After considerable pressure from certain mining companies, the Australian Government has announced that the proposed Resource Super Profits Tax (RSPT) will be replaced by a new Minerals Resource Rent Tax (MRRT) and an extended Petroleum Resource Rent Tax (PRRT). It is forecast that the change will cost the Government $1.5 billion over forward estimates.
What does it apply to?
The MRRT regime will apply to iron ore and coal in Australia. The current PRRT regime, which only applies to offshore petroleum projects, will be extended to include all Australian onshore oil and gas projects.
When will it apply?
It is proposed that the new resources tax regime will begin 1 July 2012.
What does it mean?
- Reduced scope – by limiting the MRRT to iron ore and coal, around 320 companies will be affected (down from an estimated 2,500).
- Companies with resource profits of less than $50 million per annum will not have an MRRT liability.
- The company tax rate will only be cut to 29% (for small companies from 2012-2013, all others from 2013- 2014) instead of 28%.
- The MRRT will apply at rate of 30% rather than 40% under the RSPT.
- Projects will be entitled to a 25% extraction allowance that will reduce the taxable profits subject to the MRRT.
- The resource exploration rebate (a refundable tax offset for eligible exploration expenditure) will not be pursued – resource exploration costs will continue to be deductible in the normal way.
- As part of the process of bringing existing projects into the MRRT regime, miners will be entitled to elect to use either book value (mining rights excluded) or market value to calculate the starting base of project assets. If book value is used, depreciation is accelerated over 5 years and an uplift of the long term government bond rate plus a premium of 7% will be applied. If market value (as at 1 May 2010) is used, depreciation is based on the effective life of the assets (not exceeding 25 years).
- Under the MRRT regime, investments made from 1 July 2012 will be able to be written off immediately.
- MRRT losses will be transferable to other iron ore and coal projects in Australia so that a company can use the deductions that flow from investments in the construction phase to offset the MRRT liability from other projects in the production phase.
- Unutilised MRRT losses will be carried forward at the long term government bond rate plus 7%.
- Unused credits for royalties paid will also be uplifted at the long term government bond rate plus 7%, but will not be transferable or refundable.
- The PRRT will continue to apply at a rate of 40%.
What happens next?
The Government is establishing a Policy Transition Group (PTG) which will be led by the current Resources Minister Martin Ferguson and the former BHP Billiton Ltd chairman Don Argus. The role of the PTG is to consult with industry and advise the Government on the implementation of the new MRRT and PRRT arrangements.
The proposed resources tax regime is still lacking many details and given the recent election there are significant hurdles to overcome (including continuing opposition from small and mid-size miners) before the resources tax regime will be in place. In the coming months we are likely to see further developments which should clarify what form (if any) the proposed resources tax regime will take.