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On 10 June 2011, Treasury released for public comment preliminary exposure draft (ED) legislation and accompanying explanatory memorandum (EM) for the mineral resource rent tax (MRRT).
The Federal Government announced that it would adopt an MRRT (in place of the originally announced mineral super profits tax) on 2 May 2010 and appointed a Policy Transition Group (PTG) to develop the detailed technical design of the tax. The PTG provided its report to Government in December 2010, making 94 recommendations, all of which were accepted (as announced on 24 March 2011) and have been adopted in the ED.
In short, the MRRT will apply from 1 July 2012 to all new and existing projects for mining of iron ore and coal in Australia (with transitional arrangements for projects in existence on 1 May 2010).
In addition, the Petroleum Resource Rent Tax (PRRT), which currently applies only to offshore oil and gas projects in Commonwealth territorial waters and has been in existence since 1 July 1987, will be extended to cover all onshore and offshore oil and gas projects, including the North West Shelf. ED legislation for the expanded PRRT will be released 'in the near future'.
The ED is not exhaustive and the Government proposes to release a second and final ED later in the year.
Submissions on the ED are due by 14 July 2011. Legislation is expected to be introduced into Parliament towards the end of 2011.
The EM describes the MRRT as 'a type of resource rent tax based on the Garnaut-Clunies Ross model', which 'taxes positive cash flows, or mining profits, and allows miners to carry forward and uplift losses for use in later years' and also provides a credit for royalties. The tax base is confined to realised profits attributable to the value of the resources at the 'taxing point' (usually when the resource leaves the 'run of mine' (ROM) stockpile or otherwise the point just before 'beneficiation' processes begin). This is designed to tax only profits from 'upstream' operations in the mining chain (i.e. extraction of the resource and getting it to the taxing point).
Accordingly, as the EM points out the MRRT 's 'a tax on a relatively limited portion of profits, unlike, for example, the company tax, which seeks to tax all sources of company income comprehensively'. Its key purpose is to 'tax rents from non-renewable resources after they have been extracted from the ground but before they have undergone any significant processing or value-add'.
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