- The Federal Government now proposes to introduce a Mineral Resource Rent Tax (MRRT), with a design that is significantly different compared to the previously announced Resource Super Profits Tax (RSPT).
- The MRRT will only apply to Australian iron ore and coal projects. A number of aspects of the MRRT are less onerous than the RSPT, and there are also greater concessional arrangements for pre-existing projects.
- The intended start date for the MRRT is still 1 July 2012.
On 2 July 2010, the Federal Government announced significant changes to its intended reform of the taxation of Australian resource projects. The announcement comes following consultation and negotiation between the government and major players in the resources industry.
The Resource Super Profits Tax (RSPT), as initially proposed on 2 May 2010, has been rebadged as the Minerals Resource Rent Tax (MRRT), which will be considerably different in terms of both application and design. The key differences between MRRT and RSPT are as follows.
MRRT application and design
- The MRRT will only apply to iron ore and coal projects, both pre-existing and future. Base metals will not be subject to a new resource rent tax.
- Miners with resource profits below $50 million per annum will not be liable to pay MRRT.
- The MRRT rate will be 30% (the proposed RSPT rate was 40%).
- Projects will be entitled to a 25% offset of MRRT liability, to recognise the contribution of the miner’s expertise in making mineral extraction profits. The taxing point under MRRT will still be ‘as close to the point of extraction as practicable’ – only the value of the resource extracted will be taxed.
- The uplift rate for expenditure, ie. unutilised project losses, under the MRRT will be the government long term bond rate + 7% (for RSPT it was the bond rate).
- Capital expenditure post 1 July 2012 can be written off immediately, as opposed to being depreciated over a number of years.
- MRRT losses will be transferable to other Australian iron ore and coal projects.
- Royalties will be creditable against the MRRT liability—they will not be cash refundable if the MRRT liability in a year is less than the royalties. Unutilised credits for royalties paid will be uplifted as per other expenses. However, royalty credits will not ultimately be transferrable or refundable ie. royalties are only deductible against MRRT profits for that particular project.
Concessional arrangements for existing projects
- Miners may elect to use the book value or the market value of existing project assets as the depreciable starting base. Capital expenditure between 1 May 2010 and 1 July 2012 will be added to the starting base.
- If book value is chosen, it is depreciated over an accelerated period of five years.
- If market value is chosen, it is depreciated over the effective life of the project, up to a maximum period of 25 years.
- A book value starting base will be uplifted at the bond rate +7%. A market value starting base will not be uplifted.
Income tax implications
- The company income tax rate will only be reduced to 29%, not 28%, starting on 1 July 2013.
- The Resources Exploration Rebate, which was to operate as a refundable company income tax offset, will not be introduced. Resource exploration costs will continue to be deductible for income tax as per existing arrangements.
Extension of PRRT
The Petroleum Resource Rent Tax currently operating in respect of offshore oil and gas projects will be extended to the North West Shelf and to onshore oil and gas projects. Similar transitional measures to those available for the MRRT will be available for existing projects.
Policy transition group
The government is establishing a policy transition group led by Resources Minister Martin Ferguson and Don Argus. The group will consult with industry to oversee the development of more detailed technical design and advise the government on implementing the new regime.
Of course, there is still a long road to go with the government still needing to navigate a federal election, the Greens in the Senate and settle the detail if the legislation is to be implemented in time for the 1 July 2012 start date.