Yesterday the High Court dismissed Fortescue Metal’s challenge to the Australian Government’s Mineral Resource Rent Tax (MRRT) and ruled that the MRRT is constitutionally valid. The decision clears the way for the MRRT to apply, without the uncertainty that followed from that constitutional challenge, from its start date.

Any celebrations by the Labour Government may be shortlived, however, as the Opposition has stated that if it wins government it will repeal the MRRT from 1 July 2014.

In the interim, those miners that potentially have an exposure to pay the tax will be required to continue to comply with their MRRT reporting and payment obligations.

Even though other (principally the junior) miners may well fall short of having an obligation to report or pay the MRRT, they may nonetheless be caught up in it. A junior miner can either elect to utilise the simplified MRRT compliance system, or fully comply with the MRRT reporting obligations. Although tempting to utilise the simplified compliance system, this comes at a cost; a “starting base” allowance (essentially a deduction for MRRT purposes for mining projects commenced prior to the introduction of the MRRT) cannot be utilised by the junior miner. Not being able to use the starting base can devalue the assets of the junior miner and make the junior miner less attractive to a larger miner looking to purchase the junior miner’s assets. This is because a larger miner can generally take advantage of the junior miner’s past exploration expenditure to reduce its MRRT liability, provided the junior miner has access to the “starting base”.