by taxvacancies.com, Sunday, 4th July 2010

Today the Government announces new resource rent tax arrangements which will apply from 1 July 2012 to Australia's most highly profitable non-renewable resources; oil, gas, iron ore and coal.

The changes recognise the views of industry about how they would like new investment to be treated - through higher uplift factors and faster depreciation of new investment, rather than guaranteed refundability of unused tax deductions.

The new resource tax arrangement will apply to the value of the resource, rather than the value added by the miner. It will do this by setting the taxing point at the mine gate where possible, and using appropriate pricing arrangements to ensure only the value of the resource is taxed.

The MRRT will apply an internationally competitive rate of 30 per cent.

The new arrangements also recognise the preference of industry for more generous recognition of past investment, through a credit that recognises the market value of that investment written down over a period of up to 25 years. For companies that prefer to use their current written down book values a generous accelerated depreciation over 5 years will be available.

MRRT - Bulk commodity resource tax arrangements

• Iron ore and coal will be subject to a new profits-based Minerals Resource Rent Tax (MRRT) at a rate of 30 per cent.
  • MRRT assessable profits are calculated on the value of the commodity, determined at its first saleable form (at mine gate), less all costs to that point.
  • Projects will be entitled to a 25 per cent extraction allowance that reduces taxable profits subject to the MRRT. This allowance recognises the contribution of the miner's expertise to profits at the mine gate.
  • Small miners with resource profits below $50 million per annum will not have an MRRT liability.
  • Miners may elect to use the book or market value as the starting base for project assets, with depreciation accelerated over 5 years when book value, excluding mining rights, is used; or effective life (up to 25 years) when market value at 1 May 2010, including mining rights, is used. All post 1 May 2010 capital expenditure will be added to the starting base.
  • A book value starting base will be uplifted with the long term bond rate plus 7 per cent. However, a market value starting base will not be uplifted.
  • Investment post 1 July 2012 will be able to be written off immediately, rather than depreciated over a number of years. This allows mining projects to access the deductions immediately, and means a project will not pay any MRRT until it has made enough profit to pay off its up front investment.
  • The deductibility of expenditure under MRRT will be broadly based on the categories used in the PRRT regime.
  • MRRT losses will be transferable to other iron ore and coal projects in Australia. This supports mine development because it means a company can use the deductions that flow from investments in the construction phase of a project to offset the MRRT liability from another of its projects that is in the production phase.
  • Unutilised MRRT losses will be carried forward at the government long term bond rate plus 7 per cent.
  • Unused credits for royalties paid will be uplifted at the government long term bond rate plus 7 per cent, as per other expenses. Unutilised royalty credits will not be transferrable or refundable.

PRRT - A national taxation system for all oil and gas, onshore and offshore Australia

• The Petroleum Resource Rent Tax (PRRT) regime, which currently only applies to offshore petroleum projects will be extended to cover all oil, gas and coal seam methane projects, onshore and offshore Australia. The PRRT will apply at a rate of 40 per cent.
  • Companies may elect to use market value as the starting base for project assets, including oil and gas rights.
  • All state and federal resource taxes will be creditable against current and future PRRT liabilities from a project.
  • The standard features of the current PRRT will otherwise apply, including the range of uplift allowances for unutilised losses and capital write-offs; immediate expensing for expenditure and limited transfer of the tax value of losses.

Policy Transition Group

• A Policy Transition Group, led by Resources Minister Martin Ferguson AM and Mr Don Argus AC and comprising credible, respected industry leaders will oversee the development of more detailed technical design to ensure the agreed design principles become effective legislation. This will have the objective of ensuring the agreed principles are effected in line with their intent in a commercial, practical manner.