent for those fields (subject to possible future revocation). However, legislative instruments are subject to sunsetting under the Legislation Act 2003; if the by-law is declared to be an exempt instrument, it may not sunset. Practitioners should check its sunset date on the Register. If it sunsets without re-making, the exemption would cease, causing immediate duty liability for production from those fields from that date.

Not transferable: The exemption attaches to the field, not the operator. If a field changes operator due to sale or farm-out, the exemption remains. But the new operator must ensure it understands the field definition. Due diligence in an asset sale should verify that the by-law still lists the field and that no amendments have altered it.

Interaction with other exemptions: Some petroleum may qualify for other exemptions (e.g., condensate for use as fuel). The by-law exemption may not stack; the producer should ensure it claims the correct exemption and does not double-dip. Overlapping exemptions could complicate reporting.

No criteria for inclusion: The by-law gives no guidance on why these fields were selected. This creates legal uncertainty for other fields: if a field is not listed, its operators cannot know whether a later amendment might include it. This lack of predictability distorts investment decisions and may create lobbying incentives.

Compliance for a producer relying on Excise By-Law No. 114 requires a systematic approach:

1. Identify relevant fields: Confirm that each field from which petroleum is produced is listed in current version of the by-law. Check the Federal Register of Legislation for the latest compilation and any amendments not yet compiled. Field names should match exactly - e.g., “Angel” not “Angel field”. If a new field is expected, monitor for future amendments.

2. Maintain field-level production records: Implement measurement and allocation systems that track volumes from each prescribed field. For commingled production (e.g., multiple fields feeding a common pipeline), a detailed audit trail must show the proportion attributable to the exempt field. Acceptable methods may include production tests, flow meters, and allocation algorithms approved by the ATO. Document the methodology.

3. Separate excise returns: Excise is typically paid at the refinery or export point. For exempt product, no duty should be paid. The producer must classify deliveries as “exempt offshore field” product. If duty is inadvertently paid due to lack of field origin data at the point of removal, apply for remission under section 168 of the Excise Act 1901. Keep copies of all remissions.

4. Handle retrospective periods: If a field was added after its commencement date (as with Tidepole), identify all periods where duty was paid on product from that field after the deemed start date. Lodge amended excise returns or refund applications for duty paid in those periods, within the statutory time limits. The ATO may require proof that the product was indeed from that field for each impacted period. This can be onerous for legacy data.

5. Monitor amendments: Subscribe to updates from the Federal Register for Excise By-Law No. 114. When an amendment is proposed (e.g., adding a new field), producers should check whether the amendment affects existing fields (e.g., redefining boundaries). The amendment history shows that the by-law has changed the list and retrospective dates; the 2009 amendment added paragraph 3, essentially codifying retrospective effects that were previously only implied. Future amendments could alter the list or renumber fields.

6. Audit readiness: Maintain documentation showing that petroleum production is from the listed field. This includes well completion reports, reservoir maps, production statements, shipping manifests, and sales contracts. Be prepared to demonstrate that the product has not been mixed with dutiable production before the point of excise. If commingling occurs, the producer must allocate between exempt and non-exempt sources using auditable methods; the ATO may require a commissioned audit report.

7. Seek a ruling: The ATO can provide a private binding ruling on whether a specified field qualifies under the by-law, or on allocation methodologies. Given the lack of guidance in the by-law itself, a ruling prevents later disputes. Operators with complex production sharing arrangements should consider this.

8. Corporate transfers: If a field changes ownership, the new owner must verify the exemption continues. The by-law is not affected by ownership, but the new owner must integrate the exemption into its compliance systems. Due diligence for an acquisition should include review of the by-law’s current text and any pending proposals to remove the field.

9. Update procedures on amendments: If the by-law is amended to add a new field, integrate it into internal classification systems. If a field is removed (which has not happened), immediate duty would be payable; the operator should implement emergency procedures.

10. Record keeping: Retain all relevant records for at least the statutory period (generally 5 years, but longer if retrospective claims extend further). The retrospective nature of the by-law means that records from 1995 may still be relevant for Cossack and Wanaea, which is a heavy archival burden.