Commissioner of Taxation v Shell Energy Holdings Australia Limited [2022] FCAFC 2

Federal Court of Australia

Commissioner of Taxation v Shell Energy Holdings Australia Limited [2022] FCAFC 2 Appeal from: Shell Energy Holdings Australia Limited v Commissioner of Taxation [2021] FCA 496

File number(s): WAD 146 of 2021

Judgment of: ALLSOP CJ, DAVIES AND THAWLEY JJ

Date of judgment: 25 January 2022

Catchwords: TAXATION – where the respondent party to a joint venture agreement in relation to petroleum project – where joint venture participants held statutory titles which conferred authority to explore for petroleum – where respondent increased its proportional interest in statutory titles through purchase of additional proportional interest pursuant to an asset exchange agreement – whether the respondent is entitled to tax deduction under s 40-80 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997) for cost of acquiring additional proportional interest – held that deduction can be claimed in relation to additional proportional interest TAXATION – consideration and textual analysis of the meaning of the expression "for exploration" – whether certain activities conducted by the joint venture pursuant to statutory titles were activities which involved "exploration" – consideration of context and legislative history of the regulatory scheme – whether the terms "explore" and "exploration" as used in Petroleum (Submerged Lands) Act 1982 (WA) and Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth) (Petroleum Acts) include activities directed to the recovery of petroleum on an appraisal basis and thus deductible under s 40-80 of ITAA 1997 – finding that the statutory history and enactment of the Petroleum Acts does not suggest that Parliament intended to limit the meaning of "explore" and "exploration" to discovery only – held that "explore" and "exploration" includes activities directed to investigating commercial recoverability of petroleum TAXATION – consideration of the expression "first use" for the purposes of s 40-80 of the ITAA 1997 – finding that "first use" referred to in s 40-80 corresponds with "start time" as defined in s 40-60 and deduction is available – finding that "passive use" may constitute "use" of an asset – finding that div 40 applies to intangible assets and "install" can still apply to intangible assets TAXATION – whether s 40-77 of the Income Tax (Transitional Provisions) Act 1997 (Cth) disapplies div 40 of ITAA 1997 to additional proportional interest in statutory titles – where s 40-77 disapplies div 40 to mining, quarrying or prospecting rights held before 1 July 2001 – where the offshore areas covered in statutory titles had been subject of earlier titles held by the respondent – finding that respondent had acquired new rights pursuant to the acquisition of additional proportional interests – held that div 40 not disapplied by s 40-77