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Australia's new mining tax regime
Practical Law UK Legal Update 0-502-9197 (Approx. 3 pages)
Australia's new mining tax regime
by Leigh De Jong and Karen Payne, Minter Ellison
| Published on 29 Jul 2010 • Australia |
This article is part of the PLC Global Finance July 2010 e-mail update for Australia.
Speedread
The Australian Government has announced new resource tax arrangements to replace the previously announced 40% Resource Super Profits Tax (RSPT). The new arrangements are a Minerals Resource Rent Tax (MRRT) regime, to apply to the mining of iron ore and coal in Australia (effectively at a rate of 22.5%) and the extensions of the current Petroleum Resource Rent Tax (PRRT) to all Australian onshore and offshore oil and gas projects, including the North West Shelf (at a rate of 40%). This article provides an overview of the new regimes and how they will operate.
The Australian Government has announced new resource tax arrangements as follows:
- A new Minerals Resource Rent Tax (MRRT) regime will apply to the mining of iron ore and coal in Australia - effectively at a rate of 22.5%.
- The current Petroleum Resource Rent Tax (PRRT) regime will be extended to all Australian onshore and offshore oil and gas projects, including the North West Shelf (at a rate of 40%).
These new arrangements replace the previously announced 40% Resource Super Profits Tax (RSPT).
Overview
The MRRT applies to existing and future iron ore and coal projects (except small miners will be exempt (that is, where MRRT assessable profits are less than AUD50million). The PRRT will be extended to cover existing and future onshore and offshore oil and gas (including coal seam gas) projects.
All other resources will be exempt from the new arrangements. This reduces the number of affected mining companies from around 2,500 to around 320. Gold mining companies, for example, will stay on existing regimes.
The MRRT will be levied effectively at the rate of 22.5% (30% reduced by a 25% extraction allowance). This compares with the proposed rate of 40% under the RSPT. PRRT will remain at 40%. MRRT and PRRT paid will be deductible in calculating company income tax payable.
The new arrangements will commence on 1 July 2012 and will be followed by a reduction in the company tax rate from 30% to 29% in 2013/2014. The previously announced reduction in the company tax rate from 30% to 28% after 2014 will no longer apply.
The exploration tax offset that was to apply for Australian exploration expenditure incurred on or after 1 July 2011 will not be introduced.
The Government has also established a Policy Transition Group (PTG) to consult with industry and advise the Government on implementation.
Transition
Under the MRRT, companies may elect to use book values or market value (as at 1 May 2010) for existing project expenditure (including mining rights). Market values will be written down over a period of up to 25 years. This starting base will not be uplifted or indexed.
Companies that use their current written-down book values (excluding mining rights) will be provided with accelerated depreciation over five years. Further, the starting base is eligible to be uplifted at the government long term bond rate plus 7%.
Capital expenditure after 1 July 2012 will be an immediate write-off. This should mean new projects will not pay MRRT until the upfront expenditure has been recouped.
Calculation
The MRRT will be calculated by project as follows:
MRRT calculation (by project) | |
Revenue (the value of the commodity, determined at its first saleable form) less all costs to that point (ie; operating expenses, including 100% writeoff for new capital investment) less MRRT capital allowance (long term government bond rate + 7%) = MRRT project profit or loss | + - - = |
+/- losses transferred from other projects MRRT extraction allowance (25% of MRRT profits) = MRRT net profit | = MRRT profit - Tax @ 30% |
MRRT liability = 30% of MRRT net profit | |
less state royalty and uplifted royalty offset | = net MRRT |
The MRRT will broadly adopt the same category of non-deductible expenditure that currently applies to the PRRT.
PRRT will be calculated using the existing PRRT profit formulas (which are similar to the MRRT calculation). The key changes to the PRRT are:
- Companies may elect to use market value as the starting base for project assets.
- All state and federal resource taxes will be creditable against current and future PRRT liabilities from a project.
- Transitional provisions will be available for oil and gas projects moving to the PRRT, including a starting base using either market value or written down book value.
The standard features of the existing PRRT will otherwise apply, including:
- A range of uplift allowances for unutilised losses and capital write-offs.
- Immediate expensing for all expenditure.
- Limited transfer of the tax value of losses.