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On 2 July 2010 the Prime Minister, Deputy Prime Minister and Treasurer, and the Minister for Resources and Energy issued a Joint Media Release (JMR). The JMR announced a 'breakthrough agreement' and provided for two new mining tax regimes to cover:
In summary, the JMR provides for:
The proposed MRRT is to apply only to coal and iron ore projects. The rationale for this is that together with the oil and gas sector, these commodities represent 75% of the value of Australia's exports and resource operating profits and account for an even greater proportion of the 'resource rents'. Accordingly, a significant portion of the mining sector - such as base metals and gold - will not be subject to the MRRT, unlike the former proposed RSPT.
The tax rate for the MRRT is 30%. The MRRT is proposed to be levied on the 'MRRT assessable profit'. This is computed on the value of the commodity, determined at its first saleable form (at mine gate), less all costs to that point. In broad terms, the costs will include:
As part of the proposed transitional arrangements for existing projects as at 1 May 2010, the starting base consists of:
The MRRT, once determined, is subject to what is being advertised as a tax rate of 30%. But this is not the true rate because MRRT taxpayers are entitled to a 25% 'extraction allowance' against the 'taxable profits subject to the MRRT'. The stated rationale for this is to recognise 'the contribution of the miner's expertise to profits at the mine gate'.
The JMR notes that 'small miners' will not be subject to MRRT if their 'resource profits' are less than $50 million. Presumably, small miners will have to maintain extensive records and accounts to prove that their MRRT assessable profits are less than $50 million. At least on the face of the JMR, a miner with MRRT assessable profits of $51 million (pre-MRRT) will be at a great disadvantage when compared with a miner with MRRT assessable profits of $49 million.
The MRRT, like the jettisoned RSPT and the existing PRRT is a tax that applies on a project by project basis. Any undeducted starting base can be transferred to a new owner when the project (or interest in the project) is sold.
MRRT losses can be transferred to other iron ore or coal projects. The JMR observes that this proposed feature of the MRRT '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.' What is not clear from the JMR is if losses from coal projects can only be transferred to other coal projects and if losses from iron ore projects can only be transferred to other iron projects or whether losses from coal and iron ore projects can be transferred to any other project - irrespective of whether the other project is a coal or iron ore project.
MRRT taxpayers are able to carry forward unutilised MRRT losses, with an annual uplift of LTBR plus 7%. However, there will be no refund of a portion of the unutilised MRRT losses in the event of a project's closure. Similarly, unused credits for royalties paid to State and Territory Governments can be carried forward, but the credits will not be transferrable or refundable.
It is proposed that the MRRT will be deductible against company tax - like the existing PRRT and the jettisoned RSPT. Whilst the JMR is silent on the issue of franking credits, MRRT taxpayers should not expect payments of MRRT to generate franking credits (as is the case with the existing PRRT regime).
As a final point, it should be noted that the JMR is silent on the international tax issues surrounding the MRRT. In particular, it will be debatable whether or not foreign investors will be able to obtain a foreign tax credit or underlying foreign tax credit in their 'home' jurisdiction.
It may well be the case the Commonwealth Government will argue that the proposed MRRT is an 'income tax' for the purpose of Australia's tax treaties - as it has done in the context of the PRRT.
Only time will tell if Australia's tax treaty partners will share this view. To judge from the experience with the PRRT, it is unlikely that Australia's tax treaty partners will agree with the view that the MRRT is an 'income tax' for the purpose of Australia's tax treaties or the tax treaty partner's foreign tax credit system: see for example, the Technical Explanation of the Protocol between the Government of the United States of America and Government of Australia signed at Canberra on September 27, 2001 in relation to PRRT.
There are 5 keys points to note in relation to the PRRT:
The JMR announced the formation of a Policy Transition Group to be lead by the Commonwealth Minister for Resources and Energy, the Honourable Martin Ferguson AM MP and Mr. Don Argus AC. The Policy Transition Group has been set with the task of overseeing the development of more detailed technical design to ensure the agreed design principles become effective legislation.
The Commonwealth Government has stated that:
A summary of the JMR and a contrast between the taxation of coal and iron ore projects (on the one hand) and oil, gas and coal seam methane gas projects (on the other hand) in table form is provided below:
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