Most people know little about the oil industry, although one of the common facts which is talked about is the sheer amount of money involved in it. In other words, you might not know the first bit about drilling or how the price of barrels matches up, but to cut a long story short you know that it can be exceptionally lucrative.
Of course, on the flip side, there are also plenty of risks that affect investors. It’s for this reason that the government are particularly keen on providing even more of an incentive to invest in the area – particularly as oil has such an impact on the national economy.
It’s worth pointing out that a lot of these benefits will only affect those who invest in physical projects, such as those sourced by the likes of Southlake Resources Group. If you’re only investing in shares of companies involved in the oil trade, don’t expect to receive as many taxable benefits.
We’ll now take a look at some of the biggest tax benefits available to investors of this ilk.
The Small Producer Allowance
We’ll start with one of the more interesting benefits; one that will only affect those investors who are producing a small amount of oil. In fact, it specifically targets those who produce less than 50,000 barrels of oil a day, or less than 6 million cubic feet of natural gas.
If you fall into this category, the benefits are significant. It will result in 15% of all gross income from these activities to be completely exempt from tax. Suffice to say, particularly if you are approaching the limits specified, the savings here can be substantial.
Tangible Drilling Cost Deductions
This is one of the simpler deductions available and unlike the previous one, it’s something that will affect every gas and oil investor. Any equipment that has been sourced for drilling has to be depreciated over seven years, with investors receiving a 100% deduction on all of the costs involved in this.
Intangible Drilling Cost Deductions
The rule for intangible drilling costs, such as labor, are a little more complex. There’s very good news in the first year of operation, with the authorities stating that they can be completely written off in the first year. The only caveat here is that the well needs to be operating by the end of March the next year – but this is legislation that can entice investors immensely due to the upfront costs involved.
Reinvestment through a 1031 Exchange
As anyone who owns real estate will testify, capital gains can make it very difficult to move into other markets. In other words, selling up is difficult due to the stringent tax obligations.
Through a 1031 exchange, life is made much easier when it comes to the oil industry. If you decide to sell real estate, you are able to reinvest in the oil industry through this legislation. It means that you won’t suffer the tax consequences that you’ll have probably been used to with other business interests.