25The residual pricing method for working out cost‑plus and netback prices

## 25 The residual pricing method for working out cost‑plus and netback prices The residual pricing method of calculating an RPM price for a taxpayer, in relation to the assessment year, is the following: | When the method can be used | An RPM price can be calculated by this method only if information about the direct costs of all the participants (other than marketing and selling costs) is available. Information about the operating costs is required for the year of tax concerned. Information about the capital costs is required for all previous financial years as well (except if an election under regulation 43 or 44 applies to the operation, in which case less information is needed for capital costs incurred before 2 May 2010). If the information is not available, regulation 21 will apply. | | --------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | | What the method does | The method identifies the pooled costs of the operation attributable to the project product, and the personal costs of the taxpayer attributable to the taxpayer’s share of project product. The pooled costs are used to calculate the major element of the cost‑plus and netback prices; this element will be the same for each taxpayer participating in the operation. The personal costs are used only to calculate a minor element of the netback price; this element will vary with the individual taxpayer.First, the costs that were incurred by the participants in relation to the integrated operation are identified.Certain costs relating to exploration, etc, are excluded.That portion of the costs that is not attributable to the integrated operation is excluded.The personal costs of other participants are excluded. The personal costs of the taxpayer are included, but treated separately.The included costs, where necessary divided into separate costs, are attributed to the various phases of the operation.Capital costs are spread over the life of the operation and the costs for the assessment year identified.The amount of each cost attributed to an assessment year is adjusted to account for the use of facilities of the operation for activities that are not part of the project.The direct costs of all the participants (other than marketing and selling costs) that are attributable to the production of assessable gas and project liquid (for an integrated GTL operation) or project electricity (for an integrated GTE operation) are pooled to give unit costs that apply to the operation as a whole. The personal costs of the taxpayer (marketing and selling costs) attributable to the taxpayer’s shares of assessable gas and project liquid or project electricity are applied to give supplementary unit costs. These are then used to calculate the taxpayer’s cost‑plus and netback prices. | | Step 1 | Identify the types of cost associated with the operationApply regulation 26 to identify all types of cost associated with the integrated operation up to and including the assessment year. At this point, only the type of cost needs to be known—information about individual costs and their amounts is not necessary. | | Step 2 | Exclude exploration costs, etcApply regulation 27 to exclude certain types of cost, including costs of such matters as exploration or feasibility studies. | | Step 3 | Identify direct and indirect costs for the operationApply regulation 28 to classify each type of cost not so far excluded as a direct cost or an indirect cost. | | Step 4 | Exclude personal costs of other participantsApply regulation 29 to exclude personal costs of other participants.The costs that are left are the included costs for the taxpayer (regulation 30). These consist of the pooled non‑personal costs of all the participants in the integrated operation, and the personal costs of the taxpayer. | | Step 5 | Classify the included costs as operating or capital costsApply regulation 31 to classify each included cost as an operating cost or a capital cost. | | Step 6 | Identify the amounts of the relevant included costsIdentify the amount of:each included operating cost incurred in the assessment year; andeach included capital cost incurred up to and including the assessment year.If an election has been made under regulation 43 or 44 in relation to an integrated GTL operation, apply regulation 31A to capital costs that were incurred before the 2012‑13 year of tax. | | Step 7 | Attribute the direct costs to the different phasesApply regulation 32 to classify each direct cost as a phase cost of one of the phases of the integrated operation, or as a combination of such phase costs. Regulation 32 also divides phase costs and indirect costs into upstream and downstream costs. | | Step 8 | Augment capital costs for units of property that take several years to completeIf a capital cost was incurred in a year before the completion year of the unit of property for which it was incurred, augment it as appropriate, then treat it for Step 9 (if applicable) or Step 10 (otherwise) as having been incurred in the completion year for that unit of property (regulation 33). | | Step 9 | Augment and reduce early capital costsIf a capital cost was incurred before the production year, augment it and reduce it as appropriate, then treat it for Step 10 as having been incurred in the production year (regulations 34 and 35). | | Step 10 | Allocate capital costs to years of taxFor each capital cost, allocate to each year of tax from the production year onward a cost with the amount given by regulation 36. | | Step 11 | Identify costs for the assessment yearThe costs for the assessment year are:the included operating costs for the assessment year; andthe capital costs allocated to the assessment year under Step 10. | | Step 12 | Apply the energy coefficients to the costsFor each cost for the assessment year, apply regulation 37 with the energy coefficient appropriate for the phase to which the cost has been attributed.Note: This removes that part of each cost attributable to multiple use of a phase. | | Step 13 | Obtain the cost‑plus and netback pricesUse the costs for the assessment year to calculate the participant’s cost‑plus price (regulation 22) and netback price (regulation 23) for the assessment year. | | Step 14 | Obtain the RPM priceApply regulation 20 to determine the participant’s RPM price for the assessment year. |