34The residual pricing method for working out cost‑plus price and netback price

34  The residual pricing method for working out cost‑plus price and netback price   This method statement is the residual pricing method for working out a cost‑plus price and netback price (and the related RPM price) for a taxpayer who is a participant in a relevant operation in the assessment year: Method statement Step 1. Under section 35, identify all types of cost associated with the relevant operation up to and including the assessment year. Step 2. Under section 36, exclude certain types of cost. Step 3. Under section 37, classify each remaining type of cost as a direct cost or an indirect cost of the relevant operation, or a personal cost of a participant. Step 4. Under section 38, exclude any personal costs of other participants. The costs that are left are the included costs for the taxpayer (see section 39). Step 5. Under section 40, classify each included cost (other than personal costs) as an operating cost or a capital cost. Step 6. Identify the amount of:  (a) each included operating cost incurred in the assessment year; and  (b) each included capital cost incurred up to and including the assessment year.  When doing so, use section 41 (about the amount and timing of certain included capital costs) if that section applies to an included capital cost. Step 7. Under section 42:  (a) classify each included direct cost as a phase cost of one of the phases of the relevant operation; and  (b) classify each phase cost as an upstream cost or a downstream cost; and  (c) divide each included indirect cost into an upstream cost and a downstream cost. Step 8. Under section 43 (about capital costs for units of property completed over several years), adjust the amount and timing of an included capital cost if that section applies to that cost. Step 9. Under sections 44, 45 and 46, adjust the amount and timing of an included capital cost whenever one of those sections applies to that cost. Step 10. For each included capital cost, allocate to each year of tax from the production year onward a cost with the amount given by section 47. Step 11. The costs for the assessment year are:  (a) the included upstream and downstream operating costs for the assessment year; and  (b) the upstream and downstream capital costs allocated to the assessment year under step 10; and  (c) the downstream personal costs of the taxpayer for the assessment year. Step 12. For each phase cost for the assessment year, adjust the amount of that cost under section 49 if that section applies to the phase cost. Step 13. Use the costs for the assessment year to work out the participant’s cost‑plus price (see section 30) and netback price (see section 31) for the assessment year. Note 1: This cost‑plus price and netback price can then be used to work out the participant’s RPM price for the assessment year (see section 28). Note 2: Step 12 removes that part of each cost attributable to multiple use of a phase. Division 2—Identifying and classifying included costs