With the law to repeal of the Minerals Resource Rent Tax (MRRT) now enacted with an effective repeal date of 1 October 2014, affected MRRT taxpayers will need to consider the tax effect accounting implications of the repeal and specifically, the impact on deferred tax balances.
The Minerals Resource Rent Tax Repeal and Other Measures Act 2014 was "enacted” on 5 September 2014 when it received Royal Assent, but was “substantively enacted” for accounting purposes on 2 September 2014, when it had passed through both Houses of Parliament. The Minerals Resource Rent Tax Repeal and Other Measures Commencement Proclamation 2014, registered on 22 September 2014, officially fixed 30 September 2014 (in accordance with the Government's announcement of 9 September 2014) as the proclamation date of various Schedules in the Minerals Resource Rent Tax Repeal and Other Measures Act 2014. This means that the MRRT no longer applies as of 1 October 2014.
Impact of the change
The last MRRT year for all MRRT taxpayers ended on 30 September 2014. This may result in some taxpayers having a ‘short’ final MRRT year, if the previous MMRT year ended after 30 September 2013. It should be noted that the Commissioner of Taxation will continue to administer and exercise powers under the MRRT law for those years in respect of which the MRRT has applied, which ensures the Commissioner has the flexibility to exempt taxpayers from, or give taxpayers an extension of time for, lodging their MRRT returns in respect of MRRT years or periods ending before the date of repeal. In this respect, a number of legislative instruments have been made to exempt certain MRRT entities from having to lodge an MRRT return (see Legislative Update section of October 2014 TaxTalk).
Managing the tax accounting consequences
From a tax accounting perspective, the repeal of the MRRT was substantively enacted on 2 September 2014 when it had passed through both Houses of Parliament. Accordingly reporting periods ending after 2 September 2014 (including interim periods) will need to reflect the consequences of the repeal.
The accounting impact of the repeal may be significant for companies with material MRRT deferred tax assets or deferred tax liabilities on the books at 2 September 2014. As MRRT taxpayers will not accrue any further MRRT liabilities after 30 September 2014, they will no longer be entitled to future deductions relating to, for example, remaining project assets and the starting bases and uplift values of those assets, or rehabilitation tax offsets. As a consequence, any MRRT deferred tax assets or deferred tax liabilities relating to temporary differences which were expected to reverse after 30 September 2014 must be derecognised in accordance with the requirements of AASB 112 Income Taxes.
Practically, in order to identify the amount of deferred tax to derecognise, companies may need to focus on estimating the amount of MRRT deductions expected to be realised for the MRRT year (or partial year) ending 30 September 2014 and then write off the outstanding deferred tax balance at 30 September 2014.
Where 30 June 2014 financial statements have not yet been authorised for issue, these changes may need to be disclosed as a non-adjusting post-balance sheet event. In particular, companies should consider disclosing the nature of the event, being the change in tax law post-year end, and an estimate of the financial effect, being any significant impact of the change on the measurement of deferred tax assets and liabilities.