MINERALS RESOURCE RENT TAX BILL 2011 Explanatory Memorandum
MINERALS RESOURCE RENT TAX BILL 2011
2010-2011
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
MINERALS RESOURCE RENT TAX BILL 2011
MINERALS RESOURCE RENT TAX (CONSEQUENTIAL AMENDMENTS AND
TRANSITIONAL PROVISIONS) BILL 2011
MINERALS RESOURCE RENT TAX (IMPOSITION-CUSTOMS) BILL 2011
MINERALS RESOURCE RENT TAX (IMPOSITION-EXCISE) BILL 2011
MINERALS RESOURCE RENT TAX (IMPOSITION-GENERAL) BILL 2011
EXPLANATORY MEMORANDUM
(Circulated by the authority of the
Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)
Table of contents
Glossary ................................................................................................. 1
General outline and financial impact ...................................................... 3
Chapter 1 Charging for Australia's non-renewable
resources ..................................................................... 5
Chapter 2 Overview of the Minerals Resource Rent Tax ..............11
Chapter 3 Core rules ....................................................................27
Chapter 4 Mining revenue.............................................................45
Chapter 5 Mining expenditure .......................................................73
Chapter 6 Allowances ...................................................................95
Chapter 7 Starting base allowances ...........................................119
Chapter 8 Small miners ..............................................................145
Chapter 9 Combining mining project interests ............................151
Chapter 10 Transfers and splits of mining and pre-mining
project interests .........................................................183
Chapter 11 Winding down and ending of mining and
pre-mining project interests .......................................213
Chapter 12 Pre-mining project interests........................................235
Chapter 13 Adjustments ...............................................................241
Chapter 14 Valuations ..................................................................257
Chapter 15 Accounting for the MRRT ...........................................279
Chapter 16 Entities .......................................................................301
Chapter 17 Integrity measures......................................................317
Chapter 18 Administration of the MRRT .......................................337
Chapter 19 Miscellaneous consequential amendments ................387
Index....................................................................................................391
Glossary
The following abbreviations and acronyms are used throughout this
combined explanatory memorandum.
Abbreviation Definition
AFTS Review Australia's Future Tax System Review
APA Advance Pricing Agreement
ASX Australian Securities Exchange
ATO Australian Taxation Office
CGT capital gains tax
Commissioner Commissioner of Taxation
CPI consumer price index
GST goods and services tax
GST Act A New Tax System (Goods and Services Tax )
Act 1999
ITAA 1936 Income Tax Assessment Act 1936
ITAA 1997 Income Tax Assessment Act 1997
LTBR long term bond rate
LTBR + 7 per cent long term bond rate plus 7 per cent
MRRT Minerals Resource Rent Tax
MRRT (CA&TP) Bill Minerals Resource Rent Tax (Consequential
Amendments and Transitional Provisions)
Bill 2011
MRRT Bill Minerals Resource Rent Tax Bill 2011
MRRT customs imposition Minerals Resource Rent Tax
Bill (Imposition-Customs) Bill 2011
MRRT excise imposition Bill Minerals Resource Rent Tax
(Imposition-Excise) Bill 2011
MRRT general imposition Bill Minerals Resource Rent Tax
(Imposition-General) Bill 2011
OECD Organisation for Economic Co-operation and
Development
1
Minerals Resource Rent Tax
Abbreviation Definition
OECD Guidelines OECD Transfer Pricing Guidelines for
Multinational Enterprises and Tax
Administrations
PAYG pay as you go
PRRT Petroleum Resource Rent Tax
TAA 1953 Taxation Administration Act 1953
2
General outline and financial impact
Minerals Resource Rent Tax
The Minerals Resource Rent Tax (MRRT) is a tax on the economic rents
miners make from the taxable resources (iron ore, coal and some gases)
after they are extracted from the ground but before they undergo any
significant processing or value add. `Economic rent' is the return in
excess of what is needed to attract and retain factors of production in the
production process.
The MRRT is a project-based tax, so a liability is worked out separately
for each project the miner has at the end of each MRRT year. The miner's
liability for that year is the sum of those project liabilities.
The tax is imposed on a miner's mining profit, less its MRRT allowances,
at a rate of 22.5 per cent (that is, at a nominal rate of 30 per cent, less a
one-quarter extraction allowance to recognise the miner's employment of
specialist skills).
A project's mining profit is its mining revenue less its mining expenditure.
If the expenditure exceeds the revenue, the project has a mining loss.
Mining revenue is, in general, the part of what the miner sells its taxable
resources for that is attributable to the resources in the condition and
location they were in just after extraction (the `valuation point'). Mining
revenue also includes recoupments of some amounts that have previously
been allowed as mining expenditure.
Mining expenditure is the cost a miner incurs in bringing the taxable
resources to the valuation point.
Mining allowances reduce each project's mining profit. The most
significant of the allowances is for mining royalties the miner pays to the
States and Territories. It ensures that the royalties and the MRRT do not
double tax the mining profit.
In the early years of the MRRT, the project's starting base provides
another important allowance. The starting base is an amount to recognise
the value of investments the miner has made before the MRRT.
Other allowances include losses the project made in earlier years and
losses transferred from the miner's other projects (or from the projects of
some associated entities).
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Minerals Resource Rent Tax
If a miner's total mining profit from all its projects comes to less than
$50 million in a year, there is a low-profit offset that reduces the miner's
liability for MRRT to nil. The offset phases out for mining profits
totalling more than $50 million.
Date of effect: The MRRT applies from 1 July 2012.
Proposal announced: The MRRT was announced in the Treasurer's
Media Release No. 055 of 2 July 2010.
Financial impact: The MRRT will have these revenue implications:
2011-12 2012-13 2013-14 2014-15
Nil $3,700m $4,000m $3,400m
Compliance cost impact: This measure is expected to impose significant
compliance costs on taxpayers in the iron ore and coal sectors
(approximately 320 taxpayers). In the first year of the MRRT's operation,
taxpayers will need to value their starting base and modify their
accounting procedures. Ongoing compliance costs will reduce over the
medium to long term.
4
Chapter 1
Charging for Australia's non-renewable
resources
Outline of chapter
1.1 This chapter explains the rationale for charging for Australia's
non-renewable resources.
Australia's non-renewable resources
1.2 Australia is naturally endowed with a large, high
quality non-renewable resource base.
1.3 Non-renewable resources are stocks of minerals and petroleum
that are exhaustible and depletable.
1.4 The majority of Australia's non-renewable resources are
publicly owned. The rights to these non-renewable resources are vested in
the Crown.
Non-renewable resources and taxation
1.5 It is the characteristic of non-renewability that allows
exploitation of these resources to generate economic rent or above normal
profit. Economic rent can generally be taxed without distorting the
decisions of investors if the tax is well designed.
1.6 There are two main types of resource taxes: royalties and
resource rent taxes.
Royalties
1.7 In Australia, State and Territory governments typically tax
non-renewable resources by applying a royalty to production. Royalties
are generally applied on the basis of volume or value and do not take into
account how profitable a mining operation is.
5
Minerals Resource Rent Tax
1.8 Royalties therefore may only recover a portion of mining rents
when mining profits are high, but will also tax mining operations where
no economic rent is present, such as when profits are low.
Resource rent taxes
1.9 Resource rent taxes are profit-based, cash flow, taxes. They
differ from most royalties in that they take into account the profitability of
a mining operation. A resource rent tax collects a percentage of the
resource project's economic rent.
1.10 One form of resource rent tax is the Brown tax, invented by
Cary Brown in 1948. A Brown tax is a pure cash flow tax levied (at a
constant percentage) on the difference between revenue and expenditure.
(i) When there is a positive cash flow, the government taxes that
positive cash flow. When there is a negative cash flow,
typically at the investment phase, the government provides an
immediate refund at the tax value.
(ii) The tax rate determines the portion of economic rent that the
government collects, and the value of the refund that they
provide.
1.11 Under a Brown tax, the government is effectively sharing in the
profits and costs of the mining project in proportion to the tax rate.
1.12 However, the Brown tax model is difficult to implement because
of the immediate nature of the refund. So governments typically rely on
other models of resource rent taxes that mimic the effect of the Brown tax.
1.13 The Garnaut -- Clunies-Ross resource rent tax is a resource rent
tax model that attempts to replicate the effects of a Brown tax. It is named
after the Australian economists Ross Garnaut and Anthony Clunies-Ross.
The Garnaut -- Clunies-Ross resource rent tax is levied on the positive
cash flows, or profits, of a project, but there is no refund when the cash
flow is negative or the taxpayer is making a loss. Instead, losses are
carried forward and `uplifted' by an interest rate, so that they can be used
as a deduction against positive cash flows in later years.
1.14 The uplift rate preserves the value of the taxpayer's losses
because they do not get an immediate refund for the tax value of the
government's contribution to the mining project. The uplift rate also
includes a premium to compensate for the risk that the taxpayer may never
get to use its losses.
6
Charging for Australia's non-renewable resources
1.15 The Petroleum Resource Rent Tax (PRRT) is an example of a
Garnaut -- Clunies-Ross resource rent tax.
Background to the Minerals Resource Rent Tax
1.16 The Minerals Resource Rent Tax (MRRT) has its origins in the
recommendations of the Australia's Future Tax System (AFTS) Review.
1.17 The AFTS Review found that the royalty regimes applied by the
States and Territories were among the most distorting taxes in the
Federation. In addition, royalty regimes are not particularly flexible.
1.18 As a consequence of being distorting and relatively inflexible,
royalties tend to be set at rates low enough for the mining industry to
continue to operate in periods of low to average commodity prices.
However, this means that royalties will often fail to provide an adequate
return to the community when commodity prices are high.
1.19 The company tax is a profits-based tax, which generally applies
to incorporated businesses and will tend to raise more revenue from
mining operations when profits are high. However, the AFTS Review
found that there would be benefits to the economy more broadly through
lowering the company tax rate to assist in attracting internationally mobile
capital investment.
1.20 The AFTS Review concluded that a lower company tax rate was
desirable for Australia but only if a specific profits-based tax was
extended to mining operations to ensure a sufficient return to the
community in periods of high commodity prices.
1.21 In response to the AFTS review, the Government decided that,
from 1 July 2012, the MRRT would apply to profits from coal and iron
ore operations, while the PRRT would be extended to all offshore and
onshore gas and oil projects, including coal-seam methane. These
commodities account for the bulk of Australia's mineral wealth.
1.22 The detailed design of the MRRT is based on the
recommendations of the Policy Transition Group. The Policy Transition
Group was chaired by Don Argus AC and the Hon Martin Ferguson AM
MP, Minister for Resources, Energy and Tourism. The Policy Transition
Group consulted extensively across Australia on the new resource tax
arrangements and reported to the Government in December 2010.
7
Minerals Resource Rent Tax
The Minerals Resource Rent Tax
1.23 The MRRT is a type of resource rent tax based on the
Garnaut -- Clunies-Ross model.
1.24 Under the MRRT, the government taxes positive cash flows, or
mining profits, and allows taxpayers to carry forward and uplift losses
with interest for use in later years.
1.25 As the MRRT taxes profits from minerals that are commonly
subject to State and Territory royalties, it provides a credit for royalties.
1.26 The tax base for the MRRT is confined to net profits at the
valuation point. The valuation point is the point in the mining production
chain that separates upstream and downstream operations.
1.27 As the MRRT is intended to apply only to upstream profits, it is
a tax on a narrow portion of mining profits unlike, for example, the
income tax, which seeks to tax all sources of income comprehensively.
1.28 The MRRT is a tax on realised profits. As the proceeds from the
sale of a resource are typically realised downstream of the valuation point,
the MRRT requires taxpayers to determine the amount of those proceeds
that are reasonably attributable to the resource and upstream operations
for tax purposes. The tax is not intended to tax the value added in
downstream activities.
1.29 To calculate the MRRT profit at the valuation point, the sales
proceeds are reduced by an amount that recognises the arm's length value
of the downstream operations using the most appropriate and reliable
method. Allowable upstream capital and operating expenditure is then
directly and immediately deducted, along with royalty credits, carry
forward losses, starting base depreciation, starting base losses and losses
transferred from other projects.
1.30 If losses and royalty credits cannot be used within an MRRT
year, they are transferred where possible, or carried forward to later years
with the relevant uplift rate applied.
1.31 Through providing effective deductions for all allowable capital
and operating expenditure, with an uplift of carry forward losses, the tax
base for the MRRT approximates a Brown tax on the profit attributable to
the resource in the state it was in at the valuation point.
1.32 As the sources of mining rents are difficult to identify separately
in practice, the MRRT aims to strike an appropriate balance between
recovering a sufficient return to the community for the profits attributable
8
Charging for Australia's non-renewable resources
to the underlying resource rent at the valuation point, and recognising that
some mining expertise and capital may also be taxed in a process which
has regard to realised profits and their equivalents. This balance is
achieved through the combined effect of the features of the tax, including
the tax rate, the extraction factor, the valuation point, the interest
allowance (uplift) and the scope of assessable revenues and allowable
deductions.
1.33 An overview of the operation of the MRRT is provided in
Chapter 2.
9
Chapter 2
Overview of the Minerals Resource Rent
Tax
Outline of chapter
2.1 This chapter is an overview of the Minerals Resource Rent Tax
(MRRT). It outlines the resources that are subject to MRRT and explains
the basic operation of the MRRT.
Overview of the MRRT
What resources are covered?
2.2 Australia is endowed with some of the world's largest and most
valuable deposits of iron ore and coal. These bulk commodities make up
a large proportion of Australia's mine production and mineral exports.
2.3 The MRRT applies to certain profits from iron ore and coal
extracted in Australia. It also applies to profits from gas extracted as a
necessary incident of coal mining and gas produced by the in situ
combustion of coal. These non-renewable resources are called `taxable
resources'.
2.4 Where profits are made from the sale of taxable resources, or
would have been made if the resources had been sold instead of being
exported or used, MRRT may be payable.
Basic operation of the MRRT
2.5 This section explains the operation of the MRRT and how it
applies to three different cases. The first case, the `vanilla' case,
examines how the MRRT operates for a project that was not in existence
before the announcement of the MRRT.
2.6 The second case examines how the MRRT operates for projects
that are transitioning into the MRRT (that is, for projects that were already
invested in when the MRRT was announced). It explains how the MRRT
recognises those existing investments.
11
Minerals Resource Rent Tax
2.7 The third case shows how the MRRT operates for miners with
multiple projects. It introduces the concepts of pre-mining losses and
transferring mining losses and pre-mining losses between projects owned
by the miner. It also explains the process of `uplifting' unused amounts.
The `vanilla' case
2.8 The key purpose of the MRRT is to tax the economic rents from
non-renewable resources after they have been extracted from the ground
but before they have undergone any significant processing or value-add.
Generally, the profit attributed to the resource at this point represents the
value of the resource to the Australian community. Where the taxable
resource is improved through beneficiation processes, such as crushing,
washing, sorting, separating and refining, the value added is attributable to
the miner.
Mining project interests
2.9 The mining project interest provides the basic unit for taxing the
non-renewable resource. The main kind of mining project interest is an
entitlement to share in the output of a mining venture carried on to extract
taxable resources and produce a resource commodity (which could be the
taxable resource or something produced from the taxable resource). It
must relate to at least one production right. A production right is a right,
under an Australian law, that authorises its holder to extract the resources
from a particular area (called a `project area').
Mining profit or loss
2.10 Once a mining project interest has been identified, the mining
profit for the interest for the year has to be determined. The mining profit
is the mining project interest's mining revenue for the year less its mining
expenditure. If the mining expenditure exceeds the mining revenue, the
excess is a mining loss.
Mining revenue
2.11 The main type of mining revenue a mining project interest can
have comes from selling, exporting or using taxable resources (or things
produced from taxable resources) extracted from the project area. The
proceeds are mining revenue to the extent they are reasonably attributable
to the taxable resources at a particular point in the production chain
(called the `valuation point').
2.12 Under the MRRT, the valuation point is typically just before the
taxable resource leaves the run-of-mine stockpile (also called the ROM
stockpile or ROM pad). The run-of-mine stockpile is where the resource
is stored after extraction ready for the next stage of production. The next
12
Overview of the Minerals Resource Rent Tax
unit of production could be transportation but is often some form of
processing. However, not all mining operations use a run-of-mine
stockpile. Where a project has no run-of-mine stockpile, or it is by-passed
for any reason, the valuation point is generally just before the first
beneficiation process starts.
2.13 Mining operations that occur before the valuation point are
upstream mining operations; those that occur afterwards are downstream
mining operations.
Diagram 2.1: The valuation point
In this diagram, the dashed line represents the valuation point at the
run-of-mine stockpile. Upstream and downstream mining operations
are illustrated.
2.14 The MRRT is a tax on proceeds from selling a taxable resource
(or on the proceeds which would have been realised if the resources had
been sold instead of exported or sold) but only on that part of those
proceeds that is reasonably attributable to the condition and location of the
resource when it was at the valuation point. That amount must be
attributed using the most appropriate and reliable method having regard to
the miner's circumstances, the available information and certain statutory
assumptions (to the extent to which they are relevant in applying a
particular method). The statutory assumptions are that the downstream
operations are carried on by a separate entity who has no interest in the
resource and who deals independently with the miner in a competitive
market.
2.15 Miners can elect to use a safe harbour method under which the
mining revenue amount is worked out by reducing the amount realised
from selling the resource (or, the arm's length value of the resource when
it is exported or used) by the cost of its downstream mining operations --
being its operating costs, any depreciation and its cost of capital (being its
weighted average cost of capital).
2.16 An alternative, and simpler, valuation method is provided for
smaller miners and miners who transform resources they mine in an
integrated operation, such as steel manufacturing or electricity generation,
to work out the mining revenue attributable to their resources.
13
Minerals Resource Rent Tax
2.17 The alternative valuation method is a version of the `netback'
method, which starts with a verifiable price and deducts costs to `net
back' to the value at an earlier point. Miners who have not elected to use
the alternative valuation method may use the netback method to value
their taxable resources, but they will have to work out the inputs using the
most appropriate method instead of using those prescribed for the
alternative valuation method.
Mining expenditure
2.18 The MRRT recognises the majority of upstream costs incurred
by the miner in extracting the non-renewable resource and getting it to the
valuation point.
2.19 Upstream costs are called mining expenditure if they are
necessarily incurred by the miner in carrying on the upstream mining
operations. Mining expenditure includes costs related to construction of
the mining operation, blasting and digging, infrastructure, and capital
assets used to transport the non-renewable resource to the valuation point
(such as dump trucks and conveyor belts).
2.20 Under the MRRT, upstream capital expenditure is immediately
deductible. Unlike income tax, capital assets do not have to be
depreciated over their effective lives.
2.21 Some expenditure is specifically excluded from being taken into
account as mining expenditure, including financing payments, the costs of
acquiring a mining interest, royalty payments, and some tax payments.
Allowances
2.22 Miners reduce their mining profit by their MRRT allowances, to
arrive at a net amount, which, for convenience, is referred to in this
chapter as the MRRT profit.
2.23 In the vanilla case, the relevant allowances are royalty
allowances and mining loss allowances.
Royalty allowances
2.24 Miners will generally pay royalties to State and Territory
Governments. Royalty regimes and rates vary across jurisdictions but are
most commonly a charge on the volume or value of the resource,
generally at the point of export or sale to a third party. These royalties are
often a proxy for the rents available from that resource.
2.25 The miner will be liable to pay some MRRT in addition to
royalties when resource rents are sufficiently high. That is, the company
14
Overview of the Minerals Resource Rent Tax
will pay the royalty and then also pay MRRT. However, the MRRT
recognises this by providing the miner with a deduction, called a royalty
allowance. The royalty allowance is `grossed-up', using the MRRT rate,
so that it reduces the MRRT liability by the amount of the royalty.
2.26 Where the full royalty credits for the year cannot be applied as a
royalty allowance, the unused portion is uplifted and carried forward to be
applied in a later year. The uplift rate is the long term bond rate plus
7 per cent (LTBR + 7 per cent).
Mining loss allowances
2.27 If a mining project interest has a loss for the year, the loss is
uplifted at LTBR + 7 per cent and carried forward to be used in a later
year. When it is applied to reduce a mining profit of the mining project
interest in a later year, it is called a mining loss allowance.
MRRT liability
2.28 If the MRRT profit is above zero after deducting the allowances,
the mining project interest is subject to tax under the MRRT. The MRRT
liability for the interest is calculated by multiplying the MRRT profit by
the MRRT rate.
2.29 The MRRT rate is 30 per cent. However, the MRRT recognises
that miners employ specialist skills to extract the resource and bring it to
the valuation point. It recognises the value of those specialist skills
through a special feature called the extraction factor. The extraction
factor reduces the MRRT rate by 25 per cent, to produce an effective
MRRT rate of 22.5 per cent.
15
Minerals Resource Rent Tax
Diagram 2.2: Calculating MRRT liability
The miner calculates its mining revenue for its mining project interest
and subtracts its mining expenditure to work out its mining profit. It
then reduces its mining profit by its royalty allowance and its mining
loss allowance to produce its MRRT profit. If the miner has an MRRT
profit, its MRRT liability equals that net profit multiplied by the
MRRT rate.
Example 2.1: The basic MRRT calculation
In a particular year, Midcap Mining Co. receives $500 million of
mining revenue from its mining project interest. It incurs $120 million
in upstream expenses and pays a royalty of $37.5 million to a State. It
has $50 million of losses carried forward from the previous year. The
long term bond rate (LTBR) is 6 per cent.
Mining revenue $500m
Mining expenditure ($120m)
Mining profit $380m
Royalty allowance [royalty payable/0.225] ($166.7m)
Mining loss allowance [earlier loss × ($56.5m)
(LTBR + 7%)]
Total allowances ($223.2m)
MRRT profit $156.8m
MRRT liability [MRRT profit × 0.225] $35.3m
In this example, Midcap Mining Co. is liable to pay MRRT of
$35.3 million.
16
Overview of the Minerals Resource Rent Tax
Offset for low-profit miners
2.30 If a miner's mining profit is $50 million or less, it is entitled to a
low-profit offset that will reduce its total MRRT liability to nil. If its
mining profit is over $50 million, its offset is gradually phased out. In
working out this mining profit, the miner must also count any mining
profit of other entities it is connected to or affiliated with.
2.31 Even though a miner's mining profit might be under
$50 million, it still deducts its allowances and carries forward any
remainder.
The second case -- treatment of existing investments
2.32 The second case involves miners with an existing mining project
interest at 1 May 2010 (that is, before the announcement of a resource rent
tax). To recognise their existing investment, those miners receive an
allowance, called a starting base allowance, which further reduces their
mining profit.
2.33 The starting base for a mining project interest may be calculated
using the miner's choice of two methods.
2.34 The market value method uses the market value of the mining
project interest's upstream assets at 1 May 2010. The book value method
uses the most recent audited accounting value of those assets at
1 May 2010.
2.35 There are some other key differences between the two methods
apart from their different values:
· the market value method includes the value of the mining
right, while the book value method excludes it;
· the market value method recognises the starting base for each
asset over its remaining effective life, while the book value
method recognises the starting base, in set proportions, over
five years;
· there is no uplift for the remainder of the starting base under
the market value method but the remainder under the book
value method is uplifted by LTBR + 7 per cent; and
· under the market value method, starting base losses unable to
be applied in the year are uplifted at the consumer price
index (CPI) rate, while they are uplifted at LTBR + 7 per
cent under the book value method.
17
Minerals Resource Rent Tax
Diagram 2.3: Calculating MRRT Liability
The miner calculates its mining revenue for its mining project interest
and subtracts its mining expenditure to work out its mining profit. It
then reduces its mining profit by its royalty allowance, its mining loss
allowance and its starting base allowance to produce its MRRT profit.
If the miner has an MRRT profit, its MRRT liability equals that MRRT
profit multiplied by the MRRT rate.
Example 2.2: The MRRT calculation with a starting base
In a particular year, Eisenfluss Mining receives $600 million of mining
revenue from its mining project interest. It incurs $120 million in
upstream expenses, pays a royalty of $37.5 million to a State, and has a
market value starting base of $3 billion, which it writes off over
25 years at $120 million a year. It has $50 million of losses carried
forward from the previous year. The LTBR is 6 per cent.
18
Overview of the Minerals Resource Rent Tax
Mining revenue $600m
Mining expenditure ($120m)
Mining profit $480m
Royalty allowance [royalty payable/0.225] ($166.7m)
Mining loss allowance [earlier loss × ($56.5m)
(LTBR + 7%)]
Starting base allowance ($120m)
Total allowances ($343.2m)
MRRT profit $136.8m
MRRT liability [MRRT profit × 0.225] $30.8m
In this example, Eisenfluss Mining is liable to pay MRRT of
$30.8 million. Its existing investment in its mining project interest has
reduced its MRRT liability by $27 million.
2.36 If a starting base allowance for a particular year cannot be used,
the unused portion is uplifted and carried forward to be used in later years.
If the starting base was valued at market value, the uplift rate is the CPI.
If the starting base was valued at book value, the uplift rate is
LTBR + 7 per cent.
Example 2.3: Carrying forward starting base losses
In year 1, Big Mountain Pty Ltd receives $100 million of mining
revenue from its mining project interest. It incurs $50 million of
mining expenditure, and pays a royalty of $7.5 million to a State. It
has no mining losses in year one. Its market value starting base is
valued at $500 million, which it is writing off over 25 years. In year 1,
$3.3 million of Big Mountain's starting base loss for the year is unused
because it has insufficient mining profits left after reducing them by its
royalty allowance. This unused portion is uplifted at the CPI rate. The
CPI for year 1 is 2.5 per cent.
In year 2, Big Mountain receives $250 million of mining revenue from
its interest. It incurs $50 million of mining expenditure and pays a
state royalty of $15 million. Big Mountain has no mining losses from
year 2, as all project expenses were deducted.
19
Minerals Resource Rent Tax
Year 1 Year 2
($) ($)
Mining revenue 100m 250m
Mining expenditure (50m) (50m)
Mining profit 50m 200m
Royalty allowance (33.3m) (66.7m)
Mining loss allowance 0 0
Starting base allowance (20m) (23.4m)
MRRT profit 0 109.9m
MRRT liability 0 24.7m
In this example, the unused starting base allowance from year 1 is
uplifted at the CPI rate and included in the year 2 starting base
allowance.
(($20m for year 2) + (year 1's unused $3.3m × 1.025)) = ($23.38m)
The third case -- multiple interests or pre-mining expenditure
2.37 The third case involves miners with pre-mining expenditure and
miners with more than one mining project interest.
Pre-mining expenditure
2.38 The MRRT recognises that exploration expenditure, and other
pre-mining expenditure, in pursuit of taxable resources is a necessary part
of the mining process and should be recognised as a cost of that process.
2.39 Pre-mining expenditure can occur in relation to project areas
for existing mining project interests or in relation to areas covered by
tenements that do not allow commercial extraction of resources (such as
exploration tenements). Interests in those tenements are called
pre-mining project interests. Regardless of where the expenditure occurs,
it is recognised for MRRT purposes. However, it is recognised in
different ways.
2.40 Pre-mining expenditure incurred in relation to a mining project
interest is deducted along with the interest's other mining expenditure.
That expenditure could form part of a mining loss for that interest and
could be transferable to another of the miner's mining project interests
producing the same resource.
2.41 Pre-mining expenditure incurred in relation to a pre-mining
project interest goes into working out a pre-mining loss. Pre-mining
losses can be transferred to any of the miner's mining project interests
20
Overview of the Minerals Resource Rent Tax
producing the same taxable resource. If a miner disposes of a pre-mining
project interest, the purchaser would generally be able to transfer
pre-mining losses that come with it to any of its mining project interests
producing the same taxable resource.
2.42 If a pre-mining project interest with pre-mining losses matures
into a mining project interest, the pre-mining losses will become attached
to the mining project interest.
2.43 A pre-mining loss that cannot be used by its mining project
interest, or transferred to another interest, is uplifted at LTBR + 7 per cent
for up to 10 years. After that, any remaining pre-mining loss is uplifted at
the LTBR.
Transferring losses
2.44 A miner with two or more mining project interests that produce
the same taxable resource must transfer unused losses from one project
interest to another. It can only do so to the extent that the other project
has sufficient mining profits to absorb the remaining losses once it has
applied its own royalty, mining loss and starting base allowances. Miners
must transfer mining losses in the same order they arose.
2.45 Losses attached to a mining project interest the miner acquired
from someone else cannot be transferred to another project interest unless
both project interests have been in common ownership at all times since
the loss arose.
2.46 Royalty credits usually cannot be transferred from one mining
project interest to another and a project interest's starting base can never
be transferred to another project interest.
21
Minerals Resource Rent Tax
Diagram 2.4: Calculating MRRT liability
The miner calculates its mining revenue for its mining project interest
and subtracts its mining expenditure to work out its mining profit. It
then reduces its mining profit by its royalty allowance, its pre-mining
loss allowance, its mining loss allowance, its starting base allowance,
and its allowances for pre-mining losses and mining losses transferred
from other project interests, to obtain its MRRT profit. If the miner
has an MRRT profit, its MRRT liability equals that profit multiplied by
the MRRT rate.
Example 2.4: Transferring losses
Cobb & Coal Brothers Ltd operates two coal mining project interests
and has a pre-mining project interest on which it is exploring for coal.
Mining project interest (MPI) 1 has mining revenue for the year of
$35 million and mining expenditure of $120 million. It also pays a
State royalty of $2.5 million.
22
Overview of the Minerals Resource Rent Tax
MPI 2 has mining revenue of $90 million and mining expenditure of
$30 million. It pays a State royalty of $5.7 million.
The pre-mining project interest has pre-mining expenditure of
$7 million and no revenue.
MPI 1 has a mining loss of $85 million. Its royalty payment converts
into a royalty credit of $11.1 million. It has no profit, so cannot use it
as an allowance. Since it also cannot be transferred, it will be uplifted
and carried forward to the next year.
MPI 2 has a mining profit of $60 million. It has a royalty allowance of
$25.3 million, which reduces its mining profit to $34.7 million. It then
transfers in the $7 million pre-mining loss from the pre-mining project
interest as a pre-mining loss allowance. It still has $27.7 million of its
mining profit remaining, so it next transfers in $27.7 million of the
mining loss from MPI 1 as a transferred mining loss allowance. That
reduces MPI 2s MRRT profit to nil and MPI 1s mining loss to
$57.3 million. That amount is uplifted and carried forward to the next
year.
MPI 1 MPI 2 Pre-MPI
($) ($) ($)
Mining revenue 35m 90m 0
Mining expenditure (120m) (30m) (7m)
Mining profit/(loss) (85m) 60m 0
Pre-mining loss 0 0 (7m)
Royalty allowance 0 (25.3m) 0
Transferred pre-mining loss 0 (7m) 0
allowance
Transferred mining loss 0 (27.7m) 0
allowance
MRRT profit/(loss) (57.3m) 0 0
Net pre-mining loss 0 0 *
0
In this example, the pre-mining loss from the pre-mining project
interest, and part of the mining loss from MPI 1, are transferred to
MPI 2 to reduce its MRRT profit to nil. Both transfers are possible
because the transferring and receiving interests relate to the same type
of taxable resource.
After transferring $27.7 million to MPI 2.
*
After transferring $7 million to MPI 2.
23
Minerals Resource Rent Tax
Combining project interests
2.47 A miner with several mining project interests must combine
them into a single mining project interest if they meet the integration
criteria (and satisfy other conditions designed to prevent interests
combining if that would effectively transfer allowances that are not
otherwise transferable).
2.48 There are two possible ways that a miner's separate mining
project interests can be integrated. First, they will be integrated if:
· each interest produces the same taxable resource; and
· each of the interests relates to the same mine or proposed
mine.
2.49 Second, a miner's interests will be integrated if:
· each interest produces the same taxable resource;
· the miner conducts their downstream operations together as
one operation; and
· the miner has chosen to treat its integrated downstream
operations in that way for MRRT purposes.
2.50 In deciding whether a miner conducts the downstream
operations of the mining project interests as one operation, an important
consideration will be the extent to which the relevant infrastructure is used
in an integrated way to produce a saleable, exportable or usable resource
commodity.
2.51 Mining project interests that would otherwise be required to
combine cannot combine if either of them has a starting base or an unused
royalty credit (there is an exception for some interests the miner has
owned since before 1 May 2010). They also cannot combine if one of
them has a mining loss that arose when the two interests were not in
common ownership.
24
Overview of the Minerals Resource Rent Tax
Diagram 2.5: Integrated mining project interest
In this diagram, the miner has four MPIs relating to the same resource.
If they all relate to a single mine or proposed mine, they would be
upstream integrated. If they are not a single mine or proposed mine,
but their downstream activities are managed as an integrated operation
(for example, if they all use common processing infrastructure), they
would be integrated if the miner has made a downstream integration
choice.
If the four interests were integrated in either of those ways, they would
combine into one MPI. However, if one of the MPIs has a starting
base, a royalty credit or a mining loss attributable to a time when it was
not in common ownership with each of the other interests, it could not
be part of the combined interest.
Transferring and splitting mining project interests
2.52 Mining project interests can be transferred (for example, by
sale). A mining project interest is transferred if the whole entitlement
comprising the mining project interest passes to another entity.
2.53 If there is only a part disposal of the entitlement comprising the
mining project interest, the mining project interest will split. A mining
project interest can also split if a combined interest stops being integrated.
2.54 When a mining project interest is transferred, any mining
revenue and mining expenditure for the mining project interest to the date
of the transfer, and any royalty credits, mining losses, pre-mining losses,
and starting base amounts of the mining project interest, will be inherited
by the transferee.
25
Minerals Resource Rent Tax
2.55 When a mining project interest splits, any mining revenue and
mining expenditure for the mining project interest to the date of the split,
and any royalty credits, mining losses, pre-mining losses, and starting
base amounts of the mining project interest, will be divided among the
split mining project interests.
2.56 Each of the split interests inherits a proportion of each of those
things equal to its share of the total market values of all the split interests.
Simplified MRRT for smaller operations
2.57 The MRRT recognises that some miners may be below the
$50 million profit threshold for some time before they start having an
MRRT liability. These miners would face an unnecessary compliance
burden if they were required to fully comply with MRRT obligations and
determine their starting base, calculate their mining revenue and track
their losses and royalties.
2.58 Those miners may choose to avoid any MRRT liability for a
particular year if either:
· their earnings before interest and tax, and that of the entities
connected to or affiliated with them, totals less than $50
million for that year; or
· their earnings before interest and tax (and that of those
related entities) totals less than $250 million and every
mining project interest of those entities has royalties
amounting to at least 25 per cent of the interest's earnings
before interest and tax.
2.59 A miner who chooses to use the simplified MRRT method loses
any starting base, starting base losses, mining losses, pre-mining losses
and royalty credits for all its mining project interests and pre-mining
project interests. They would begin to generate new losses and royalty
credits after they stop using the simplified MRRT method.
26
Chapter 3
Core rules
Outline of chapter
3.1 This chapter explains the framework for calculating how much
Minerals Resource Rent Tax (MRRT) a miner must pay for an MRRT
year. It also explains some of the basic building blocks of the MRRT,
such as `mining project interest', `project areas', `production right',
`Australia' `taxable resources' and `valuation point'.
3.2 All legislative references throughout this chapter are to the
Minerals Resource Rent Tax Bill 2011 unless otherwise indicated.
Summary of new law
General liability
3.3 An entity that has a mining project interest is a `miner'.
3.4 The key element in working out a miner's liability for MRRT
for a year is to work out the MRRT liability on the mining profits of each
of its mining project interests for the year.
3.5 Mining revenue, mining expenditure and MRRT allowances are
calculated in respect of each mining project interest that a miner has.
3.6 If there is no mining profit for a mining project interest for a
year, the miner will not have an MRRT liability for that mining project
interest.
3.7 If there is a mining profit for the mining project interest for the
year, that profit may be reduced to nil by MRRT allowances that relate to
the interest. MRRT allowances are applied in a particular order.
Applying MRRT allowances has the effect of reducing the MRRT liability
the miner has for the mining project interest.
3.8 A miner's overall MRRT liability for a year may be reduced to
nil by the low profit offset or the rehabilitation tax offset. If there is an
excess rehabilitation tax offset, this may result in a refund for the miner.
27
Minerals Resource Rent Tax
Mining project interest
3.9 A miner is an entity that has a mining project interest.
3.10 An entity has a mining project interest if it is entitled to a share
of taxable resources (or things produced from taxable resources) produced
by a mining venture in which the entity is a participant.
3.11 A mining venture is an undertaking a purpose of which is to
extract some or all of the taxable resources from an area covered by one or
more production rights and to produce an output which includes taxable
resources or something produced using taxable resources.
3.12 If a mining venture relates to one or more production rights,
participants in that venture have separate mining project interests in
relation to each production right.
3.13 Alternatively, if there is no mining venture in relation to the
extraction of some of the taxable resources from an area covered by a
production right, an entity has a mining project interest to the extent to
which it is entitled to extract taxable resources from that area.
Project areas
3.14 The project area for a mining project interest that is an
entitlement to share in the output of a mining venture is the area covered
by the production right to which the mining venture relates.
3.15 The project area for a mining project interest that is an
entitlement to extract resources is so much of the area covered by the
production right in respect of which an entity is entitled to extract taxable
resources.
Production right
3.16 A production right is an authority or right under Australian law
to extract a taxable resource from a particular area in Australia or, if such
a right is not required for that area, it is an interest in land that allows a
person to extract a taxable resource from the area.
Meaning of Australia
3.17 Australia, when used in a geographical sense, includes all the
external Territories (except the Australian Antarctic Territory) and the
offshore areas as defined in the Offshore Petroleum and Greenhouse Gas
Storage Act 2006.
28
Core rules
Taxable resources
3.18 Taxable resources are quantities of iron ore, coal, gas extracted
as a necessary incident of coal mining, and anything produced from the in
situ consumption of iron ore or coal.
Valuation point
3.19 For coal and iron ore, the valuation point is just before it leaves
the mining project interest's run-of-mine stockpile.
3.20 If there is no run-of-mine stockpile, or if it is bypassed in a
particular case, the valuation point is instead immediately before the
resources enter their first beneficiation process at the mine site, or
immediately after leaving the point of extraction if there is no such
process.
3.21 For any gas that is a taxable resource, the valuation point is
when it exits the wellhead.
3.22 If there is a supply of the resources before they reach their
valuation point, the point of supply becomes the valuation point.
Detailed explanation of new law
A miner's liability for MRRT
3.23 The amount of MRRT a miner must pay is the sum of the
miner's MRRT liabilities for each of its mining project interests for an
MRRT year, reduced by the low profit offset and the rehabilitation tax
offset. [Sections 10-1, 10-15 and 225-25]
3.24 An MRRT year is a `financial year' as defined in section 995-1
of the ITAA 1997, starting on or after 1 July 2012, adjusted to allow for
substituted accounting periods. [Section 10-25]
3.25 A miner's MRRT liability for a mining project interest is
worked out by applying the MRRT rate to the mining project interest's
mining profit reduced by any MRRT allowances applicable to the mining
project interest. MRRT allowances cannot reduce a MRRT liability
below nil. [Section 10-5]
29
Minerals Resource Rent Tax
3.26 The MRRT rate is a tax rate of 30 per cent, reduced by
25 per cent to recognise the know-how and capital that mining companies
bring to mineral extraction. The effective MRRT rate is therefore
22.5 per cent. [Section 300-1, definition of `MRRT rate', section 4 of the Minerals
Resource Rent Tax (Imposition -- General) Bill 2011 (MRRT general imposition Bill);
section 4 of the Minerals Resource Rent Tax (Imposition -- Customs) Bill 2011 (MRRT
customs imposition Bill); and section 4 of the Minerals Resource Rent Tax (Imposition
-- Excise) Bill 2011 (MRRT excise imposition Bill)]
3.27 Each of the MRRT allowances are made up of allowance
components [section 300-1, definition of `allowance component']. For example, a
mining loss allowance comprises mining losses, a pre-mining loss
allowance comprises pre-mining losses, a royalty allowance comprises
royalty credits and a starting base allowance comprises starting base
losses.
3.28 The MRRT allowances must be applied in a particular order.
Broadly, the principle is that project specific allowances must be applied
before allowance components can be transferred from another project.
This is consistent with the design of the MRRT as a project-based tax.
[Section 10-10]
Example 3.1: Order of MRRT allowances
Francis Mining Co has a $500 million mining profit in respect of a
mining project interest in the 2012-13 MRRT year.
Francis has MRRT allowances totalling $190 million. The allowances
are applied in the following order:
· $20 million royalty allowance;
· $10 million pre-mining loss allowance;
· $10 million mining loss allowance; and
· $150 million starting base allowance.
The MRRT allowances are subtracted from the mining profit, reducing
the mining profit to $310 million.
Francis' MRRT liability is $69.75 million, worked out as
22.5% × $310m.
30
Core rules
3.29 A miner must pay its assessed MRRT for the MRRT year on or
before the day on which the assessed MRRT becomes due and payable
[section 10-20]. Assessed MRRT for an MRRT year is due and payable on
the first day of the sixth month after the end of the MRRT year and extra
assessed MRRT is due and payable 21 days after the Commissioner gives
the miner notice of the charge [section 50-5]. A miner may also be liable to
pay shortfall interest charge and general interest charge [sections 50-10 and
50-15]. A miner must pay instalments towards that assessed MRRT
liability on a quarterly basis during the MRRT year [Schedule 1, item 8, to the
Minerals Resource Rent Tax (Consequential Amendments and Transitional Provisions)
Bill 2011 (MRRT (CA&TP) Bill), Division 115 of Schedule 1 to the Taxation
Administration Act 1953].
3.30 A miner will not be liable to pay MRRT for a year if the miner
has elected to use the simplified MRRT method. [Division 200]
Imposing the MRRT
3.31 The MRRT is imposed by three different imposition Bills. One
imposes MRRT to the extent that it is a duty of customs [section 3, MRRT
customs imposition Bill]; one imposes MRRT to the extent that it is a duty of
excise [section 3, MRRT excise imposition Bill]; and one imposes MRRT to the
extent that it is neither a duty of customs nor one of excise [section 3, MRRT
general imposition Bill]. This reflects the constitutional requirement that laws
imposing duties of customs shall deal only with duties of customs and that
laws imposing duties of excise shall deal only with duties of excise (see
section 55 of the Constitution). However, there is only one assessment
Act.
3.32 The approach of enacting a single assessment Act with multiple
imposition Acts when a tax law could be a duty of customs, a duty of
excise, as well as some other type of tax, complies with the Constitution.
The same approach was followed for the enactment of the goods and
services tax legislation.
3.33 MRRT is not imposed on property belonging to a State. That
ensures that the MRRT complies with section 114 of the Constitution,
which prohibits the Commonwealth from imposing a tax on any kind of
property of a State. In practice, this will only have an effect to the extent
that a State mines its own taxable resources. In that case, the State will
not be subject to MRRT. [Section 5 of the MRRT customs imposition Bill;
section 5 of the MRRT excise imposition Bill and section 5 of the MRRT general
imposition Bill]
31
Minerals Resource Rent Tax
Mining project interest
Share of a mining venture to extract taxable resources
3.34 An entity has a mining project interest to the extent that the
entity is entitled to share in the output produced by a mining venture in
which the entity participates. [Subsection 15-5(1)]
3.35 An undertaking is a mining venture if it is an undertaking or
endeavour whereby the entity, alone or together with other entities,
actively or otherwise, extracts, or plans to extract, taxable resources from
a particular area covered by one or more production rights, with a view to
producing a commodity which the entity and the other participants in the
undertaking can each enjoy. [Subsection 15-5(3)]
3.36 If the mining venture in which the entity participates covers
more than one production right, then the entity will have a separate
mining project interest in relation to each of the production rights to which
the venture relates. [Subsection 15-5(2)]
3.37 The kinds of commodities that might be the output of such a
mining venture include iron ore and coal (produced in different forms and
to different grades to meet customer specifications), gas, or products made
from iron ore, gas, and coal, such as steel and electricity.
3.38 The existence and extent of a mining venture is a question of
fact. That question should be determined having regard to:
· the areas from which taxable resources are extracted;
· the nature of the extraction and production activities carried
out;
· the degree to which these activities are conducted and
operated as financially and technically interdependent
business units;
· relevant contractual arrangements; and
· the commodities that are produced.
3.39 Most typically, but not necessarily, a mining venture will be a
joint venture to extract and produce resource commodities.
32
Core rules
Example 3.2: A vanilla joint venture
ExplorerCo enters into a joint venture with DiggerCo (the joint
venturers) to produce coal from an area in Australia. The joint
venturers hold a production right in equal shares and are entitled to an
equal share of the resources extracted from the project area.
The joint venture is a mining venture. Each of the joint venturers is a
participant in that mining venture and each of them has a mining
project interest for which they will be liable to MRRT.
3.40 The same participants may be engaged in separate mining
ventures.
3.41 Usually a participant in a mining venture would risk money,
property or skills in the venture in exchange for a right to share in the
commodity produced by the venture. It is possible, however, that a
participant may be gifted, or otherwise transferred, a right to share in the
output of the venture.
3.42 An entity is not required to have a production right to be a
participant in a mining venture.
Example 3.3: Non-vanilla joint venture
ExplorerCo holds a production right over a project area, from which
it is entitled to extract iron ore.
ExplorerCo does not have the required expertise to extract the iron
ore, so it enters into a joint venture with DiggerCo to extract the
resources. In return for venturing its extraction expertise, DiggerCo
receives 50 per cent of the resources extracted from the project area.
ExplorerCo takes the other 50 per cent of the iron ore as its return on
its production right.
DiggerCo and ExplorerCo are participants in a mining venture.
They each have mining project interests and both will be liable for
MRRT.
3.43 An entity that merely provides a service or accommodation to a
mining venture would not itself be a participant in the venture. To be a
participant in a mining venture the entity must share the risks of extracting
the resources.
Example 3.4: Finance arrangement
DiggerCo obtains a production right over an area rich in iron ore and
commences to extract the ore using funds borrowed from Big Bank.
33
Minerals Resource Rent Tax
The terms of the loan are calculated on the usual terms for a loan of
that nature, including a commercial rate of interest. Big Bank does
not share the risks of extracting the resources and is not itself a
participant in DiggerCo's mining venture. BigBank does not
therefore have a mining project interest.
This would remain the case if, instead of paying cash, DiggerCo
chose to discharge its loan obligations to Big Bank by delivering to
Big Bank ore equal in value to its loan obligations.
Example 3.5: Mining services
MinerCo holds a right to extract coal from a production right area,
but it does not have the required expertise to undertake the extraction
activities.
MinerCo enters into a contractual arrangement with DiggerCo
whereby DiggerCo agrees to extract the resources for MinerCo in
return for a commercial fee calculated as a fixed rate per tonne of
coal it extracts for MinerCo.
DiggerCo does not share the risks of extracting the resource and is
not itself a participant in MinerCo's mining venture. DiggerCo does
not therefore have a mining project interest.
This would remain the case if, instead of paying cash, MinerCo
discharged its fee to DiggerCo by delivering to DiggerCo coal equal
in value to the fee.
3.44 An entity is not entitled to an output of a mining venture merely
because it is entitled to a royalty for the taxable resources extracted by the
mining venture or to a private mining royalty comprising a share of the
profits of the mining venture. [Subsection 15-5(6)]
Example 3.6: Profit sharing
DiggerCo has a mining venture comprising the extraction and
production of coal from an area covered by a production right it
acquired from ExplorerCo. When DiggerCo acquired the production
right from ExplorerCo it undertook to pay ExplorerCo 10 per cent of
the net profits it makes from selling coal extracted from the production
right area.
DiggerCo has a mining project interest and will be liable for MRRT.
ExplorerCo does not share in the output of the venture and does not
have a mining project interest.
34
Core rules
More than one mining venture
3.45 There may be more than one mining venture to extract taxable
resources in relation to a single production right.
Example 3.7: Multiple mining ventures
DiggerCo and CrusherCo have a joint venture to extract coal from a
particular area within a larger area covered by a production right they
jointly hold. They are each entitled to take an equal share of the
resources which they extract. DiggerCo and CrusherCo are
participants in a mining venture and each has a mining project interest.
CrusherCo also has a separate undertaking to mine another part of the
area covered by the production right (DiggerCo takes the view that
mining in that area would be too risky).
CrusherCo would be viewed as having a second mining venture and
would have a second mining project interest comprising its right to the
output of that separate venture.
Residual mining project interests
3.46 To the extent to which there is no mining venture to extract
certain taxable resources from the area covered by a production right, an
entity that has the right to extract the taxable resources from the area
would have a mining project interest, to the extent of its entitlement.
[Subsection 15-5(4)]
3.47 Mining project interests of this kind are a form of `residual'
interest. They do not exist to the extent to which the entitlement to extract
relates to resources in respect of which there is a mining venture.
3.48 Typically, the owners of a production right will have the residual
mining project interests (if any) for particular production right areas. It is
possible, however, that such interests may be transferred or split to one or
more other entities (for example, under a sublease). Transfers and splits
are discussed in Chapter 10.
Example 3.8: No mining ventures to extract resources
ExplorerCo holds a production right over an area but it does not have
any immediate plans to commence extraction activities in that area
because it has insufficient capital to conduct such an operation. It is
currently searching for potential equity participants.
Explorer Co would have a residual mining project interest.
35
Minerals Resource Rent Tax
3.49 The start of a mining venture relating to the extraction of taxable
resources in respect of which an entity has a residual mining project
interest will be treated as a mining project transfer (if the venture relates
to all of the resources), or otherwise a mining project split. These
situations are discussed in Chapter 10. [Sections 120-25 and 125-35]
Acquiring a further share in a mining project interest
3.50 If an entity that has a mining project interest because it
participates in and shares in the output of a mining venture acquires an
additional right to share in the output of the venture, it will have a separate
mining project interest that corresponds to that further entitlement.
[Subsection 15-5(5)]
Example 3.9: Acquiring a further share
DiggerCo and CrusherCo are participants in a mining venture with each
other. They have rights to receive and dispose of 60 and 40 per cent
respectively of the resources extracted under a production right that they
jointly hold.
Subsequently, DiggerCo decides not to continue mining in the project
area and sells its share of the venture to CrusherCo.
By acquiring DiggerCo's share of the venture CrusherCo acquires a
separate mining project interest.
3.51 Similarly, if an entity that has a mining project interest because
it has an entitlement to extract taxable resources from a particular area
(a residual interest) acquires an additional right to extract taxable
resources from that area, it will have a separate mining project interest
that corresponds to that further entitlement. [Subsection 15-5(5)]
Special rules for mining project interests
3.52 There are circumstances in which it is possible to combine,
transfer or split mining project interests. Combinations are discussed in
Chapter 9 and transfers and splits are discussed in Chapter 10.
[Divisions 115, 120 and 125]
3.53 There are also special rules to deal with the winding down of
mining project interests and the ending of mining project interests. The
winding down and ending of mining project interest are discussed in
Chapter 11. [Divisions 130 and 135]
36
Core rules
Mining project interests to be kept separate
3.54 A mining project interest cannot relate to both iron ore and coal.
Mining project interests that would otherwise relate to both iron ore and
coal constitute separate mining project interests. [Section 15-10]
Production right
3.55 A production right is any authority, license, permit or right
under an Australian Law granted by the Commonwealth, a State or a
Territory (or, in some instances, a private land owner) that permits an
entity to extract taxable resources from a particular area in Australia
[subsection 15-15(1)]. It does not matter that the right to extract is issued
subject to environmental approval.
3.56 In deciding whether an entity has been granted the right to
extract taxable resources from an area, the term `extract' should not be
construed narrowly. To extract taxable resources means to extract them
by any means and would include recovering them from the surface of the
place where they occur. [Section 300-1]
3.57 The various State and Territory Acts use different terms to
describe a `production right', including `mining leases' and `mining
licences'.
3.58 A production right should be distinguished from an authority,
license, permit or other right to prospect or explore for minerals in a
particular area or to examine the feasibility of mining in an area. These
rights are often described as `prospecting permits', `exploration licences',
`mineral development licences' or `retention leases'. A `production right'
does not include rights of this kind. [Subsection 15-15(2)]
3.59 For the purposes of the MRRT, interests in these other rights are
`pre-mining project interests'. [Section 70-25]
Project area
3.60 A production right authorises the extraction of taxable resources
from a particular area in Australia.
3.61 The project area for a mining project interest that is an
entitlement to share in the output of a mining venture is the area covered
by the production right to which the mining venture relates.
[Paragraph 15-20(a)]
37
Minerals Resource Rent Tax
3.62 If the mining venture relates to more than one production right
there will be a separate mining project interest in relation to each
production right. The project area for each of those interests will be so
much of the area covered by each of the production rights to which the
mining venture relates. [Subsection 15-5(2) and paragraph 15-20(a)]
3.63 The project area for a residual mining project interest that is an
entitlement to extract taxable resources from an area covered by a
production right in respect of which there is no mining venture, is so much
of the area covered by the production right in respect of which an entity is
entitled to extract taxable resources. [Paragraph 15-20(b)]
Definition of Australia
3.64 A production right that is issued in respect of an area in
Australia will result in a mining project interest.
3.65 Australia, when used in a geographical sense, includes:
· all the external Territories (except the Australian Antarctic
Territory); and
· `offshore areas' as defined in the Offshore Petroleum and
Greenhouse Gas Storage Act 2006.
[Section 300-1, definition of `Australia']
External territories
3.66 Australia has seven external territories:
· Christmas Island;
· Cocos (Keeling) Islands;
· Norfolk Island;
· Coral Sea Islands;
· Ashmore and Cartier Islands;
· Heard Island and McDonald Islands; and
· the Australian Antarctic Territory.
3.67 The Australia Antarctic Territory is excluded from the MRRT
definition of Australia as no Australian law allows for production rights to
38
Core rules
be issued in respect of this area. This is consistent with Australia's
international obligations under the Protocol on Environmental Protection
to the Antarctic Treaty (The Madrid Protocol), which prohibits mining
within Antarctica.
Offshore areas
3.68 The Offshore Minerals Act 1994 provides for production rights
to be granted in respect of minerals in offshore areas. To ensure mining in
such areas is covered by the MRRT, the MRRT aligns with the definition
of `offshore areas' relevant for that Act.
3.69 The Offshore Minerals Act 1994 relies on the definition of
`offshore areas' in the Offshore Petroleum and Greenhouse Gas Storage
Act 2006. Such offshore areas generally extend to the outer limits of the
continental shelf. The continental shelf, which takes its meaning from
paragraph 1 of Article 76 of the United Nations Convention on the Law of
the Sea, is either the outer edge of the continental margin or 200 nautical
miles where the continental margin does not extend out to that distance.
3.70 Such offshore areas do not include the Joint Petroleum
Development Area 1 or the offshore areas of the Australian Antarctic
Territory.
Taxable resources
3.71 The MRRT is a tax on profits a miner makes from extracting
certain non-renewable resources. Those non-renewable resources are
called `taxable resources'.
3.72 The taxable resources for the MRRT are quantities of:
· iron ore;
· coal;
· anything produced by the in situ consumption of coal or iron
ore; and
· coal seam gas extracted as a necessary incident of coal
mining.
[Subsection 20-5(1)]
1
The Joint Petroleum Development Area is an area in the Timor Sea that is subject to an
agreement between Australia and East Timor for the extraction of petroleum products.
39
Minerals Resource Rent Tax
3.73 The terms `iron ore' and `coal' take their ordinary meanings.
Iron ore is rock or soil from which metallic iron can be economically
extracted. Coal is a combustible carbonaceous material formed from
deposited layers of decomposed or decomposing vegetation.
3.74 Every form of iron ore and coal is a taxable resource. The
legislation makes no distinction, for example, between hematite and
magnetite or between black coal and brown coal.
3.75 In deciding whether something is a taxable resource, no regard is
to be had to the use to which it will be put or what will be produced from
it. [Subsection 20-5(2)]
3.76 This ensures that definitions provided by some dictionaries are
not read in an inappropriately narrow way. For example, the Macquarie
Dictionary's definition of iron ore, which suggests that it usually occurs as
hematite deposits, should not be used to limit iron ore to hematite.
Similarly, when it suggests that coal is something used as a fuel, it should
not mean that coal is not coal simply because the miner or its customers
intend to use it for something other than a fuel (for example, in making
detergent).
3.77 Although `taxable resource' is defined as a quantity of iron ore,
coal, etc., it is not necessary for the quantity to be measured (or even
measurable). So long as it is some quantity, it will be a taxable resource.
[Subsection 20-5(3)]
The MRRT and gases
3.78 Most petroleum gases are not taxable resources under the
MRRT. Instead, most of them are taxed under the Petroleum Resource
Rent Tax Assessment Act 1987. However, there are two cases where such
a gas is a taxable resource under the MRRT. In those cases, the gas is
excluded from taxation under the Petroleum Resource Rent Tax (PRRT).
3.79 The first case is when it is necessary to extract the gas as an
incident of a coal mining operation or in relation to a proposed mine (say
prior to construction of an underground mine). In theory, it would be
possible to tax the gas under the PRRT regime and the coal under the
MRRT regime but that would increase the miner's compliance costs for
no significant difference in outcome. To prevent those unnecessary
compliance costs, the gas is taxed under the MRRT, which already applies
to the main (coal mining) part of the operation. [Paragraph 20-5(1)(d)]
3.80 The most common reason why it might be necessary to extract
gas as an incident of a coal mining operation is mine safety: the presence
of coal seam gas makes a mining operation inherently more dangerous.
40
Core rules
But there could be other reasons, such as State legislation or
environmental requirements.
3.81 Sometimes coal seam gas is drained from a potential coal mine
as a pre-mining activity. Where that drainage occurs as a preliminary step
in the actual or proposed construction of a coal mine, then it will be a
MRRT taxable resource. However, where that gas extraction is a
self-sustaining activity in its own right, it is not an incident of coal mining
or proposed coal mining, but a separate gas extraction operation. Such
gas would not be a taxable resource under the MRRT and would be taxed
under the PRRT regime instead.
3.82 The second case involves turning coal into gas by consuming the
coal in the ground, typically by a controlled burning of the coal (usually
coal that it is not economic to mine conventionally). This is sometimes
referred to as `underground coal gasification'.
3.83 That gas is included under the MRRT, instead of the PRRT, to
avoid subjecting coal that is mined and then converted into gas to a
different tax regime from coal that is converted into gas before extraction.
Such a difference could distort commercial behaviour.
[Paragraph 20-5(1)(c)]
3.84 This second case is drafted widely enough to cover more than
gas derived from the in situ conversion of coal; it covers any in situ
consumption of coal or iron ore. While consuming coal to produce gas is
the only currently known operation of this type, the legislation is intended
to cover possible future developments.
Valuation point
3.85 The valuation point is the point in the mining process that sets
the form and location of the taxable resources used for working out what
part of the proceeds of selling the resources is included in mining revenue.
The valuation point also separates upstream activities (expenditure on
which is deductible in working out the mining profit) from the
downstream activities (expenditure on which is not deductible, although it
may be relevant to working out how much of the sale price of the
resources is mining revenue).
Normal valuation point for coal and iron ore
3.86 The usual valuation point for coal and iron ore is immediately
before it leaves the run-of-mine stockpile. [Subsection 40-5(1)]
3.87 This means that expenditure on moving the resources to the
stockpile, and expenditure on managing and maintaining the stockpile, is
41
Minerals Resource Rent Tax
upstream of the valuation point and so will be mining expenditure
recognised in working out the mining profit. Expenditure on moving the
resources away from the stockpile will not be mining expenditure
(although it may be relevant to working out how much of the sale price of
the resources is mining revenue).
3.88 `Run-of-mine stockpile' is not defined in the legislation but is a
well understood term in the mining industry. Most mines have such a
stockpile. Synonymous terms include `run-of-mine pad',
`run-of-the-mine stockpile', `ROM stockpile' and `ROM pad'.
3.89 The run-of-mine stockpile is the place where the coal or iron
ore, largely in the form in which it is extracted, is stored. Although it may
have undergone preliminary crushing for the purpose of moving it to the
run-of-mine stockpile, it will not have been subject to any beneficiation
processes.
Valuation point for coal and iron ore with no stockpile
3.90 In some cases, coal or iron ore mines may have no run-of-mine
stockpile. The coal or iron ore might go straight into a beneficiation
process or, in the case of coal, be transported directly to a power station.
Even if the mine does have a run-of-mine stockpile, an occasional
quantity of coal or iron ore might bypass the stockpile.
3.91 In those cases, the valuation point is immediately before the coal
or iron ore enters the first mine site beneficiation process
[paragraph 40-5(2)(a)]. If there is no beneficiation process at the mine site,
the valuation point is instead when the resource leaves the point of
extraction [paragraph 40-5(2)(b)].
3.92 The legislation does not define `beneficiation' but it is another
term well understood within the mining industry. It relates to the
processes by which the raw coal or iron ore is made more suitable for sale,
export or use, usually by separating it from waste material, regulating its
size, and improving its quality. It includes processes such as crushing,
washing, screening, separating and pelletising. However, it would not
include the preliminary crushing that is done for the purpose of facilitating
transportation of the coal or iron ore.
Valuation point for gases
3.93 The MRRT taxes profits from gas that is produced by
consuming coal in situ. It also taxes profits from gas that is extracted as a
necessary incident of coal mining.
42
Core rules
3.94 The valuation point for those gases is when they exit the
wellhead. [Subsection 40-5(3)]
3.95 `Wellhead' is not defined in the legislation but is a well
understood term in the gas and petroleum industries. It is the point at
which the gas reaches the surface and enters storage facilities or pipes for
transfer elsewhere. The wellhead typically incorporates equipment for
controlling pressure in, and regulating the flow from, the well. Because
the valuation point is when the gas exits the wellhead, expenditure on the
wellhead is upstream of the valuation point and is therefore deductible.
Valuation point for earlier supplies
3.96 In all these cases, it is possible (although unusual) that the
resource will be supplied to someone not involved in the mining
undertaking before it reaches its normal valuation point. If that happens,
the valuation point is immediately before that supply. [Subsection 40-5(4)]
43
Chapter 4
Mining revenue
Outline of chapter
4.1 This chapter outlines the concept of mining revenue in the
Minerals Resource Rent Tax (MRRT).
4.2 All legislative references throughout this chapter are to the
Minerals Resource Rent Tax Bill 2011 unless otherwise indicated.
Summary of new law
4.3 Mining revenue is a fundamental concept in the tax as it feeds
directly into the calculation of the mining profit for a mining project
interest for an MRRT year.
4.4 The main type of mining revenue comes from consideration (or
deemed consideration) for supplying or exporting taxable resources, or
supplying, exporting or using something produced from taxable resources.
Mining revenue is the part of the consideration attributable to the
resources at their valuation point.
4.5 Other types of mining revenue include recoupments of mining
expenditure and compensation for loss or destruction of taxable resources.
Detailed explanation of new law
What is a miner's mining revenue?
4.6 Mining revenue for an MRRT year is calculated separately for
each mining project interest of the miner. [Section 30-5]
4.7 The mining revenue of a mining project interest in respect of an
MRRT year is the total of the amounts included in the mining revenue for
that interest for that year [section 30-5]. This drafting approach is taken to
facilitate the calculation of the mining profit for a mining project interest
[section 25-5].
45
Minerals Resource Rent Tax
4.8 Broadly, a miner's mining revenue in respect of a mining project
interest includes revenue from:
· the supply or export of taxable resources extracted from the
project area for the mining project interest, to the extent the
amount relates to the resources as they were at the valuation
point;
· the supply, export or use of something produced using the
taxable resources, to the extent the amount relates to the
resources as they were at the valuation point;
· economic recoupment of mining expenditures for the mining
project interest;
· compensation for loss of taxable resources for the mining
project interest; and
· an amount received under a take or pay contract that cannot
be related to the supply of a particular quantity of taxable
resource.
4.9 Other amounts may also be mining revenue, such as amounts
arising out of balancing adjustment events for starting base assets and
from other adjustments where circumstances change. [Divisions 160 and 165]
4.10 An amount to be included in a miner's mining revenue does not
include any goods and services tax payable on a supply for which the
amount is consideration (in whole or in part), or any increasing
adjustments that relate to the supply. [Section 30-75]
4.11 The same amount cannot be double counted. If the same
amount is potentially included as mining revenue under more than one
provision, it is included only once and under the most appropriate
provision. [Section 30-60]
4.12 An amount is not mining revenue unless a provision of the
MRRT law includes it in mining revenue. For instance, a hedging gain
that is separate from a supply contract is not mining revenue in the same
way that a hedging loss that is separate from a supply contract is not
mining expenditure (see Chapter 5).
Revenue from the supply, export or use of taxable resources
4.13 An amount is included in a miner's mining revenue if a taxable
resource has been extracted from the project area for the miner's mining
project interest and during the year a mining revenue event happens in
46
Mining revenue
relation to the taxable resource. The taxable resource need not have been
extracted by the particular miner. [Section 30-10]
4.14 The need for a mining revenue event reflects the fact that the
MRRT applies generally to profits miners have made. Hence, extraction
of the resource, or the fact of its reaching the valuation point, is not
sufficient in itself to attract the tax in a particular MRRT year.
4.15 Three possible mining revenue events can result in an amount
relating to taxable resources being included in a miner's revenue for an
MRRT year. [Section 30-15]
4.16 The first way is by the miner making an initial supply of the
taxable resource prior to its exportation or use [paragraph 30-15(1)(a)]. For
example, if a miner sold coal to an export customer on free on board
terms, where risk and title passes `over ship's rail', such a sale would be a
supply prior to export.
Example 4.1
Francis Resources supplies 30,000 tonnes of ore to a third party in
Australia and 20,000 tonnes to an overseas purchaser by an
agreement executed at or before export. Both supplies would be
examples of supplies prior to export.
4.17 The second way is by the miner exporting resources when there
has been no initial supply at or before that time. [Paragraph 30-15(1)(b)]
Example 4.2
Francis Resources exports 20,000 tonnes of iron ore to its storage
facility in China. It later sells the ore to a third party.
4.18 The third way is by the miner making an initial supply of, using,
or exporting, something produced using the taxable resource if an event
has not been triggered by an initial supply or export of the taxable
resource. [Paragraph 30-15(1)(c)]
Example 4.3
Francis Energy extracts 50,000 tonnes of coal from an MRRT
project and feeds the coal directly into a power plant for the
production of electricity, which it supplies into the wholesale
electricity market.
4.19 These mining revenue events are mutually exclusive and only
one can happen in relation to the relevant taxable resources relating to a
mining project interest of a miner. There will be one, and only one,
47
Minerals Resource Rent Tax
mining revenue event for each quantity of resources extracted in Australia
that is not otherwise consumed in mining operations. [Section 30-15]
4.20 The approach taken is to focus on, in order, whether there has
been an initial supply of the resource and, if not, an export of the resource,
and, if neither of those, an initial supply, export, or use of something
produced using the taxable resource.
Supply
4.21 `Supply' has the meaning given by section 9-10 of the A New
Tax System (Goods and Services Tax) Act 1999 and subsection 995-1(1)
of the Income Tax Assessment Act 1997, but is to be interpreted in the
context of the MRRT. In the context of the MRRT, a supply will usually
happen where the miner relinquishes title to the resource. Generally, this
will be a sale of the resource to a third party.
Initial supply
4.22 The usual way that the revenue provisions will be triggered is by
the miner making the initial supply of the taxable resource.
[Paragraph 30-15(1)(a)]
4.23 The initial supply of a taxable resource extracted under the
authority of a production right is generally the initial supply that a miner
makes after it has extracted the taxable resources. [Subsection 30-20(1)]
4.24 An initial supply must be a supply of taxable resources made by
a miner who has a mining project interest that relates to the taxable
resources. Typically, therefore, it would not include a supply made by the
owner of the resource in situ (unless the owner is also a miner).
4.25 A supply is not an initial supply if it does not result in a change
in the ownership of the taxable resource. For instance, if a miner blends a
quantity of iron ore from one of its mining project interests with iron ore
from another of its mining project interests, the blending will not
constitute a supply; only once the blended ore is sold would there be an
initial supply. [Paragraph 30-20(2)(b)]
4.26 The concept of an initial supply is also subject to an exception
relating to supplies made between participants in the course of an
undertaking that is a mining venture. This mainly affects joint venture
arrangements. [Paragraph 30-20(2)(a)]
4.27 The exception ensures that, if a supply of taxable resources is
made between participants in a mining venture, and the supply is made in
48
Mining revenue
the course of that venture, the supply is not an initial supply. The initial
supply would be the next supply of those resources.
Example 4.4
X Co and Y Co are participants in a joint venture undertaking where
X Co undertakes the extraction activities and Y Co the blending
activities. Each takes a share of the resulting resource. The joint
venture undertaking is a mining venture. The supply of the resource
from X Co to Y Co (giving Y Co possession) is not treated as an
initial supply of the resource as it occurred in the course of the joint
venture undertaking.
Example 4.5
Taking the facts in Example 4.4, if, after the extraction and blending
activities have occurred and the respective shares of X Co and Y Co
determined, X Co sells its share in the resource to Y Co, this supply
is not excepted because it did not occur in the course of the joint
venture undertaking. So, that sale would be the initial supply of the
resource.
Example 4.6
In a separate situation, Extractor Co extracts the resource and sells it
to Blender Co who blends it and sells it to third parties. The sale to
Blender Co is the initial supply.
4.28 A supply is not excepted from being an initial supply if it is
made between participants in separate undertakings.
Example 4.7
Taking the facts in Example 4.4, a supply by X Co to a participant in
another mining venture in which X Co is also a participant would be
an initial supply. That is because it would not be a supply between
participants in the course of a single mining venture; it would be a
supply between participants in two different mining ventures. It
would make no difference if the separate mining ventures both relate
to the same production right.
4.29 When a supply occurs, the time of the supply is taken to be the
earliest of when consideration for it is received or becomes receivable,
when the resource is delivered, and when ownership passes in the
resource. [Section 30-35]
4.30 However, if consideration for the supply is received or becomes
receivable at a time before 1 July 2012, the time of the supply is taken to
be the earliest of when the resource is delivered, and when ownership
49
Minerals Resource Rent Tax
passes in the resource. [Schedule 4, item 2 to the Minerals Resource Rent Tax
(Consequential Amendments and Transitional Provisions) Bill 2011 (MRRT (CA&TP)
Bill)]
Export
4.31 If the miner exports the taxable resource from Australia before
there has been an initial supply, the export will trigger a mining revenue
event. [Paragraph 30-15(1)(b)]
4.32 The word `export' is not defined. It takes its ordinary meaning
of sending the resource to another country for sale or exchange, or merely
taking the resource out of Australia with the intention of landing it in
another country.
4.33 In general, a miner `exports' resources if they are exported while
the miner has ownership or title to them.
4.34 The miner `exports' the resource even if there are arrangements
to facilitate the export of the resource which are carried out for, or on
behalf of, the miner by a third party.
4.35 Similarly, the miner `exports' the resource even if the miner is
not actually responsible for the exporting activities. The time of `export'
determines whether it (or a supply that occurs at the same time or earlier)
is the relevant mining revenue event. [Paragraph 30-15(1)(b)]
4.36 Export occurs when the resource finally clears Australia's
territorial limits (which will usually be its coastal waters). Merely leaving
the final Australian port is not sufficient to constitute export.
4.37 The usual case of export will be where there has been no sale or
other arrangement in relation to the resource when it leaves Australia. For
example, a miner will export resources when it transfers them to one of its
overseas branches.
4.38 More complicated cases can arise where a transaction has
occurred prior to the resource leaving Australia. In those cases it must be
determined whether the relevant mining revenue event is the initial supply
or the export.
4.39 A sale under which ownership passes at the port or while the
ship is in Australian waters is dealt with under the `initial supply' test, not
the `export' test. So, for instance, sales of coal or iron ore using
free-on-board or cost-insurance-freight will usually be dealt with under
the `initial supply' test.
50
Mining revenue
4.40 In this regard, it should be noted that, while an initial supply
does not occur until ownership passes in the resource, the time of that
supply may be earlier if consideration is received or receivable or the
resource is delivered. The time of the supply is the earliest of these things.
For example, if a miner is entitled to invoice a customer once the resource
crosses the ship's rail, that point will be the time of supply. Alternatively,
if the point at which the consideration is received or receivable has not
arrived but the miner has delivered the resource to an agent of a customer
for transport to a destination outside Australia, that point will be the time
of supply. [Section 30-35]
4.41 If title does not pass in the resource until after it leaves
Australian coastal waters, and consideration for a supply has not yet been
received or become receivable, and there has not yet been a delivery of the
resource, the export test will apply.
Example 4.8: When export is the relevant mining revenue event
Redrock Resource Co. sells iron ore to an export customer under terms
that pass title in the ore at the destination port. Title to the ore passes
on delivery of the ore at the destination but, if consideration is received
or receivable before then, the supply will be taken to have occurred at
that earlier time. If that is before the ore is exported (that is, before it
leaves Australia's territorial waters), the relevant mining revenue event
will be the supply. If consideration is received or receivable only
when the ore reaches the destination port, the relevant mining revenue
event will be the export.
Use
4.42 The `use' of something produced from the taxable resource is a
revenue event if an event has not already been triggered by an initial
supply or export of the taxable resource or thing. [Paragraph 30-15(1)(c)]
4.43 There is no mining revenue event for the `use' of the resource
itself, as opposed to the `use' of something produced from it. For
example, if coal is burned to produce electricity, it is the use of the
electricity rather than the coal that triggers the mining revenue event.
4.44 If, however, the miner uses the thing produced from the resource
in carrying on mining operations or transformative operations (for
example, if the miner uses electricity in it mining operations that it has
produced from coal it extracts), the use of the electricity is not treated as a
mining revenue event. That is because the consumption of the electricity
is not an expenditure and will not, therefore, give rise to a deduction.
[Subsection 30-15(2)]
4.45 `Use' takes its ordinary meaning in the context of the MRRT.
51
Minerals Resource Rent Tax
Working out the amounts to be included in a miner's revenue
4.46 The amount to be included in a miner's revenue for a particular
mining revenue event that has happened is determined through a two-step
process:
· first, the `revenue amount' for the mining revenue event is
determined (Step 1); and
· second, so much of the revenue amount as is reasonably
attributable to the taxable resource in the form and place the
resource was in when it was at its valuation point (Step 2).
This amount is worked out using the most appropriate and
reliable measure of that amount.
[Subsection 30-25(1)]
4.47 The two-step process ensures that the profits that are brought to
tax under the MRRT law will be profits that relate to the resources in the
form and the place they were in when they were at their valuation point.
The MRRT law does not seek to tax profits from operations conducted
downstream of the valuation point. [Section 1-10]
4.48 Price increases in the taxable resource that occur after the
resource has passed the valuation point and which are reflected in the
consideration realised by the miner for selling the resource or things
produced using the resource (or which would have been realised if the
miner had sold the resource or the thing produced instead of exporting or
using it) will be captured as mining revenue. Conversely, price decreases
after the valuation point that are reflected in the consideration realised by
the miner (or would have been if there had been a supply) will reduce the
amount of mining revenue.
4.49 Although the legislation does not prescribe the use of any
particular method for attributing the revenue amounts, the method used
must produce the most appropriate and reliable measure of the amount,
having regard to, amongst other things, the functions performed, assets
employed and risks assumed by the miner across its value chain and the
information that is available. [Subsection 30-25(3)]
4.50 There are also a number of statutory assumptions which must be
made, but only to the extent to which they are relevant in applying the
method that is the most appropriate and reliable method. The assumptions
are that the things done by the miner in carrying on its downstream
mining, transformative and resource marketing operations (as applicable)
are done by a distinct and separate entity that does not own the taxable
52
Mining revenue
resource and which deals wholly independently with the miner in a
competitive market for the things done. [Subsection 30-25(4)]
4.51 There is also a safe-harbour method which, if chosen by the
miner, is taken to give the most appropriate and reliable measure of the
amount to be attributed. [Subsection 30-25(5)]
Arm's length principles and methodologies
4.52 The arm's length principle plays an important role in
determining amounts to be included in a miner's mining revenue.
4.53 The arm's length principle requires that the profits derived by an
enterprise should be consistent with the profits that the enterprise would
have derived had its commercial and financial dealings been consistent
with the commercial and financial dealings that independent enterprises
would have had in comparable circumstances.
4.54 The arm's length principle can apply at three points:
· to test whether the revenue amount for a supply is an arm's
length amount [Division 205];
· to impute a revenue amount where the mining revenue event
is the export of a taxable resource or the export or use of
something produced using a taxable resource
[subsection 30-25(2), items 2 and 3 in the table]; and
· to work out how much of a revenue amount is attributable to
a taxable resource as at its valuation point [subsection 30-25(3)].
4.55 The Organisation for Economic Co-Operation and Development
(OECD) has provided guidelines for the application of the arm's length
principle using arm's length methodologies. The OECD Guidelines are
titled the OECD Transfer Pricing Guidelines for Multinational
Enterprises and Tax Administrations (OECD Guidelines).
4.56 The methods outlined in the OECD Guidelines were developed
to assist tax administrations and multinational enterprises deal with
cross-border transfer pricing of transactions. Regard may be had to the
OECD Guidelines, adapted as appropriate, for the MRRT law.
4.57 Arm's length methodologies that may be relevant in applying
the MRRT law, alone or in combination, and as direct or indirect methods,
include the comparable uncontrolled price method, the cost-plus method,
the resale price method, the transactions net margin method and
53
Minerals Resource Rent Tax
profit-split methods. These methods are outlined in more detail in
Chapter 17 in the context of the anti-profit shifting rules.
4.58 In some cases other methods, not described in the OECD
Guidelines, but which are consistent with the arm's length principle, may
produce a result which is the most appropriate and reliable method.
4.59 Because the working out of the mining revenue starts with the
revenue amount, this is discussed first, and then there is a discussion about
how the revenue amount should be attributed to the taxable resource as at
the valuation point.
Determining the revenue amount
4.60 There are two broad categories of mining revenue events for
which revenue amounts must be determined: actual supplies, and imputed
supplies for exports of resources and dealings in things produced from
resources. [Subsection 30-15(1)]
Supplies
4.61 Where the mining revenue event is a supply, the revenue amount
will be the actual consideration received or receivable for the supply.
[Subsection 30-25(2), item 1 in the table]
4.62 An amount that is not actually paid to a miner is taken to be
received by the miner if and when it is applied or otherwise dealt with on
behalf of the miner or as the miner directs. [Section 30-70]
4.63 The consideration received or receivable could be adjusted if the
anti-profit shifting rules apply. [Division 205]
4.64 In effect, the revenue amount operates as a `cap' on the amount
that can be attributed to the taxable resources, ensuring that only realised
profits of the miner can be brought to tax.
Imputed supplies
4.65 In the remaining revenue events there is no actual transaction.
An arm's length consideration is worked out instead.
4.66 Where the mining revenue event is an exportation of the
resource or a thing produced from the resource, the revenue amount is the
amount that would be the arm's length consideration if the miner had
supplied it at the time and place the taxable resource or thing is loaded for
export. [Subsection 30-25(2), item 2 in the table]
54
Mining revenue
4.67 Where the mining revenue event relates to the use of a thing
produced from the taxable resource, the revenue amount is the amount
that would be the arm's length consideration if the miner had supplied the
thing at the time and place of the use. [Subsection 30-25(2), item 3 in the table]
Meaning of arm's length consideration
4.68 The arm's length consideration for a supply is the amount that
the miner would reasonably expect to receive if, instead of exporting or
using the resource or a thing produced from the resource, it had sold the
resource or thing to another entity with which it was dealing wholly
independently. [Subsection 30-30(1)]
4.69 The taxpayer must use the most appropriate and reliable method
to determine the arm's length consideration. Regard must be had to all the
miner's relevant circumstances, including:
· the characteristics of the resource at the point of export or
use;
· a functional and factual analysis of the economically
significant activities undertaken by the miner in its mining
operations and, if relevant, its transformative and resource
marketing operations;
· market conditions;
· the miner's market strategies;
· the terms and conditions of arrangements entered into; and
· the degree of comparability that exists between the controlled
and the uncontrolled dealings or between enterprises
undertaking the dealings, including all the circumstances in
which the dealings took place and whether adjustments can
and should be made.
[Paragraph 30-30(2)(a)]
4.70 Regard, must also be had to the availability, coverage and
reliability of data necessary to apply particular methods.
[Paragraph 30-30(2)(b)]
4.71 For these purposes, the concept of mining operations is broadly
defined. Mining operations are all those activities or operations that are
`preliminary or integral to' or `consequential upon' extracting or
producing taxable resources for sale or export or for producing taxable
resource to be applied in producing some other thing for sale, export or
55
Minerals Resource Rent Tax
use [section 35-20]. A detailed explanation of mining operations is in
Chapter 5.
4.72 Transformative operations are those activities and operations
that involve the application of taxable resources in the production of some
other thing that is subject to a mining revenue event when sold, exported
or used. [Subsection 30-25(6)]
4.73 Resource marketing operations are operations or activities
involved in marketing, selling, shipping and delivering taxable resources
(or things produced using taxable resources) that are sold or exported.
[Subsection 30-25(7)]
4.74 The most appropriate and reliable method must produce an
arm's length result that is reasonable and makes sense on a commercial
basis in all the circumstances of the miner and its dealings in taxable
resources or (things produced from taxable resources).
4.75 If, however, it is not possible to work out the arm's length
consideration, the revenue amount is the amount that is fair and
reasonable in the opinion of the Commissioner of Taxation
(Commissioner). [Subsection 30-30(3)]
Determining how much of the revenue amount is attributable to the
taxable resource
4.76 Having ascertained the revenue amount, the task is then to
determine how much of that amount is reasonably attributable to the
taxable resources in the condition and place they were in when they were
at the valuation point.
4.77 If there is an initial supply of the taxable resources just after the
valuation point [subsection 40-5(4)] the whole of the mining revenue amount
will be reasonably attributable to the resources at the valuation point and
the mining revenue amount will, subject to the application of the
anti-profit shifting provisions, correspond with the consideration received
or receivable for the supply.
4.78 In other cases, the revenue amount must be attributed to the
taxable resources using the method that produces the most appropriate and
reliable measure of the amount. That method must be chosen having
regard to:
· the circumstances of the miner, including a functional and
factual analysis of the economically significant activities
undertaken by the miner in its mining operations and, if
56
Mining revenue
relevant, in its transformative and resource marketing
operations; and
· the availability of reliable information needed to apply the
selected method or methods.
[Subsection 30-25(3)]
General approach
4.79 Revenue amounts will be attributable to taxable resources to the
extent to which the resources, and the activities involved in getting them
to the valuation point in the condition they were in at the valuation point,
are the factors that have, in substance, generated the revenue amounts.
4.80 To work out when this is the case, a functional and factual
analysis of the economically significant functions performed, assets used,
and risks assumed by the miner across its entire value chain would be
required. [Paragraph 30-25(3)(a)]
4.81 This is the same analysis that is required when working out the
revenue amount for taxable resources (and things produced from taxable
resources) that are exported before they are sold or used. [Section 30-30]
4.82 The next step would be to allocate those functions, assets and
risks across the miner's value chain -- that is upstream and downstream
of the valuation point. Only objectively relevant and material
circumstances need to be taken into account.
4.83 Obviously the allocation of functions, assets and risks between
two parts of what is a single value chain poses conceptual and practical
difficulties.
4.84 One approach to the problem would be to construct a
hypothetical separate and independent entity fitting the circumstances of
the downstream operations (being the downstream mining operations,
transformative operations and resource marketing operations).
4.85 On this approach the downstream operations would be
considered in the context of the miner's overall operations and certain
dealings between the hypothetical entity and the miner may be
hypothesised. For example, it may be hypothesised that the downstream
entity provides services to the miner.
4.86 Once a separate entity has been hypothesised it becomes simpler
to apply standard arm's length methods. Those methods can be applied to
all of the notional entity's activities, including its dealings with other
entities and its hypothesised dealings with the miner.
57
Minerals Resource Rent Tax
4.87 This is broadly the approach adopted by the OECD for
attributing profits to a `permanent establishment' of a non-resident
enterprise: the profits to be attributed to the permanent establishment are
the profits that the permanent establishment would have earned at arm's
length if it were a separate and independent enterprise engaged in the
same or similar activities under the same or similar conditions. Treating
the permanent establishment as a separate entity focuses attention on the
economically significant activities performed by the permanent
establishment and the way it interacts with the broader enterprise.
4.88 Having allocated the functions, assets and risks between the
upstream and downstream, the most appropriate and reliable method
should be chosen. The choice should be informed by the functional
analysis and, amongst other things, by reference to:
· the characteristics of the resource at the point of supply or
equivalent;
· the terms and conditions of arrangements entered into by the
miner;
· the degree of comparability that exists between controlled
and uncontrolled dealings or between entities undertaking the
dealings, including all the circumstances in which the
dealings took place and whether adjustments can and should
be made;
· the nature and extent of any assumptions that must be made;
and
· the availability of reliable information needed to apply the
selected method.
[Subsection 30-25(3)]
Statutory assumptions
4.89 The MRRT law includes certain assumptions which must be
used to the extent to which they are relevant to the application of a
particular method. [Subsection 30-25(4)]
4.90 The statutory assumptions are that:
· a distinct and separate entity (the notional downstream entity)
does all the things (including using all the assets) that the
miner actually does in carrying on the downstream
operations;
58
Mining revenue
· the downstream entity does not acquire any interest in the
taxable resource; and
· the downstream entity and the miner deal wholly
independently with one another under competitive market
conditions.
[Subsection 30-25(4)]
4.91 These assumptions are assumptions about the nature of the
downstream operations and the functions performed, the assets employed
and the risks assumed in those operations. As such, it would be expected
that the assumptions would be relevant to any method that requires (or
takes into account, expressly or implicitly) a valuation of the downstream
operations (for example, where a deductive method is used to netback
from the revenue amount).
4.92 Such assumptions would not, however, be relevant in applying
methods that do not rely on things that happen in the downstream
operations. For example, where there is a comparable uncontrolled price
for the taxable resource at the valuation point.
Distinct and separate independent entity assumption
4.93 As discussed above, the assumption that the things done by the
miner downstream of the valuation point are done by a distinct and
separate entity dealing wholly at arm's length with the miner establishes a
basis for the use of arm's length methods to determine an appropriate
price or value for those things. [Paragraphs 30-25(4)(a) and 30-25(4)(c)]
4.94 Specifically, arm's length methods may assist in working out
what the miner would have paid a separate entity to do those things.
4.95 The separate entity assumption only applies to the things done
by the miner in carrying on its downstream mining, transformative and
resource marketing operations. It does not apply to things done by
separate entities from whom the miner has procured services.
Example 4.9: Miner procures another entity to provide downstream
operations
X Resources Pty Ltd contracts Y Mining Services Pty Ltd to crush and
screen the iron ore it extracts from its iron ore mine. X Resources pays
Y Mining Services $15 million for these services. While the crushing
and screening activities constitute mining operations for X Resources'
mining project interest, and the service fee represents expenditure
incurred by X Resources in carrying on those operations, the things
59
Minerals Resource Rent Tax
done by Y Mining Services are not things that are taken to have been
done by X Resources.
The separate entity assumption only applies to the things done by
X Resources in procuring the mining services from Y Mining Services
Pty Ltd.
Resource assumption
4.96 The MRRT law is a resource rent tax. The underlying principle
is that risks relating to the value of the taxable resource are borne
upstream of the valuation point 2 .
4.97 Consistent with this, an arm's length method cannot be used if it
relies on an assumption that the notional downstream entity has acquired
an interest in the resource. [Paragraph 30-25(4)(b)]
4.98 A hypothesis that the notional downstream entity acquired the
resource would produce an unreliable measure of the profits attributable to
the taxable resources and could result in resource rents arising from price
changes occurring after the resource passes the valuation point, but before
the revenue event, being attributed downstream.
Competitive market assumption
4.99 The assumption of a competitive market for the provision of the
downstream operations, transformative operations and resource marketing
operations carried on by the notional downstream entity ensures that
resource rents cannot be attributed downstream as a result of the assumed
exercise of market power by the separate entity.
4.100 In a competitive market the notional downstream entity would
be expected to make a return sufficient to induce an entity to enter the
market to do the things the entity is taken to have done. The return would
be commensurate with the non-diversifiable risks borne in doing those
things and would be no more or less than would be sufficient to justify the
continued commitment of that capital. [Paragraph 30-25(4)(d)]
4.101 A non-diversifiable risk is a systematic or market risk that
cannot be diversified away. For example, the risk that an asset could
become stranded may be non-diversifiable to the extent that the stranding
results from market wide events such as a reduction in demand associated
with changes in movements in interest rates or changes in commodity
prices. Such risks (including any non-diversifiable risks associated with
2
Operations downstream of the valuation point may bear associated risks. For example,
production volumes may be affected by movements in resource values.
60
Mining revenue
the resource) should be compensated for in the returns that the notional
downstream entity would make.
4.102 Characteristics of a competitive market that are relevant in
determining the amounts that a miner would pay a separate entity to
provide downstream operations are freedom of entry and the presence of
many potential service providers, none of whom individually can affect
price. Freedom of entry implies that costs can be recovered, if it were
otherwise this would increase the risk for new entrants and so deter entry.
4.103 A comparable uncontrolled price for the provision of
downstream operations is unlikely to be appropriate where the price
reflects the exercise of market power by the provider.
Possible methods
4.104 As discussed above, there are different methods that may,
depending on the miner's circumstances, alone or in combination, provide
an appropriate and reliable method for working out the miner's mining
revenue. The method that is used should be the method that is the most
appropriate and reliable method. [Subsection 30-25(3)]
4.105 Although the attribution methodology requires a reasonable
attribution to be made of a revenue amount, this does not mandate a `net
back' from the revenue amount although this is likely to be the most
reliable method in many cases.
4.106 Arm's length methodologies that may be relevant include the
comparable uncontrolled price method, the cost-plus method, the resale
price method, the transactions net margin method and profit-split
methods. There may be others.
4.107 For example, to the extent to which there are comparable
transfers of taxable resources in the form the resources were in when they
were at their valuation point, between unrelated parties in comparable
markets, then a comparable uncontrolled price, as at the time of the
mining revenue event, and adjusted for any material differences, would be
an appropriate and reliable method.
Example 4.10: Comparable uncontrolled price at the valuation point
An independent enterprise sells iron ore of a similar type, quality and
quantity at the same time and the same stage of the production chain as
those produced by the taxpayer. Assuming no other material
differences, the price received by the independent iron ore producer, as
at the time of the mining revenue event, would be considered a
comparable uncontrolled price.
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Minerals Resource Rent Tax
4.108 In many cases, however, a netback from the mining revenue
event to the valuation point is likely to be the most appropriate and
reliable method.
4.109 In a netback, the revenue amount would be reduced for the
arm's length value of the downstream operations that reasonably relates to
the resources (or the things produced from taxable resources). The
residual amount would be the mining revenue.
4.110 Applying a netback approach would support neutrality in the
application of the MRRT law to miners who `buy in' their downstream
operations and those who provide them `in-house'.
4.111 To the extent to which the miner carries on its downstream
operations in-house, a net back could be undertaken by reference to the
price that a hypothetical service provider would seek to recover for
providing those operations to the miner on an arm's length basis.
4.112 A miner that adopts this approach should value the downstream
operations using the most appropriate and reliable method. This could be
using a comparable uncontrolled price for equivalent downstream
operations or worked out by reference to the miner's actual operating and
capital costs (for example, by applying an arm's length cost-plus or
transactional net margin method).
Example 4.11: What a miner would pay a distinct and separate
entity -- comparable uncontrolled price
Daly Resources Pty Ltd performs all of the crushing, processing and
transporting of the ore it extracts from its iron ore mine before it is
exported. These are the only downstream activities undertaken before
the ore is sold.
Daly Resources observes that there are other iron ore miners in the
same region that procure comparable crushing, processing and
transporting services from independent service providers. The market
for the services is a competitive market.
Having regard to the prices charged by those service providers, Daly
Resources determines that it would need to pay $18 million to procure
the same crushing, processing and transporting activities as it directly
carries out itself. The $18 million is a comparable uncontrolled price
being a price arrived at having regard to the comparable activities
performed by parties dealing independently with one another under
materially the same circumstances.
During the same year Daly Resources obtains $40 million from selling
the iron ore. It would be reasonable to include $22 million in Daly
Resource's mining revenue ($40m - $18m).
62
Mining revenue
4.113 Where the miner procures its mining operations from a third
party then, assuming those operations are procured on an arm's length
basis, the amounts paid for the mining services would form the basis for
the net back. Allowance would also be made for the functions performed
by the hypothetical separate entity in procuring and administering the
service contracts.
Example 4.12: Miner procures another entity to provide downstream
operations
X Resources Pty Ltd contracts Y Mining Services Pty Ltd to perform
all downstream mining operations leading to the export of the ore it
extracts from its iron ore mine. During the MRRT year starting on
1 July 2012, X Resources pays $15 million to Y Mining Services to
conduct the downstream mining activities. X Resources deals with
Y Mining Services on an arm's length basis.
X Resources also incurs costs in managing its contract with Y Mining
Services. During the same year, X Resources derives consideration of
$35 million from exporting the iron ore. The revenue that is
reasonably attributable to the ore as at the valuation point for the year
is $35 million less the $15 million paid to Y Mining Service and an
arm's length charge for the procurement functions actually performed
by the miner in its downstream operations.
4.114 If the miner procures services from a third party on a non-arm's
length basis then, unadjusted, the amounts paid for the mining services
would not form the basis of an appropriate or reliable net back method
(note, also, the potential application of the anti-profit shifting rules in
Division 205).
4.115 A full net back from the revenue amount may not be the most
appropriate and reliable method for a vertically integrated transformative
operation (for example, the production of electricity or steel). However, a
netback from the point at which the mining operations end and the
transformative operations commence may be appropriate and reliable if
there are comparable uncontrolled prices for the sale of the resources in
the form they are in when they are first applied to the transformative
operations.
Example 4.13: Separate entity providing transformative
operations -- comparable uncontrolled price
E Energy Pty Ltd owns and operates a coal fired power station. It
supplies the power station with coal from its own coal mine. It also
acquires coal, of similar quality and in similar quantities, on an arm's
length basis, from other miners who have mines near E Energy's mine.
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Minerals Resource Rent Tax
Assuming no other material differences, the price that E Energy pays
for the coal from the other miners would be a comparable uncontrolled
price for the coal it has mined itself.
E Energy also finds a way of working out the arm's length value of its
processing and transporting operations. For example, it may be able to
find a comparable uncontrolled price for those services. Alternatively,
a cost-plus or transactional net margin method may provide an
appropriate and reliable method for pricing those services.
In these circumstances, it would be reasonable for E Energy to work
out its mining revenue by taking the comparable uncontrolled price for
its own coal (adjusted to the date that the coal is stockpiled at the
power station) and reducing it by the arm's length value of its own
downstream processing and transporting operations (being those
operations that are downstream of the valuation point but which end
when the coal arrives at the power station).
The residue would be an amount that is reasonably attributable to the
coal when it was at the valuation point (to the extent it does not exceed
the revenue amount).
4.116 Another possible method is a profit-split method. A profit-split
method, is a method that takes a combined profit and splits it on an
economically valid basis that approximates the division of profits that
would have been anticipated between independent enterprises. This
economically valid basis may be supported by independent market date
(for example, uncontrolled joint-venture agreements) or by internal data.
4.117 Profit-split methods are only available to be used if they are the
most appropriate and reliable measure of the revenue amount to be
attributed to the taxable resource at its valuation point.
4.118 When the supply chain is not highly integrated, the importance
of the mining rights and the upstream mining operations relative to the
downstream would tend to favour the use of other methods over a
profit-split method.
4.119 However, the position may be different in the case of a highly
integrated operation, such as a transformative coal to electricity
generation.
4.120 In applying a profit-split method in the context of the MRRT
law, it would be expected that the mining rights, and the capital
contributed in the upstream and downstream, would provide a more
appropriate bases for analysing a split of profits as compared to other
bases, such as operating costs. That is because of the capital intensive
nature of the mining industry and the significant value attributable to
mining rights.
64
Mining revenue
4.121 Although capital contributed would be reasonably observable,
the value of mining rights increase and decrease with variations in
commodity prices.
Example 4.14: Profit split ratio
A profit-split calculation, for attributing revenue amounts, could be
based on the ratio: mining right value plus upstream capital asset
values/mining right value plus upstream and downstream capital asset
values
Safe-harbour method
4.122 To improve certainty and reduce compliance costs, the MRRT
law provides a safe-harbour method for working out how much of the
revenue amount is attributable to the taxable resource at the valuation
point. If the method is chosen by a miner, it is taken to be the most
appropriate and reliable method. [Subsection 30-25(5)]
4.123 There may be circumstances in which the safe-harbour method
would be the most appropriate and reliable method in any event (that is,
without recourse to the safe-harbour provision).
4.124 The method takes the revenue amount and reduces it by an
amount that, having regard to the required assumptions (including the
arm's length dealings assumption, the resource assumption and the
competitive market assumption), the miner's circumstances and the
available information, is sufficient for the notional downstream entity to
recover the costs of the operations it is taken to have carried on such as
reasonably relate to the taxable resource (or things produced from the
taxable resource).
4.125 The costs that the notional downstream entity can recover are:
· its operating costs;
· any depreciation of the assets used in those operations; and
· a cost of capital sufficient to justify the continued
commitment of the capital it employs in those operations.
[Paragraph 30-25(5)(a)]
4.126 This is a method that is commonly used to set prices for access
to infrastructure and related services. It adopts a `building block'
approach. It excludes from mining revenue the amounts the service
provider would need to recover, over the long run, to meet the costs of
65
Minerals Resource Rent Tax
those investments (where the costs of an investment includes a return on
capital that is commensurate with the 3 non-diversifiable risks).
4.127 Applied in the MRRT context, the method works out a
competitive price for the operations taken to have been provided by the
notional downstream entity. To the extent to which those operations
reasonably relate to the production of taxable resources (or things
produced from taxable resources), the revenue amount for those resources
(or things) will be reduced accordingly.
4.128 There may be a number of different ways of working out the
extent to which the downstream operations reasonably relate to taxable
resources (or things produced from taxable resources) in relation to which
there have been mining revenue events. For example, it may be
reasonable to work out an average price, per tonne, for the iron ore
produced and transported in a year. That price could be applied to each
quantity of resource that is sold, exported or used in that year.
4.129 The mining revenue cannot be a negative amount.
4.130 The costs which the notional downstream entity should be able
to recover can be expressed as follows:
downstream operating costs + depreciation + (downstream
capital value × cost of capital)
4.131 The notional downstream entity's operating costs would be the
non-capital, arm's length, costs of the downstream operations. These
costs would generally include maintenance costs (although see further
discussion below). [Subparagraph 30-25(5)(a)(i)]
4.132 Depreciation would be the amounts required to compensate the
notional downstream entity for the consumption of the assets used in its
operations due to physical or economic loss. It would be expected that the
amount of depreciation would be worked out having regard to the
economic life of the asset, which may, in turn, depend on the expected life
of the mining operation. The amount of the depreciation will be a
recovery of the capital value of the asset over its expected remaining
operating life. [Subparagraph 30-25(5)(a)(ii)]
3
In considering the non-diversifiable risks associated with the downstream operations, it
should not be assumed that the notional downstream entity has entered into risk shifting
agreements such as take or pay contracts if the miner has not itself entered into such
arrangements.
66
Mining revenue
4.133 The choice of depreciation profile under this approach (for
example, straight line or annuity) should be consistent with a reasonably
stable path of service charges, consistent with what an independent
service provider would set in a competitive market.
4.134 The cost of capital would be the opportunity cost of the capital
used to finance the notional entity's downstream operations (that is, the
return on capital required to attract the capital). It would be expected that
the cost of capital would be worked out by applying a weighted average
cost of capital to the assets used in the downstream operations, being a
rate that is consistent with prevailing market conditions, adjusted for the
non-diversifiable risks (also known as systematic risks) involved in those
operations, and weighted by the proportions of equity and debt used to
fund those operations. [Subparagraph 30-25(5)(a)(iii)]
4.135 In order to work out depreciation amounts and cost of capital
amounts, a capital value for downstream assets is required. For new
assets, the most appropriate value will be the cost of acquisition or
installation. For existing assets, a market valuation based on an approach
that is consistent with the method used to value starting base assets should
be used (albeit subject to the operation of the competitive market
assumption).
4.136 There are a number of different approaches for working out the
capital value of assets. Methods commonly used include depreciated
actual cost, depreciated optimised 4 replacement cost, optimised
replacement cost or full replacement cost.
4.137 The question as to which is the most appropriate method for
valuing assets in a particular case will depend on the circumstances of the
assets, the notional entity, and the industry and on the other assumptions
made.
4.138 The three integers -- operating costs, depreciation and costs of
capital -- are interdependent. Their combined operation should ensure
that the service provider is not over- or under-compensated, over time.
Assumptions made in working out one integer will generally affect the
other.
4
The optimised value of an asset is a value that has regard to its capacity utilisation and any
redundancy. The depreciated optimised replacement cost of an asset is the amount the
owner would pay to retain an asset, having regard to its effective remaining life, and the
costs involved in installing a new asset to achieve the equivalent service potential of the
existing asset.
67
Minerals Resource Rent Tax
4.139 For example, the operating costs that could be recovered should
be commensurate with the assumptions made in valuing the asset. That is,
it would not be appropriate to recover the full costs of maintaining an old
asset if the assets have been valued, as new, at full replacement cost. Nor
would it be appropriate to recognise any capital expenditure on assets
valued at full replacement cost other than where the expenditure expands
or improves the functionality of the asset. That is because the expenditure
would already be reflected in the replacement cost of the asset.
4.140 Replacement cost should not be used where it exceeds market
value. If the cost of replacing an asset is more than the cost of a cheaper
alternative, an owner would not replace it. For example if, say, a rail
transport asset is underutilised and/or the mine it services has limited
remaining economic life, a valuation based on the net present value of the
cost of transporting the resource by road would be appropriate if this
option is cheaper than replacing the existing rail asset.
4.141 In valuing downstream assets, discounted cash flow methods
should generally not be used. That is because those methods require
assumptions to be made about the service charges for the use of the assets.
In effect, the service charge is the thing that the statutory method is trying
to determine.
Example 4.15: What a miner would pay a distinct and separate entity
Katherine Mining Pty Ltd installs an iron ore crusher ready for use
from 1 July 2011 and commences crushing ore from the run-of-mine
pad. Katherine Mining determines that its operating costs in
performing this activity are $700,000 in 2012-13.
The cost of the crusher was $2 million and its effective life is 25 years,
so in determining the capital costs the separate entity would incur,
Katherine Mining determines an amount of $80,000 for depreciation of
the crusher for that year. The return on capital invested in the crusher
would be worked out having regard to the risks the separate entity
would incur and the assumption that there is a competitive market for
the provision of the crushing services to Katherine.
Katherine Mining determines that a pre-tax return on the capital
invested in the crusher of 13 per cent would be sufficient for a separate
entity to continue to employ its capital in that undertaking.
Katherine Mining determines the amount that it would pay a distinct
and separate entity to provide ore crushing services in 2012-13 to
comprise the operating costs, depreciation and the return on capital as
determined above: a total of $1,029,600 ($700,000 operating costs plus
$80,000 depreciation and $249,600 return on the depreciated cost of
the crusher). The sum of this and the amounts Katherine Mining pays,
or would pay, for other downstream operations, reduces the revenue
68
Mining revenue
amount for the sale of the iron ore that will be included in its mining
revenue.
4.142 Any costs associated with a particular operation that relate to
operations that are not taken into account in working out the revenue
amount should be added back. [Paragraph 30-25(5)(b)]
Example 4.16: Costs not reflected in the revenue amount for a supply
Assume there is a supply of taxable resources at a port in Australia but
the miner incurs the costs of carriage and insurance. Further assume
that the miner invoices the purchaser for these costs separately from
the resources.
The miner would be required to add back any costs that relate to the
things it did in delivering and insuring the resources.
Example 4.17: Costs not reflected in the revenue amount for
resources exported
Assume a miner exports coal to an offshore customer. Title to the
resources passes on delivery and the miner bears the cost of carriage
and insurance.
The revenue amount is the amount for which the miner would have
sold the coal had it sold it at the time the coal was loaded for export.
Assume the miner sells coal of the same quality (and in similar
quantities) to other customers on free on board terms and uses the price
of that coal to work out the revenue amount for the coal it has
exported.
The miner would be required to add back any of its costs that relate to
the things it did in delivering and insuring the resources.
Other mining revenue
4.143 Other forms of mining revenue include:
· amounts that recoup or offset mining expenditure and
payments that give rise to royalty credits [sections 30-40 and
30-45];
· compensation for loss of taxable resources [section 30-50]; and
· amounts that do not relate to a particular taxable resource
[section 30-55].
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Minerals Resource Rent Tax
Recoupments and offsets
4.144 Mining revenue includes amounts that recoup or offset mining
expenditure of the mining project interest. It does not matter whether the
recoupment was received or receivable by the miner who has the interest
or by one of its associates. It also does not matter whether the expenditure
recouped arose in the past or will arise in the future. This ensures that
mining expenditure is only recognised to the extent that the miner actually
bears the economic cost of that expenditure. Treating recoupments of
future expenditure in the same way avoids the need to track each
recoupment against a particular amount of expenditure.
[Subsection 30-40(1)]
Example 4.18: A subsidy recoups mining expenditure
Lawrie Longwall Mining (Lawrie) receives a government subsidy for
expenditure it incurs in employing apprentices to work on its mining
project interest. The cost of employing the apprentices is mining
expenditure, so the recoupment by way of the subsidy is mining
revenue.
Example 4.19: Sale of emissions units recoups mining expenditure
O'Toole Coal purchased 5,000 emissions units sufficient to offset Co2
emissions attributable to upstream mining operations. It paid $125,000
($25 per unit) for the units and included this amount in its mining
expenditure in its 2017 MRRT year. However, it only needed to
surrender 3,000 units to offset its 2017 carbon emissions. In 2018,
O'Toole Co sold 2,000 units for $46,000 (at $23 per unit). The
recoupment of this mining expenditure is mining revenue.
4.145 A recoupment is not included in mining revenue if the amount
gives rise to an adjustment. As the adjustment rules deal with such
recoupments, this ensures the amount is not double counted.
[Paragraph 30-40(1)(c)]
4.146 Where an amount is received that recoups an expenditure that is
only partly deductible, the proportion of the recoupment included in
mining revenue matches only the proportion of the expenditure that is
deductible. [Subsection 30-40(2)]
Example 4.20: Recoupment is only partly for upstream expenses
Continuing Example 4.18, if Lawrie's costs in employing apprentices
were incurred 60 per cent for upstream mining operations and
40 per cent for downstream mining operations, only 60 per cent of the
costs would be mining expenditure, so only 60 per cent of the subsidy
would be mining revenue.
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Mining revenue
4.147 An amount received or receivable before the start of the MRRT
that recoups or offsets mining expenditure is included in mining revenue.
[Schedule 4 to the MRRT (CA&TP) Bill, item 3]
4.148 Amounts that recoup or offset a liability that gives rise to a
royalty credit will normally reduce royalty credits [section 60-30]. However,
if there are insufficient royalty credits to reduce, the excess recoupment,
grossed-up by the MRRT rate, is included in mining revenue [section 30-45].
Compensation for the loss of taxable resources
4.149 A miner who obtains, or whose associates obtain, an amount of
insurance, compensation or indemnity relating to the loss, destruction or
damage of an extracted taxable resource or something produced from it,
must include mining revenue to the extent that, if the compensation had
been consideration for a supply, it would have been included, as mining
revenue. [Section 30-50]
4.150 This reflects the fact that, from the miner's perspective,
compensation amounts for the loss, destruction or damage of resources is
equivalent to consideration for supplying them.
4.151 Amounts included as mining revenue are limited to
compensation for loss, destruction, or damage of resources after
1 July 2012 and before there has been a mining revenue event for the
resources. Resources that were lost, destroyed or damaged before
1 July 2012 would not have generated mining revenue, so compensation
for their loss or destruction would similarly not be mining revenue
[Schedule 4 to the MRRT (CA&TP) Bill, item 4]. Resources lost, destroyed or
damaged after their mining revenue event will already have generated an
amount of mining revenue, so treating the compensation as mining
revenue would be double counting. [Section 30-50]
Amounts that do not relate to a particular mining revenue event
4.152 Amounts received or receivable by a miner for the supply, or
proposed supply, of taxable resources that do not reasonably relate to a
mining revenue event for a particular quantity or quantities of taxable
resources are treated as mining revenue. [Section 30-55]
4.153 Typically, this will occur where a purchaser makes a scheduled
payment under a take or pay contract but does not take delivery of any
resources.
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Minerals Resource Rent Tax
Example 4.21: Take or pay contract
X Energy Co entered into a long-term supply contract to pay for a
fixed annual quantity of coal from New Resources Pty Ltd, whether
or not X Energy takes delivery of that quantity of coal. For the year
beginning 1 July 2012, X Energy pays the fixed annual amount, but,
because of reduced demand for energy from its coal-fired power
station, X Energy takes delivery of only ¾ of the coal contracted for
and it obtains a credit that can be applied to future coal deliveries.
New Resources treats ¾ of the payment as a revenue amount that
must be attributed to the coal that was supplied and the balance as an
amount which must be included directly in mining revenue.
New Resources would not have to include any further amount in its
mining revenue if it later has to supply the remaining ¼ of the coal
to X Energy (although there would be a change in the circumstances
relating to the payment included directly in mining revenue such as
may warrant an adjustment under Division 160).
Expenditure causing revenue to be received
4.154 An amount that would otherwise be included in mining revenue
in respect of a mining project interest is reduced to the extent that the
miner necessarily incurred the expenditure in enforcing the miner's
entitlement to receive the amount, provided that the expenditure:
· does not relate to any other amount;
· was not mining expenditure for the mining project interest;
and
· was not excluded expenditure.
[Section 30-65]
4.155 This ensures that the mining profit for a mining project interest
properly reflects the net mining revenue and mining expenditure for the
interest.
4.156 For example, if litigation costs incurred in seeking compensation
for damages to taxable resources are not mining expenditure, they would
reduce the mining revenue for the mining project interest from which the
resources were extracted.
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Chapter 5
Mining expenditure
Outline of chapter
5.1 This chapter explains when a miner's expenditure on mining
operations will be taken into account in working out the miner's mining
profit for a mining project interest.
5.2 All legislative references throughout this chapter are to the
Minerals Resource Rent Tax Bill 2011 (MRRT Bill) unless otherwise
indicated.
Summary of new law
5.3 A miner's mining expenditure for a mining project interest
includes expenditure necessarily incurred in carrying on mining
operations upstream of the valuation point. However, such expenditure is
specifically excluded if it is:
· a cost of acquiring an interest in a mining project interest;
· a royalty (other than some private mining royalties);
· a cost of finance;
· a payment under a hire purchase agreement;
· capital expenditure on non-adjacent land or buildings for
administrative or accounting activities;
· hedging or currency losses;
· a rehabilitation bond or trust payment
· a payment of income tax or goods and services tax; or
· a unit shortfall charge.
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Minerals Resource Rent Tax
Detailed explanation of new law
Mining expenditure
5.4 Mining expenditure is a fundamental concept because it feeds
directly into the calculation of a miner's mining profit for a mining project
interest in respect of a Minerals Resource Rent Tax (MRRT) year and
therefore its total MRRT liability for an MRRT year. [Sections 10-1 and
25-5]
5.5 The mining expenditure for a mining project interest is the sum
of all the amounts that are included as mining expenditure for the interest
for an MRRT year. [Subsection 35-5(1)]
5.6 An amount is only included in mining expenditure once, under
the most appropriate provision. [Section 35-25]
5.7 Some expenditure is specifically excluded. [Subsection 35-5(2) and
Subdivision 35-B]
General test for mining expenditure
5.8 A miner's mining expenditure for a mining project interest
includes expenditure to the extent that it is necessarily incurred by the
miner in carrying on upstream mining operations in respect of that mining
project interest. [Section 35-10]
5.9 Unlike income tax, it does not matter whether the expenditure is
of a revenue or a capital nature. All expenditure that satisfies the nexus to
upstream mining operations is deductible as mining expenditure when
incurred. This approach is consistent with the `cash flow' nature of rent
taxes. [Subsection 35-10(2)]
Expenditure
5.10 `Expenditure' is a word with several meanings. In the MRRT
context, `expenditure' refers to disbursement of an amount of money
(except where the non-cash benefit rules apply). The term is often
coupled with a timing rule, such as `incurred'. In these cases, the
expenditure would occur when the timing rule is satisfied.
5.11 `Expenditure' does not include the consumption of assets, which
is another possible meaning of the word. An asset that has been
consumed or lost will already have led to an amount of mining
expenditure at the time it was purchased for use in upstream mining
operations.
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Mining expenditure
5.12 For example, if explosives are included in mining expenditure at
the time of purchase, then the value of those explosives is not included in
mining expenditure when they are used because that would double count
the miner's costs.
5.13 In addition, because miners get an upfront deduction for capital
expenditure, there is no depreciation (except in the case of starting base
assets). Indeed, if miners were to depreciate their assets, the expenditure
would be counted twice -- once at the time of purchase, and again over
the life of the asset.
Necessarily incurred ... in carrying on
5.14 The words `necessarily incurred ... in carrying on' are familiar to
business taxpayers as they are integral to the general income tax test for
deductibility (see section 8-1 of the Income Tax Assessment Act 1997
(ITAA 1997)). These words are judicially well tested and therefore
provide a high degree of certainty regarding the deductibility of expenses.
The words have been consciously chosen in preference to the approach to
deductibility that is a feature of the Petroleum Resource Rent Tax (PRRT)
regime and which has given rise to disputes about whether expenses are
deductible or not.
5.15 The approach adopted by the courts in interpreting and applying
these words in the income tax context is appropriate for MRRT purposes.
This means that, if expenditure is reasonably capable of being seen as
desirable or appropriate from the point of view of the pursuit of upstream
mining operations, it is mining expenditure.
5.16 While there must be a nexus between an expense and upstream
mining operations in order for the expense to be mining expenditure, the
requirement for expenditure to be necessarily incurred does not impose a
narrow test or a test of logical or inescapable necessity. The Courts have
developed a pragmatic approach to interpreting these words.
Example 5.1: Approach to deductibility
Wildfire Coal, a UK resident, has Australian mining operations. After
negotiation with a local authority, Wildfire pays for the construction
and ongoing maintenance of a community aquatic centre at a township
established to provide housing and community facilities for the
workforce for its mine. While the aquatic centre is for the use of the
whole community, it is primarily for use by the miner's employees.
The expenditure on the construction and maintenance of the aquatic
centre is an important part of ensuring that it has the workforce that it
requires to carry on its operations. The expenditure is incurred as a
matter of practical operational necessity and so is mining expenditure
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Minerals Resource Rent Tax
to the extent that it is for employees engaged in upstream mining
operations.
5.17 However, this does not mean that all expenditure necessarily
incurred in carrying on a business that includes the production of a taxable
resource is deductible. This is a resource rent tax, not an income tax --
not all revenue is assessable, and not all expenditure is deductible.
Expenditure must be sufficiently connected to upstream mining operations
and not the business more generally. Only expenditure that has the
necessary relationship with upstream mining operations is included in
mining expenditure.
Example 5.2: Expenses incurred in carrying on a business
Continuing the previous example, Wildfire Coal decides to list on the
ASX and incurs costs associated with listing. While these costs may
have a connection with Wildfire Coal's business, they do not have the
appropriate connection with upstream mining operations and so are not
mining expenditure.
5.18 Importantly, the words `necessarily incurred ... in carrying on'
have proven flexible over time. They are capable of dealing with new
situations.
Example 5.3: Expenses incurred in meeting environmental
obligations
Craig Mining Co owns and operates an iron ore mine in the Pilbara.
During the 2013-2014 MRRT year, it emits 20,000 tonnes of Co2 in
carrying on its upstream mining operations. It is therefore required to
purchase and surrender 20,000 emission units to meet its obligations
under the Clean Energy legislation. The expenditure is necessarily
incurred in carrying on upstream mining operations and so is included
in mining expenditure.
Upstream mining operations
5.19 Upstream mining operations are mining operations to the extent
that they relate directly to finding and extracting a taxable resource from
the mining project area for the mining project interest. Any activity or
operation directed at doing anything to, or with, the taxable resource after
it reaches the valuation point is not an upstream mining operation.
[Section 35-15]
5.20 Extracting the taxable resource incorporates all those activities
necessary to free the taxable resource from its in situ location, and so
would include recovering resources from the surface of the land,
excavating an open cut pit, and digging a traditional underground mine.
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Mining expenditure
5.21 Also included are activities that are preliminary to extraction,
such as exploration, and activities undertaken as a consequence of
extraction, such as getting taxable resources to their valuation point. This
would include any initial crushing to make it possible to move the
resources to the valuation point, building the road that links the miner to
the run-of-mine stockpile, and buying and maintaining the trucks used for
the transport.
5.22 Some particular things that could qualify as upstream mining
operations are:
· negotiations with native title holders as part of the process of
obtaining a production right over the project area;
· exploring for taxable resources in the project area;
· crushing and weighing taxable resources before they reach
their valuation point;
· head office activities, to the extent that they contribute to
getting taxable resources to their valuation point;
· planning and constructing facilities, and acquiring and
maintaining plant and equipment, for use in processing
taxable resources before they reach their valuation point;
· upgrading computer software used in processing taxable
resources before they reach their valuation point; and
· rehabilitating a project area from damage caused by
exploring, extracting and moving taxable resources to their
valuation point.
5.23 Some activities may be carried on outside the mining project
area.
Example 5.4: Activities remote from the mine site
Wildfire Coal has automated some activities for producing and
handling taxable resources before the valuation point. These are
electronically controlled by operators working in a dedicated
operations facility located away from the project area in a capital city.
The provision and operation of the facilities are upstream mining
operations.
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Minerals Resource Rent Tax
Example 5.5: Training upstream staff
Wildfire Coal employs staff at its head office in a capital city whose
duties include the initial induction and training of all new mine site
employees. These activities may be carried out at the mine or in the
capital city. The activities are upstream mining operations to the
extent that they relate to the capacity of personnel to carry on upstream
mining operations.
Example 5.6: Mine planning in a capital city
Wildfire Coal employs staff at its head office in a capital city whose
duties include life-of-mine planning. These activities are carried out in
the capital city, but in liaison with personnel at the mine site. The
mine planning activities are upstream mining operations as they are
activities integral to undertaking the mining activities.
Example 5.7: Consultants researching new extraction processes
Wildfire Coal has engaged consultants to examine and evaluate new
extraction processes for use in the planned expansion of production
volumes of its taxable resources in relation to its mining project
interest. The research takes place in various locations around the
world as well as on the site of the mine concerned. The research is an
upstream mining activity as it is preliminary and integral to extracting
the taxable resources. Upstream mining operations may be carried out
before or after the taxable resource reaches the valuation point so long
as they otherwise have the required relationship to the extraction of the
resource and getting it to the valuation point.
If Wildfire has several mining project interests, or some mines not
subject to the MRRT, the costs of research that was relevant to all of
them would have to be apportioned.
5.24 Activities directed at preparing the mine site are upstream
mining operations.
Example 5.8: Preparatory activities
Wildfire Coal holds a production licence and will be conducting
activities to produce taxable resources from the project area. In
developing the mine, it decides to prepare part of the project area for
use as a run-of-mine stockpile. This includes earthworks to level and
provide access to the run-of-mine stockpile site and drainage work to
ensure that any run-off from the run-of-mine stockpile does not
contaminate local waterways. These activities are upstream mining
operations.
5.25 Activities directed at expanding a mine are upstream mining
operations. For example, exploration may be undertaken within the area
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Mining expenditure
of a production right in order to define and clarify the exact location and
extent of a taxable resource within a mining project area. As this informs
decisions made about the operation of the mine in order to extract the
taxable resource, it is an upstream mining operation.
Example 5.9: Exploration within a project area
Wildfire Coal produces taxable resources from an established mine
and wants to expand production from the mining project area. It
undertakes drilling to clearly establish the boundaries of the existing
ore body within the project area. The drilling is an upstream mining
operation.
5.26 Some activities that take place after a mine stops producing
taxable resources are upstream mining operations.
Example 5.10: Mine site rehabilitation and restoration
Wildfire Coal carries out rehabilitation activities on an area from
which taxable resources have been recovered by open cut mining.
These activities are a consequence of extracting the taxable resources
and so are related to extracting those resources. Therefore, the
activities are upstream mining operations.
Example 5.11: Mine site rehabilitation and restoration
Wildfire Coal operates a tailings pond to contain water drained from
the coal mine it operates and for which it has a mining project interest.
The water is removed from the mine to allow for the extraction of the
coal and to maintain mine safety. After the mine closes, Wildfire Coal
drains and backfills the tailings pond to restore the site. These
restoration activities are upstream mining operations.
Example 5.12: Mine site rehabilitation and restoration
When restoring its mine site, Wildfire Coal removes conveyor belt
systems used to transport coal from the coal face to the run-of-mine
stockpile. This is an upstream mining operation.
Mining operations
5.27 The MRRT defines mining operations to include all activities or
operations that are `preliminary or integral to, or consequential upon'
extracting or producing taxable resources, or producing something else
using those taxable resources. [Paragraph 35-20(1)(a)]
5.28 However, mining operations do not include doing anything to,
or with, taxable resources after they reach the form and location they are
in when a mining revenue event happens to them, or they are first applied
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Minerals Resource Rent Tax
to producing something in relation to which a mining revenue event
happens. [Paragraph 35-20(1)(b)]
5.29 Mining operations therefore include those things that are directly
involved in production, as well as those things that the miner does before
the commencement, and after the cessation, of those operations. Things
done as a matter of practical need to facilitate or enable that production
are also included.
5.30 Some activities and operations are specifically identified as
mining operations for a mining project interest for the purposes of
clarifying the scope of the general definition and removing doubt in some
cases of particular concern. This does not limit what is included under the
general definition. [Subsection 35-20(2)]
5.31 The specific activities are:
· exploration or prospecting for taxable resources in the project
area for the mining project interest;
· extracting taxable resources from the project area;
· doing anything to, or with, taxable resources recovered from
the project area before they reach the form they are in when a
mining revenue event happens to them;
· obtaining access to the project area for mining operations;
· acquiring, constructing or maintaining anything to be used in
the above activities;
· rehabilitating the project area affected by any of the above
activities;
· closing down any of the above activities; and
· activities done in furtherance of these activities.
[Subsection 35-20(2)]
5.32 An activity is an activity done in `furtherance' of the other
activities specified if it is, from a practical and business point of view,
directed at facilitating or enabling those activities to be carried on.
However, the idea of an activity done in furtherance of another activity
does not extend to activities that have only a remote or temporal
connection with a listed activity. For instance, obtaining an ASX listing,
while an activity that, in a remote sense, furthers the mining activities,
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Mining expenditure
would be too remote a connection to be part of the upstream mining
operations.
5.33 The definition of `exploration or prospecting' comes from
section 40-730 of the ITAA 1997 and therefore includes activities such as
geological mapping, geophysical surveys, systematic searching for areas
containing minerals, and searching by drilling within those areas. It
includes searching for ore within, or near, an ore-body by drives, shafts,
cross-cuts, winzes, rises and drilling. It further includes conducting
feasibility studies to evaluate the economic feasibility of mining minerals
once they have been discovered, and obtaining mining or prospecting
information associated with the search for, and evaluation of, areas
containing minerals. [Section 300-1, definition of `exploration or prospecting']
Example 5.13: Exploring and prospecting
Pick and Shovel Co holds a mining project interest in
Western Australia from which it extracts iron ore. Pick and Shovel
conducts a search for additional iron ore near the ore body and within
the project area. The search is part of the mining operations for the
mining project interest.
Incurring mining expenditure
5.34 The MRRT operates on an accruals basis. Mining expenditure is
therefore deductible in the year that it is incurred. This aligns with the
treatment of deductible expenditure under the ITAA 1997 and under the
PRRT.
Example 5.14: Contractor performing services
Wildfire Coal engages Upstream Coal Services (Upstream) in June
2013 to perform activities that would be upstream mining operations.
Under the agreement, Wildfire is to pay Upstream after the work is
done and invoiced. Upstream performs its contractual obligations in
July 2013 and immediately issues a tax invoice. Wildfire incurs this
expense in the 2013-2014 MRRT year and can therefore include the
amount charged for Upstream's services in its mining expenditure for
that year.
Example 5.15: Joint venture funds
Pick & Shovel Co is the operator of an iron ore mine on behalf of joint
venturers, SingCo, SangCo, and SongCo. At the start of each month,
Pick & Shovel provides an estimate of expenditure for the following
month, and makes a cash call to the joint venturers for their share of
the estimated monthly expenditure. The cash call simply puts
Pick & Shovel in funds. It does not procure the carrying on of any
operations. Any pecuniary liabilities incurred by Pick & Shovel as
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Minerals Resource Rent Tax
joint venture operator, so far as they relate to the other joint venturers'
shares, are mining expenditure for each of SingCo, SangCo, and
SongCo because Pick & Shovel is acting as their agent.
Therefore, the joint venturers only incur mining expenditure when
Pick & Shovel actually incurs a pecuniary liability that bears the
necessary relationship to upstream mining operations.
Apportioning mining expenditure
5.35 An asset can be used both in upstream and downstream mining
operations and staff can perform functions that are relevant to both
upstream and downstream mining operations. Costs may also relate to
more than one mining project interest, or to taxable resources and
non-taxable resources. Only the part of the expenditure incurred in the
upstream operations related to taxable resources is mining expenditure
and deductible against mining revenue. Expenditure that also serves other
purposes must be apportioned. Expenditure that is for multiple mining
project interests must be apportioned between them. [Subsection 35-10(1)]
5.36 The words `to the extent', which are also familiar to taxpayers
through their frequent use in income tax law, support the apportionment of
costs. [Subsection 35-10(1)]
Example 5.16: Activities partly for upstream mining operations
Wildfire Coal uses a loader to maintain the run-of-mine stockpile and
to load ore onto vehicles for transport to the next stage of processing.
The use of the loader will be an upstream mining operation to the
extent that it is used to maintain the stockpile. Its use will not be an
upstream mining operation to the extent that it is used to load the ore
for transport away from the stockpile. Therefore, its cost and the costs
of operating and maintaining it must be apportioned between its
upstream and downstream roles.
Example 5.17: Expenditure incurred in growing forests to generate
carbon emission units
Pinder & Sons owns and operates a coal mine in the Illawarra region of
New South Wales. Both its upstream and downstream mining
operations emit significant amounts of Co2.
Pinder & Co acquires 1,000 hectares of land in Tasmania at a cost of
$1 million to grow forests and generate emission units to meet its
emission liabilities. Based on initial estimates, Pinder & Co will only
need 300 hectares of the forest to offset the emissions generated by the
upstream operations of its coal mine. Therefore, Pinder & Co will
include $300,000 in its mining expenditure.
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Mining expenditure
5.37 Apportionment of mining expenditure must be on a fair and
reasonable basis. What will be fair and reasonable is essentially a
question of fact to be determined in each case and could include using a
proxy, such as revenue, production volumes, direct costs, labour costs, or
head counts.
Example 5.18: Apportioning between taxable and non-taxable
resources
Wildfire Coal operates a coal mine in north Queensland. The mine can
only be accessed for six months of the year due to the wet season. The
company also operates a copper mine in southern Queensland.
Wildfire purchases a fleet of 10 dump trucks for use in its coal mine, to
transport coal to the valuation point. When the wet season comes, they
move the dump trucks south to work in the copper mine.
The trucks spend 50 per cent of their time in the coal mine and
50 per cent of their time in the copper mine. The total cost of the
dump trucks was $5,000,000. The miner must apportion this
expenditure between its coal operation and its copper operation. The
miner may only claim $2.5 million as mining expenditure.
Example 5.19: Apportioning head office costs
Wildfire Coal operates two coal mines and one nickel mine in
Queensland. It does not engage in any other commercial activities.
During the year, Wildfire receives $200 million revenue from each of
its coal mines and $70 million from its nickel mine. The operating
expenditure for each of the coal mines is $80 million, of which
$20 million is upstream of the respective valuation points. The total
operating expenditure for the nickel mine is $160 million.
Wildfire also incurs $37 million of costs at its Head Office in Brisbane.
These costs relate to:
ASX Listing ........................................ $1 million
Interest................................................. $4 million
Private royalties................................... $5 million
Business development ......................... $5 million
Political donations ............................... $1 million
Investor Relations................................ $1 million
Human Resources................................ $10 million
Management ........................................ $5 million
Office lease ......................................... $5 million
The ASX listing fee, investor relations and political donation costs
would not qualify as mining expenditure as they do not have the
necessary connection with the coal operations. To the extent to which
the interest and private royalties relate to the coal operations, they
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Minerals Resource Rent Tax
would be excluded expenditure. The business development costs relate
to researching potential acquisition targets of coal and other mining
projects in and out of Australia. These costs would not be deductible
for MRRT purposes on the basis that they were not incurred in respect
of a mining project interest or pre-mining project interest and therefore
do not have the necessary connection with the coal operations.
The remaining $20 million of human resources, office lease and
management expenditure has the necessary connection with the mining
operations but needs to be apportioned using a two-step process:
firstly across the three mining operations, and secondly between
upstream and downstream, each on a fair and reasonable basis.
Step 1
One basis for undertaking the first step of allocating the human
resources, office lease and management expenditure to each of the
three mines may be to use a reasonable estimate of the headcount of
employees at each of the mines. A split based on total costs of each of
the three mines could also be appropriate.
Another may be to allocate the expenditure to each of the three mines
based on the proportion that the operating costs of each of the coal
mines ($80 million each) bears to the total operating costs of the three
mines ($320 million). In this case, that would result in the coal mines
each being allocated 25 per cent of the costs (or $5 million each). The
$10 million that relates to the nickel mine would never be MRRT
expenditure, as nickel is not a taxable resource.
On the facts of this case, an allocation of the human resources, office
lease and management expenditure to the three mines based on the
proportion that the revenue or profits from each of the coal mines bears
to the total mining revenue of the mines may not be reasonable. That
is because Wildfire's revenue and profit margin from its coal mines is
disproportionately large compared to its profit margin from its nickel
mine. Revenues and profits may not therefore be an accurate proxy for
working out the purpose for which the expenditure was incurred.
Step 2
Once the cost allocation has been made to each of the mine sites, it still
needs to be split between upstream and downstream. This could be
done using the proportion of upstream/downstream costs as a
proportion of total costs at each mine. On this basis, the $5 million
allocated to each coal mine above would then be split $1.25 million to
upstream and $3.75 million to downstream, as 25 per cent of each coal
mine's costs are upstream in this example. Upstream costs of the two
mines would be MRRT expenditure and the downstream costs may be
taken into account in determining the MRRT revenue.
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Mining expenditure
Other amounts of mining expenditure
5.38 Amounts may be included in mining expenditure when there is
an adjustment to the use of an asset used in upstream mining operations.
For example, if half the cost of an asset was mining expenditure when
acquired, based on an expected 50 per cent use each in the upstream and
downstream operations of a mining project interest, a later decision to use
it fully in the interest's upstream mining operations would lead to a further
amount of mining expenditure. This is discussed in Chapter 13.
[Division 160]
Excluded expenditure
5.39 Certain expenditure is specifically excluded from mining
expenditure because of the general design of the MRRT while others are
excluded because of the way the MRRT is intended to interact with
various claims to the resource right. These are:
· costs of acquiring rights and interests in projects;
· royalties;
· financing costs;
· hire purchase payments;
· costs of non-adjacent land and buildings used in
administrative or accounting activities;
· hedging losses and foreign exchange losses;
· rehabilitation bond and trust payments;
· payments of income tax or GST; and
· unit shortfall charge.
[Subsection 35-5(2) and Subdivision 35-B]
Cost of acquiring rights and interests in a project
5.40 An amount of expenditure is excluded expenditure to the extent
it relates to:
· acquiring an interest in a production right covering an area,
unless the expenditure is in relation to the grant of the
production right [subsection 35-35(1)];
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Minerals Resource Rent Tax
· acquiring a mining project interest [subsection 35-35(2)]; or
· acquiring an interest in profits, receipts or expenditures of, or
relating to, a mining project interest [subsection 35-35(3)].
5.41 Deductions for expenditure incurred in acquiring rights or
interests in projects are excluded for reasons of tax symmetry.
5.42 If a miner sells its right or interest in a project it is not required
to include the sale proceeds in its mining revenue (if it were, tax would be
imposed on the capitalised value of the future profits). Accordingly, the
acquirer of the right is not entitled to a deduction for any consideration
paid to acquire the right (or any costs associated therewith).
5.43 However, the same issue does not arise with respect to
expenditure incurred in association with the initial grant of a right. Hence,
expenditures such as government fees and legal expenses paid in relation
to the grant of a right are deductible.
When something is granted
5.44 Something is `granted' when it is bestowed or conferred. The
word `grant' has historically been used to refer to situations in which
governments bestow property rights upon citizens (and other entities). It
has not generally been used to describe the transfer of rights. It has been
used here because the types of situations envisaged involve governments
granting exploration and production rights. Generally, such rights can
only be granted once. After they have been granted, they may be sold, but
not granted again.
5.45 However, more than one right could be granted over the same
area. For example, an exploration right may lapse and a government may
grant a new right. It is appropriate that expenditure associated with such a
subsequent grant be included in mining expenditure; it is not a transfer of
an existing mining right.
Royalties
5.46 Mining royalties, private mining royalties, and payments that
give rise to royalty credits are excluded expenditure. [Subsection 35-40(1)]
5.47 Mining royalties are discussed in detail in Chapter 6, which is
about allowances.
Private mining royalties
5.48 A private mining royalty is a payment in the nature of a royalty
to another person not made under a Commonwealth, State or Territory
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Mining expenditure
law. It could be a payment in kind rather than in cash. Private mining
royalties are usually calculated by reference to a percentage or share of the
gross or net value of the taxable resource, or by reference to a quantity of
taxable resource (or of some product form or component of it)
[subsection 35-45(2)]. Examples of private mining royalties include:
· payments to a party other than under a Commonwealth, State
or Territory law for access to the land (sometimes called
`private override royalties'); and
· payments under resource profit sharing arrangements.
5.49 Private mining royalty arrangements differ from government
imposed royalties in that they are, in substance, profit sharing agreements
in respect of the exploitation of a resource, rather than a price the owner
earns for selling the resource.
5.50 Private mining royalties are excluded in order to avoid the need
to assess individual royalty recipients against their share of a project's
proceeds, which would be necessary if such payments were deductible.
5.51 This approach is consistent with the treatment of private
royalties under the PRRT.
5.52 However, a private mining royalty payment is not excluded
expenditure if:
· it is given to a contractor for services that form part of
upstream mining operations for a mining project interest and
does not represent a share of the miner's profits
[subsection 35-40(2)]. Such expenditure is more appropriately
described as a fee for services, rather than as a private mining
royalty;
· it is paid to an entity under an agreement entered into with
the entity before 2 May 2010 and at a time when the entity is
a State or Territory body (other than an `excluded STB'
within the meaning of section 24AT of the Income Tax
Assessment Act 1936, which would include a municipal
corporation, public educational institution, public hospital, or
superannuation fund) [subsection 35-40(3)]. Where these
arrangements were entered into prior to 2 May 2010, the
miner would not have had the opportunity to take into
account the MRRT in striking the relevant agreement; or
· it is made, by way of consideration for the carrying on of
mining operations in the project area, to native title holders,
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Minerals Resource Rent Tax
registered native title claimants, or a person that holds rights
arising under an Australian law dealing with the rights of
Aboriginal persons or Torres Strait Islanders in relation to
land or waters that relate to the project area
[subsection 35-40(4)].
Example 5.20: Royalties paid to State or Territory bodies
Voltage Power Co (a State body) operates a coal-fired electricity
generation plant. It holds a mineral development licence over an area
of land with significant coal deposits. Prior to 2 May 2010, it enters
into an agreement with Ready, Willing & Able Co, a mining company,
to develop part of the coal deposits, with a view to having some of the
coal supplied to Voltage Power Co's electricity plant, and the balance
sold into export markets. Voltage Power Co consents to Ready,
Willing & Able Co applying for a mining lease over the relevant part
of Voltage Power Co's licence area, in consideration of Ready, Willing
& Able Co entering a contract to supply coal at fixed prices to Voltage
Power Co, and also paying a royalty on the export coal sales.
The payments are mining expenditure for Ready, Willing & Able Co
because they are the price of obtaining access to the coal deposits, and
hence necessarily incurred in carrying on upstream mining operations
for the mining project interest. Although the payments of a share of
mining revenues are private mining royalties, and therefore would
normally be excluded expenditure, they are not excluded expenditure
here because they are paid to Voltage Power Co, a State or Territory
body, under an agreement entered into before 2 May 2010.
Example 5.21: Private mining royalties and native title holders
Wildfire Coal negotiates an Indigenous Land Use Agreement (the
Agreement) with a native title group under the Native Title Act 1993.
The Agreement is registered. In accordance with the Agreement, the
native title group agrees to the granting of mining tenure over a part of
their land, and to allow Wildfire Coal to access and mine that land.
Wildfire Coal agrees to provide a benefits package that includes a
lump sum payment, a share of mining revenues, scholarship and
apprenticeship programs, payments relating to heritage protection and
environmental management, and the provision of community
infrastructure.
These payments by Wildfire Coal in accordance with the Agreement
are necessarily incurred in carrying on upstream mining operations and
so are mining expenditure. Although the payments of a share of
mining revenues are private mining royalties, they are not excluded
expenditure because they are paid to a native title holder in
consideration for carrying on mining operations on its land.
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Mining expenditure
5.53 Private mining royalties paid to a State or Territory body, or to a
native title holder or claimant, that are not excluded expenditures, will be
deductible if they satisfy the general expenditure test and irrespective of
whether they are paid to acquire an interest in production right or a mining
project interest. [Subsection 35-40(5)]
Financing costs
5.54 Financing costs and associated payments are not deductible
under the MRRT. Broadly, the types of costs excluded include the
principal and interest on a loan, borrowing costs, dividends, capital
returns, trust and partnership distributions, and the costs of issuing
membership interests in entities. This is consistent with the treatment
under the PRRT. [Section 35-50]
5.55 Financing costs are excluded because the purpose of the MRRT
is to tax profits arising from the non-renewable resource that is extracted
and those profits should not depend on the way in which a miner chooses
to finance its operations.
5.56 Capital invested in upstream operations is instead recognised
through immediate deductibility and an `uplift' allowance to maintain the
value of losses for activities upstream of the valuation point. Downstream
operations are effectively recognised through the process of attributing the
revenue to the resource at the valuation point.
5.57 Allowing a deduction for financing costs would therefore
amount to a double deduction for the cost of capital unless financiers were
also subject to the MRRT on their returns from their financing activities.
It would also distort investment and production decisions, creating a bias
towards debt financing instead of equity financing.
5.58 Three types of financing costs are excluded.
Financial arrangement
5.59 Expenditure incurred in relation to an arrangement that gives
rise to a financial arrangement is excluded expenditure. `Arrangement'
and `financial arrangement' take their meaning from the ITAA 1997 (see
subsection 995-1(1) of the ITAA 1997). For these purposes a `financial
arrangement' is defined to mean an arrangement under which an entity
has a legal or equitable right to provide and/or receive a financial benefit
that is cash settlable. [Paragraph 35-50(a)]
Equity interest
5.60 Expenditure incurred in relation to an `equity interest' that is a
financial arrangement is also excluded expenditure, as is expenditure
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Minerals Resource Rent Tax
incurred in relation to is a scheme that gives rise to an equity interest
issued by the miner. [Paragraphs 35-50(b) and (c)].
5.61 `Equity interest' is defined in the ITAA 1997 (see
subsection 995-1(1) of the ITAA). Broadly, an entity holds an equity
interest if the return on the interest is linked to the economic performance
of the entity in which the interest is held.
Hire purchase agreements
5.62 Hire purchase agreements are treated as if they are debt funded
property purchases. Therefore, any payment made in relation to a hire
purchase agreement is excluded expenditure. [Subsection 35-55(1)]
5.63 A miner who enters into a hire purchase arrangement for
property with an arm's length party will be taken to have acquired the
property for the amount shown in the agreement as the cost or value of the
property. [Paragraph 35-55(3)(a)]
5.64 If the parties are not dealing at arm's length, or if the agreement
does not specify a cost or value for the property, the miner will be taken to
have acquired the property for the amount that could reasonably be
expected to have been paid by the miner for the purchase of the property
had the hirer actually sold the property to the miner at the start of the
agreement, and the parties had dealt with each other at arm's length.
[Paragraph 35-55(3)(b)]
5.65 The cost of the property is taken to have been incurred, and the
asset is deemed acquired, when the property is supplied to the miner.
[Subsection 35-55(2)]
5.66 The result is that the deemed acquisition cost could be mining
expenditure, in the same way as it could be if the miner had actually
bought the property, but the actual payments made under the hire purchase
agreement are excluded expenditure.
5.67 It is important to note that these rules apply to hire purchase
agreements entered into before 1 July 2012 [Schedule 4 to the Minerals
Resource Rent Tax (Consequential Amendments and Transitional Provisions) Bill 2011
(MRRT (CA&TP) Bill), item 5]. If an asset is deemed to have been acquired,
and an amount deemed to have been incurred, prior to 1 July 2012 the
interim expenditure rules will apply (see Chapter 7).
Non-adjacent land and buildings used in connection with administrative
or accounting activities.
5.68 Capital expenditure is excluded expenditure to the extent that it
relates to land or buildings that are not adjacent to the project area for a
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Mining expenditure
mining project interest and are used in connection with administrative or
accounting activities. [Section 35-60]
5.69 The reason for this approach is that land or buildings that are at
or adjacent to upstream mining operations are likely to take their value
from the production right itself and their treatment recognises that
investment in such assets is a risk associated with the project. However,
the value of non-adjacent land and buildings does not reflect this risk and
is likely to appreciate over time. Therefore, capital payments in relation
to these assets are excluded expenditure.
5.70 However, to the extent that a building used for accounting and
administrative functions is also used for upstream mining operations, the
expenditure referable to the upstream mining operations is deductible.
This is consistent with the idea that it does not matter where upstream
mining operations occur, the expenditure associated with those operations,
is deductible.
Capital expenditure
5.71 While the distinction between revenue and capital expenditure is
generally not relevant for MRRT purposes, it is here. Put simply, an
expense is of a capital nature if it is directed at the business entity,
structure or organisation so that the business can operate; an expense is of
a revenue nature if it is directed at the operation of the business (per
Dixon J in Sun Newspapers Ltd and Associated Newspapers Ltd v FC of T
(1938) 61 CLR 337). The purchase of land on which a head office is
constructed is an example of a capital expense, as too would be the
construction of the head office.
Adjacent
5.72 Adjacent to the project area should be taken to mean the nearest
practicable location that is consistent with this principle. Whether a place
is the nearest practicable location will vary in different circumstances and
may take into account factors such as mine operation, safety, and
remoteness.
Example 5.22: Adjacent land and buildings
Wildfire Coal operates an underground coal mine in relation to a
production right that it holds. Due to the remoteness of the coal mine,
employees engaged in operations on the mine site live in a regional
centre located 50 kilometres away. All administration for the coal
mine is carried on at the administration building in this regional centre.
The company incurs capital expenditure in respect of that
administration building. The expenditure is not excluded expenditure
as the building is `adjacent' to the project area -- the nearest practical
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Minerals Resource Rent Tax
location for land or buildings where administrative or accounting
activities can be carried out for the operations of the coal mine.
Example 5.23: Non-adjacent land and buildings
South & Co Mines operates an iron ore mine in the Pilbara region. It
incurs capital expenditure on a building in Perth from which it
conducts the administration associated with the mine. The capital
expenditure for the building is excluded expenditure because the
building is not adjacent to the Pilbara mines.
Example 5.24: Administrative building used for more than one mine
Pick & Shovel operates a coal mine in Queensland and an iron ore
mine in Western Australia. It has a building adjacent to its iron ore
mine in Western Australia, from which it carries out administrative
functions that support its iron ore mine, as well as its coal mine in
Queensland. To the extent that the capital expenditure incurred on the
building is referrable to its West Australian iron ore mine, Pick &
Shovel can claim a deduction. However, the capital expenditure
related to Queensland coal mining operations is excluded expenditure
because the building is not adjacent to the coal mine.
Example 5.25: Building used for administrative and technical
functions
Remote Controlled Mining operates three iron ore mines in the Pilbara.
It has a building in Perth from which it performs administrative
functions. A number of operating, technical, and geological services
integral to upstream mining operations are also performed from this
building.
To the extent that the capital costs of the building relate to upstream
operating, technical, and geological services, they can be included in
mining expenditure.
Hedging or foreign exchange expenditure
5.73 Expenditure is excluded to the extent that it relates to hedging or
foreign exchange arrangements. [Section 35-65]
5.74 Hedging and foreign exchange arrangements are pure financial
transactions which, while they impact on the ultimate profitability of a
business, do not affect the value of the resource. While it is doubtful that
such expenditure would ever bear a sufficient relationship to upstream
mining operations in order to satisfy the general expenditure test, this
provision removes all doubt.
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Mining expenditure
Hedging arrangements
5.75 Excluded expenditure includes expenditure that relates to a
`derivative financial arrangement' (see subsection 995-1(1) of the
ITAA 1997) [paragraph 35-65(a)]. Basically, this is a financial arrangement
that changes in value in response to a variable, and in respect of which
there is no requirement for a net investment.
Foreign exchange arrangements
5.76 Excluded expenditure also includes expenditure that relates to a
`foreign currency hedge' (see subsection 995-1(1) of the ITAA 1997)
[paragraph 35-65(b)]. Put simply, this is a financial arrangement that hedges
a risk in relation to movements in currency exchange rates.
Example 5.26
KF Iron Exports has entered a contract with a major overseas industrial
group to provide a substantial amount of iron ore over an extended
period for a set amount per tonne. As the currency of the country in
which the industrial group operates is volatile, KF Iron enters into a
hedging contract with a third party (unrelated to the sales contract) to
cover the possibility that the value of the currency falls during the term
of the contract. Any expenditure relating to the foreign currency hedge
is excluded expenditure for MRRT purposes.
5.77 To the extent to which a hedging or foreign exchange
arrangement forms part of a sales contract, any expenditure on the hedge
would be included in mining expenditure. That is because the sales
contract, as a non-cash settlable arrangement, would not be a `derivative
financial arrangement' or a `foreign currency hedge'.
Rehabilitation bonds and trust payments
5.78 Amounts provided as security for rehabilitation of the project
area for a mining project interest are excluded expenditure for the MRRT.
[Subsection 35-70(1)]
5.79 To ensure that money put aside for rehabilitation is secure,
rehabilitation bonds and trust payments are generally placed in low-risk
investments. Therefore, it is not appropriate that the MRRT uplift rate
(which is intended to reflect the higher risk associated with a resource
project) apply to such payments.
5.80 However, if an amount held as security is paid out by a trustee
or bondholder, then that amount will be included in the miner's mining
expenditure to the extent that it is for rehabilitation of a project area for
the mining project interest the miner has at the time the amount is incurred
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Minerals Resource Rent Tax
by the trustee or bondholder. If more than one miner has a mining project
interest in relation to the project area, the miner may include in its
expenditure the amount that reasonably relates to its mining project. Such
amounts are considered expenditure of the miner at the time the trustee or
bondholder incurs the amount. [Subsection 35-70(2)]
5.81 The trustee must provide the miner with a notice containing the
information the miner needs to determine the extent to which the amount
is mining expenditure for the miner. [Schedule 1 to the MRRT (CA&TP) Bill,
item 8, section 121-12 of Schedule 1 to the Taxation Administration Act 1953].
Payments of income tax or GST
5.82 Income tax payments under the ITAA 1997 or the ITAA 1936
are excluded expenditure and cannot be deducted against mining revenue.
[Paragraph 35-75(a)]
5.83 Payments of GST, input tax credits and decreasing adjustments
are also excluded expenditure. As with mining revenue, all mining
expenditure is deducted on a GST-exclusive basis. [Paragraphs 35-75(b)
and (c)]
5.84 All payments of penalties or interest under tax laws are excluded
expenditure. [Paragraph 35-75(d)]
Unit shortfall charge under the Clean Energy Bill 2011
5.85 The amendments make unit shortfall charges incurred by an
entity in relation to its obligations under the Clean Energy Bill 2011
excluded expenditure. [Schedule 3, item 92 of the MRRT (CA&TP) Bill, section
35-80 of the MRRT Bill)
5.86 A unit shortfall occurs when an entity has not surrendered
enough emission units to meet its emissions liability. Entities liable for a
shortfall charge will pay a premium above the value of the unit.
5.87 The unit shortfall charge is excluded expenditure for MRRT
purposes to ensure that the entity liable to the charge bears its full cost and
does not have an incentive to defer its emissions liability.
5.88 The amendment to the MRRT Bill commences at the later of the
commencement of the Clean Energy Bill 2011 and the commencement of
the MRRT Bill. This ensures that both pieces of legislation are enacted
before the amendment occurs. [Clause 2 to the MRRT (CA&TP) Bill, item 8 of the
table]
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Chapter 6
Allowances
Outline of chapter
6.1 This chapter explains how to calculate the individual allowances
(apart from starting base allowances, which are explained in Chapter 7)
that reduce a mining profit for a Minerals Resource Rent Tax (MRRT)
year. It explains the allowances' common features and why there are
some differences between them.
6.2 All legislative references throughout this chapter are to the
Minerals Resource Rent Tax Bill 2011 (MRRT Bill) unless otherwise
indicated.
Summary of new law
6.3 An MRRT liability for a mining project interest is calculated by
reducing the interest's mining profit by any MRRT allowances and
multiplying the result by the MRRT rate.
6.4 MRRT allowances are taken into account in a specified order.
The seven types of allowances available to miners, and the order in which
they are applied in working out the MRRT liability for a mining project
interest are:
· royalty allowances;
· transferred royalty allowances;
· pre-mining loss allowances;
· mining loss allowances;
· starting base allowances;
· transferred pre-mining loss allowances; and
· transferred mining loss allowances.
6.5 Starting base allowances are explained in Chapter 7.
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Minerals Resource Rent Tax
6.6 Only so much of the available royalty credits, pre-mining losses
and mining losses (including by way of transfer) as are necessary to
reduce the mining profit to nil can be an MRRT allowance in a particular
MRRT year.
6.7 Allowances reduce the mining profit of a mining project interest
in the specified order until either the mining profit is reduced to nil or the
available royalty credits, pre-mining losses, mining losses and starting
base losses are exhausted.
6.8 The balance of any royalty credits, mining losses and pre-mining
losses available after the mining profit is reduced to nil are then available
to be transferred to offset mining profits of certain other mining project
interests. Any balance remaining after these transfers is carried forward to
future MRRT years and is uplifted.
Detailed explanation of new law
Allowances generally
6.9 Under the MRRT, the mining profit of a mining project interest
for an MRRT year must be reduced by any available MRRT allowance.
[Sections 60-10, 65-10, 70-10, 75-10, 80-10, 95-10 and 100-10]
6.10 Allowances are applied in this order:
· royalty allowances;
· transferred royalty allowances;
· pre-mining loss allowances;
· mining loss allowances;
· starting base allowances;
· transferred pre-mining loss allowances; and
· transferred mining loss allowances.
The allowance highest in the order must be fully applied before the next
highest can be applied, and so on. [Section 10-10]
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Allowances
Allowances only up to the amount of the mining profit
6.11 If royalty credits, pre-mining losses, mining losses or starting
base losses are available, the amount of each is applied in calculating the
relevant allowance up to the amount of the mining profit remaining after
applying any higher ranked allowances. [Sections 60-10, 60-15, 65-10, 65-15,
70-10, 70-15, 75-10, 75-15, 80-10, 80-15, 95-10, 95-15, 100-10 and 100-15]
Example 6.1: Ordering of allowances
Alpha Coal Co has a mining profit for a mining project interest for an
MRRT year of $52 million and available royalty credits of $5 million,
a pre-mining loss of $3 million and a mining loss of $45 million.
The $5 million royalty credit is fully applied to calculate a royalty
allowance of $5 million, which reduces the remaining mining profit to
$47 million. The pre-mining loss is fully applied to calculate a
pre-mining loss allowance of $3 million, which reduces the remaining
mining profit to $44 million. The available mining loss of $45 million
is applied to the extent necessary to reduce the remaining mining profit
to nil. That is, a mining loss allowance of $44 million, leaving an
available mining loss of $1 million.
6.12 Any remaining royalty credits, mining losses and pre-mining
losses still available after the mining profit is reduced to nil can then be
transferred to other mining project interests to the extent possible to
reduce their mining profits. Different conditions need to be satisfied for
royalty credits, pre-mining losses and mining losses to be transferrable.
These are explained below.
Order of applying royalty credits, losses and pre-mining losses
6.13 If there is more than one royalty credit, more than one mining
loss, or more than one pre-mining loss available, they are applied in the
order in which they arose. [Subsections 60-15(2), 65-15(2), 70-15(2), 75-15(2)
95-15(2) and 100-15(2)]
6.14 The miner may choose the order in which to transfer two or
more royalty credits, pre-mining losses or mining losses that arose at the
same time. [Subsections 65-15(2), 95-15(2) and 100-15(2)]
Uplifting
6.15 The conversion of royalty credits, pre-mining losses and mining
losses to allowances only occurs to the extent that the particular allowance
will be fully applied to reduce mining profit for the year. The royalty
credits, pre-mining losses and mining losses still unapplied at the end of
the year are uplifted. The amounts of royalty credits and mining losses
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Minerals Resource Rent Tax
are uplifted at the long term bond rate + 7 per cent (LTBR + 7 per cent)
each year [subsections 60-25(2) and 75-20(3)]. The amount of a pre-mining
loss is uplifted at the LTBR + 7 per cent for the first 10 years after the loss
arises, but only at the long term bond rate (LBTR) thereafter [section 70-50].
When two interests relate to iron ore or do not relate to iron ore
6.16 Before amounts can be transferred between two interests to give
rise to a transferred royalty allowance, a transferred pre-mining loss
allowance or a transferred mining loss allowance, one of the preconditions
is that the two interests must either both relate to iron ore or both not
relate to iron ore. This limits transfers to project interests with the same
broad groupings: those that are related to iron ore and those that are
related to coal.
6.17 An interest will relate to iron ore if it relates to extracting:
· iron ore [paragraph 20-5(1)(a)]; or
· something produced from a process that results in iron ore
being consumed or destroyed without extraction
[paragraph 20-5(1)(c)].
6.18 An interest will not relate to iron ore (that is, it will effectively
relate to coal) if it relates to extracting:
· coal [paragraph 20-5(1)(b)];
· coal seam gas as a necessary incident of mining coal
[paragraph 20-5(1)(d)]; or
· something produced from a process that results in coal being
consumed or destroyed without extraction
[paragraph 20-5(1)(c)].
Example 6.2: Pre-mining project interests do not relate to iron ore
Greater Coal Gas Co has two pre-mining project interests. One
pre-mining project interest involves an extensive coal deposit that
Greater Coal is considering developing into a coal mine. The other
pre-mining project interest is awaiting State approval to begin a coal
seam gasification operation.
The first pre-mining project interest relates to coal. The second
pre-mining project interest relates to gas produced by consuming the
coal in situ.
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Allowances
Since neither of Greater Coal's pre-mining project interest relates to
iron ore, allowances may be transferable between them.
Example 6.3: Mining project interests relate to different resources
Green Bond Mines has a mining project interest that extracts coal with
an available mining loss and another mining project interest that
extracts iron ore that has a mining profit for the year.
The first mining project interest relates to coal. The second mining
project interest relates to iron ore. As the project interests relate
neither both to iron ore nor both to something other than iron ore, the
mining loss of one mining project interest cannot be transferred to the
mining project interest with the mining profit.
Royalty allowances
6.19 A miner has a royalty allowance for a mining project interest if
the interest has a mining profit and there are royalty credits that relate to
that interest [section 60-10]. The amount of the royalty allowance is the sum
of the available royalty credits up to the amount of the mining profit
[subsection 60-15(1)]. Excess royalty credits are applied in calculating any
transferred royalty allowance for another mining project interest of the
miner for the MRRT year if that other interest is integrated with the first
mining project interest at all times from when the royalty credit arose to
the end of the transfer year. Any remaining royalty credits are uplifted
and are available for use in future years.
Royalty credits
6.20 For a liability to be relevant in determining if a royalty credit
arises for a mining project interest, it has to be incurred on or after
1 July 2012. It does not matter whether the resources were extracted on,
before, or after that day. [Subsection 60-20(2); and Schedule 4 to the Minerals
Resource Rent Tax (Consequential Amendments and Transitional Provisions) Bill 2011,
item 6]
Royalties
6.21 A mining royalty gives rise to a royalty credit for a mining
project interest when the miner incurs a liability to pay the royalty in
relation to taxable resources extracted under a production right that relates
to the interest. [Paragraph 60-20(1)(a)]
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Minerals Resource Rent Tax
6.22 A mining royalty is a liability payable under a Commonwealth,
State or Territory law to make a payment in relation to a taxable resource,
extracted under the authority of a production right, that:
· is a royalty; or
· would have been a royalty if the taxable resource had been
owned by the Commonwealth, a State or Territory just before
it was recovered.
[Subsection 35-45(1)]
6.23 The first dot point alludes to the need for a mining royalty to be
a `royalty' within the ordinary meaning of that word. Within its ordinary
meaning, a royalty is a payment usually made in respect of a particular
exercise of a right to take a substance that is calculated in respect of either
the quantity or value taken or the occasions on which it is exercised (see
FCT v Sherritt Gordon Mines Ltd 77 ATC 4365 at p. 4372; Stanton v FCT
(1955) 92 CLR 630 at p. 642). So, for instance, a royalty does not include
amounts imposed by some State mining legislation by way of interest for
late payment of mining royalties, even if those interest payments are
described as `royalties' for the purposes of that legislation.
6.24 The second dot point deals with possible arguments that a
relevant liability cannot be a royalty if it is not payable to the Crown and
that a payment cannot be a royalty if it is not paid to the owner of the
resources in situ. It ensures that liabilities incurred under Australian laws
can still be a mining royalty even when payable to private owners of
taxable resources in the ground.
6.25 Mining royalties include royalties payable to the
Commonwealth, as well as the more common State and Territory
royalties. This is necessary because the MRRT law extends to Australia's
offshore areas, which can be the subject of authorities to extract resources
under the Offshore Minerals Act 1994. Commonwealth royalties could
apply in respect of such resources (see section 4 of the Offshore Minerals
(Royalty) Act 1981).
Payments by way of recoupment of royalties
6.26 A royalty credit also arises for a mining project interest when the
miner incurs a liability to pay an amount (in relation to a taxable resource
extracted under a production right that relates to the interest) to another
entity by way of recoupment of a liability of the other entity that:
· gives rise at any time to a royalty credit for that other entity
in relation to the production right; or
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Allowances
· would give rise at any time to a royalty credit for that other
entity if the other entity had a mining project interest relating
to that production right.
[Paragraph 60-20(1)(b)]
6.27 This covers the situation where a miner with a mining project
interest but no direct interest in the production right has to compensate the
production right holder for the mining royalty it must pay. It does not
matter whether the production right holder itself has a mining project
interest in relation to that production right.
Example 6.4: Minerals rights agreement
Alister Co owns a mining lease on which it mines mineral sands.
Under a Minerals Rights Agreement, Alister grants Blaster Co an
exclusive right to enter the land covered by the mining lease to mine
and remove iron ore. Title in the iron ore is transferred at the point of
extraction. Under the agreement, Blaster Co is contractually obliged to
comply with the obligations associated with the Mining Lease to the
extent those obligations relate to the exercise of its iron ore right. One
of the obligations is that Blaster Co pays the State all the royalties
applicable to the iron ore it mines that are legally payable by Alister
Co as the mining lease holder.
Blaster Co is the miner under the MRRT law and Alister Co is not
because it does not share in the production from the operation. Blaster
Co is entitled to a royalty credit, even though Alister Co is legally
required to pay the royalties. The royalty credit is available to Blaster
Co because its payment to the State on behalf of Alister Co recoups
Alister Co's liability that would have given rise to a royalty credit if
Alister Co had had a mining project interest.
6.28 It also covers cases where a miner has to compensate someone
else who in turn has to compensate the production right holder. This
could arise when a miner conducts a mining operation by agreement with
the production right holder but sub-leases the actual mining activities to
another miner in return for a share of the taxable resources produced. The
possibility of a chain of such obligations is covered. [Paragraph 60-20(1)(b)]
6.29 Whether the holder of the mining project interest obtains a
royalty credit for royalties paid by another party (for instance, the
production right holder) depends on whether the interest holder pays an
amount to the other party to recoup the actual royalty the other party pays.
`Recoupment' is defined by section 20-25 of the Income Tax Assessment
Act 1997 (ITAA 1997) and includes any kind of recoupment,
reimbursement, refund, insurance, indemnity or recovery however
described. [Section 300-1, definition of `recoupment']
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Minerals Resource Rent Tax
Example 6.5: Royalty reimbursement arrangement
Porthole Properties Pty Ltd grants Fox Fine Ores an exclusive license
to access and mine coal on its production right. Fox acquires title in
the coal after it is loaded onto the run-of-mine stockpile and must pay
Porthole $5 a tonne for the coal it sells. Porthole is required by State
law to pay royalties for the coal Fox mines but is, under its agreement
with Fox, entitled to reimbursement of those royalties.
Fox is the miner under the MRRT, and Porthole is not because it does
not share in the production from the operation. Therefore, Porthole is
not entitled to any royalty credit for the royalties it pays. Fox is
reimbursing Porthole rather than paying a royalty directly but is still
entitled to a royalty credit for the payments because they `recoup'
Porthole's royalty payments and Porthole would have got a royalty
credit for its payments if it had been a miner.
6.30 A miner reduces its royalty credits in an MRRT year it receives,
or becomes entitled to receive, a recoupment of a liability that gave rise to
a royalty credit for one of its mining project interests. Royalty credits are
reduced in the order in which they arose. Only any remaining royalty
credits after this reduction can produce royalty allowances and transferred
royalty allowances for that year. [Subsection 60-30(1)]
6.31 In the same way that royalty credits are the grossed-up amount
of the royalty liability (this is explained later), recoupments of royalty
liabilities are grossed-up before they reduce a miner's royalty credits.
[Paragraph 60-30(1)(a)]
6.32 If the reduction for the recoupment exceeds the miner's royalty
credits available to be reduced, the excess becomes mining revenue of that
year. [Subsection 60-30(2) and section 30-45]
6.33 The effect of generating royalty credits for royalty payments
relating to a production right and for payments to recoup the payer of such
royalties, and reducing credits for receiving recoupments of such
payments, is that the royalty credit from the actual payment of the royalty
is apportioned between the various entities that have a mining project
interest related to the production right. That apportionment might not
occur within a single MRRT year. For example, if a royalty paid in one
year was recouped in the following year, there would be royalty credits in
the first year and a reduction in royalty credits in the second year.
Example 6.6: Royalty recoupment
Smelaya Resources and Malyshka Minerals are jointly developing a
mine owned by Smelaya. They have agreed to share equally the
resources they mine and the costs they incur.
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Allowances
In 2014-15, Smelaya is liable for royalties of $5 million to the State
but, under the terms of the agreement, is entitled to a $2.5 million
reimbursement from Malyshka. Smelaya generates a royalty credit of
$22.22 million ($5 million/0.225) and Malyshka generates a credit of
$11.11 million ($2.5 million/0.225) for its liability to reimburse
Smelaya. Smelaya will reduce its credit by $11.11 million for that
recoupment.
In 2015-16, the State refunds Smelaya $2 million of its royalty
payment as an incentive to further develop the mine. This recoupment
reduces Smelaya's royalty credits for 2015-16 by $8.89 million
($2 million/0.225). Because it is liable to pass half of that on to
Malyshka, it would also generate a royalty credit of $4.44 million
($1 million/0.225). Receipt of the refund reduces Malyshka's 2015-16
royalty credits by $4.44 million.
Initial amount of a royalty credit
6.34 The amount of a royalty credit in the year it arises is the
grossed-up amount of the royalty liability incurred. The grossing-up is
achieved by dividing the royalty amount by the MRRT rate. That
produces a deductible amount that will have the same effect as an offset
equal to the royalty payment. The royalty amount has to be converted into
a deductible amount, rather than applied as an offset, because the ordering
of allowances requires royalty allowances to be recognised before some
deductible amounts (such as losses). [Subsection 60-25(1)]
Example 6.7: Royalty payments and royalty credits
South and Co Mines extracts 500,000 tonnes of iron ore from its
mining project. The State charges a 7.5 per cent royalty on the
value of the iron ore at the point of sale. South and Co sells the
iron ore to a third party for $150 per tonne. It pays a State royalty of
$5.625 million.
South and Co Mines' royalty payment is converted to a royalty credit
for MRRT purposes by dividing it by the MRRT rate of 22.5 per cent
giving a royalty credit of $25 million. Its annual mining profit for the
mining project is $55 million. The royalty credit is applied to produce
a royalty allowance of $25 million. South and Co Mines' mining
profit is reduced to $30 million by the royalty allowance, which
exhausts the royalty credit.
Example 6.8: Royalty payment to private landowner
Zenat Ltd extracts 20,000 tonnes of coal during an MRRT year from
land owned by Yady Co, which also owns the coal in the ground.
Under State legislation, a royalty of $6 per tonne extracted is payable
directly to Yady on a monthly basis. Zenat has an available royalty
credit of $533,333 [(20,000 × $6)/0.225] that will be applied to
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Minerals Resource Rent Tax
calculate its royalty allowance. The payments to Yady would normally
be a private mining royalty but are instead mining royalties because
they are paid under State legislation.
Uplifting unused royalty credits
6.35 The amount of a royalty credit available in a later year is the
royalty credit available for the previous MRRT year less what was applied
during that previous year to work out a royalty allowance or a transferred
royalty allowance. That result is uplifted by the LTBR + 7 per cent.
[Subsection 60-25(2)]
Using up a royalty credit
6.36 A royalty credit ceases to be a royalty credit once it has been
fully applied in working out royalty allowances for the mining project
interest or transferred royalty allowances for other mining project
interests. [Subsection 60-20(3)]
Transferred royalty allowances
6.37 A miner has a transferred royalty allowance for a mining
project interest for an MRRT year if the interest has a remaining mining
profit (after application of royalty allowances) and there are unused
royalty credits available that can be transferred to it from other interests.
[Section 65-10]
6.38 A royalty credit of one mining project interest can be transferred
and used to offset a mining profit in another mining project interest, if:
· the two mining project interests are integrated at all times
from when the royalty credit arose to the end of the year in
which the royalty credit is transferred; and
· the royalty credit does not relate to a year for which an
election was made to use the alternative valuation method.
[Subsection 65-20(1)]
6.39 Transferability of royalty credits aims to put mining project
interests that are unable to combine (because they have quarantined
allowances) into a similar position (prospectively) as if they had
combined.
6.40 Whether two mining project interests are integrated is explained
in Chapter 9.
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Allowances
6.41 The amount of a royalty credit that can be transferred to a
mining project interest cannot exceed the amount of the receiving
interest's remaining mining profit. [Subsection 65-15(1)]
6.42 Royalty credits must be transferred in the order in which they
arose. If several royalty credits arose at the same time (for example, if
there are several mining project interests with credits available to
transfer), the miner can choose which of them to transfer.
[Subsection 65-15(2)]
Pre-mining loss allowances
6.43 An entity has a pre-mining loss allowance for a mining project
interest for an MRRT year if it has an available pre-mining loss that
relates to that interest and it has a remaining mining profit after deducting
all higher ranked allowances. [Section 70-10]
6.44 The amount of the pre-mining loss allowance is the lesser of the
sum of the available pre-mining losses and the remaining mining profit.
[Subsection 70-15(1)]
6.45 Any pre-mining losses remaining after a pre-mining loss
allowance is calculated are then applied in calculating any transferred
pre-mining loss allowance for the MRRT year. Any pre-mining losses
remaining after that are then available for use in future years to reduce
future mining profits for that mining project interest. They are uplifted at
the LTBR + 7 per cent for the first 10 years, and at the LTBR thereafter.
[Section 70-50]
6.46 A pre-mining loss is an available pre-mining loss for a mining
project interest if it relates to a pre-mining project interest from which the
mining project interest originated. A mining project interest `originates'
from a pre-mining project interest when the mining project interest starts
to apply to an area and at the same time the pre-mining project interest
stops applying to that area. [Section 70-20]
6.47 A pre-mining loss ceases to be a pre-mining loss once it has
been fully applied in working out pre-mining loss allowances for the
mining project interest or transferred pre-mining loss allowances for other
mining project interests. [Subsection 70-30(2)]
Pre-mining project interest
6.48 A pre-mining project interest is an interest in an authority or
right for a purpose (other than an incidental purpose) of exploration or
prospecting for taxable resources. If the interest relates to both iron ore
and another taxable resource it is treated as two separate pre-mining
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Minerals Resource Rent Tax
project interests: one relating to the iron ore and the other relating to the
other taxable resource(s). [Section 70-25]
6.49 Since `exploration or prospecting' is defined to include studies
to evaluate the economic feasibility of mining discovered resources,
pre-mining interests will include interests in mineral development leases,
which are usually held for those purposes. An interest in a retention lease
is also considered a pre-mining project interest, since one of the
significant rights conferred under a retention lease is to explore.
[Sections 70-25 and 300-1, definition of `exploration or prospecting']
Pre-mining losses
6.50 An entity has a pre-mining loss for an MRRT year if it holds a
pre-mining project interest and its pre-mining expenditure for the interest
exceeds its pre-mining revenue for the interest for the MRRT year.
[Subsection 70-30(1)]
6.51 This allows pre-mining project expenditure (for example,
exploration expenditure) that is a necessary precursor to the development
of a mining project interest to be recognised under the MRRT.
Pre-mining expenditure
6.52 An entity's pre-mining expenditure for a pre-mining project is
expenditure, whether of a capital or revenue nature, to the extent it is
necessarily incurred in carrying on the pre-mining project operations, and
is not excluded expenditure. [Subsections 70-35(1) to (4)]
6.53 Operations or activities are pre-mining project operations to the
extent that they would have been upstream mining operations if the
interest were a mining project interest rather than a pre-mining project
interest [subsection 70-35(5)]. Upstream mining operations of a mining
project interest are discussed in Chapter 5.
6.54 In some circumstances, an entity that holds a pre-mining project
can also include amounts in its pre-mining expenditure for the exploration
activities carried on by another entity under a `farm-out' arrangement. A
farm-out typically involves an agreement between:
· an entity that holds a pre-mining project interest (the farmor)
wanting to explore that project area; and
· another entity (the farmee) who incurs expenses exploring
the project area, in exchange for an interest in the pre-mining
project interest.
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Allowances
6.55 Where the farm-out arrangement results in the farmee being
granted an interest in the pre-mining project, then the farmor will include
an amount in its pre-mining expenditure at that time to reflect the value of
the interest they have given up in exchange for the exploration. 5
[Divisions 35 and 195]
Example 6.9: Successful farm-out arrangement
Farmor Co holds an exploration permit. It is interested in exploring
the pre-mining project area. Farmee Co agrees to undertake the
exploration work in exchange for a 10 per cent interest in the
exploration permit. Farmee Co agrees to complete the exploration
within three years and does so.
Farmor Co may include in its pre-mining expenditure an amount for
the exploration services completed by Farmee. The non-cash benefit
rules (in Division 195) operate such that the amount of the deduction
will be the market value of the exploration services. The amount
ascertained using the non-cash benefit rules is included in Farmor Co's
pre-mining expenditure when it is necessarily incurred.
However, Farmee Co's exploration expenses are excluded expenditure
because they are its cost of acquiring a right (being its interest in the
permit).
6.56 However, in some circumstances the farm-out arrangement will
not be completed and the farmor will not be required to give the farmee an
interest in the pre-mining project interest. In those circumstances, the
farmor will have obtained the benefit of the exploration without any
expenditure. Specific provision is therefore made to ensure that the costs
of the exploration are included in the pre-mining expenditure for the
farmor's interest. They are included in pre-mining expenditure when it
becomes clear that the farmee is not going to be granted the interest.
[Subsection 70-35(7)]
Example 6.10: Unsuccessful farm-out arrangement
Farmor Co holds an exploration permit. It is interested in exploring
the pre-mining project area. Farmee Co agrees to undertake the
exploration work in exchange for a 10 per cent interest in the
exploration permit. Farmee Co agrees to complete the exploration
within three years but fails to do so.
5
Similarly, where a farm-out arrangement involves a mining project interest and the farmee is
granted an interest in that mining project interest, then the farmor will include an amount in
its mining expenditure at that time to reflect the value of the interest they have given up in
exchange for the exploration.
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Minerals Resource Rent Tax
At the end of the three years, the amounts incurred by Farmee Co in
exploring in the project area are included by Farmor Co in the
pre-mining expenditure for the pre-mining project interest.
No double counting of pre-mining expenditure
6.57 The same amount cannot be included in the pre-mining
expenditure of an entity under two or more provisions. This prevents the
double counting that could arise if an amount was otherwise allowable
under more than one provision. [Subsection 70-35(8)]
6.58 Similarly, where the same amount is included in both mining
expenditure and pre-mining expenditure it is only to be allowable under
the provision that is most appropriate. To determine which the most
appropriate provision is, it will be necessary to have regard to the facts
and circumstances of the particular case, including the character of the
amount and its relationship to the mining project interest and pre-mining
project interest. [Subsection 70-35(9)]
Pre-mining revenue
6.59 An amount is pre-mining revenue if it would have been mining
revenue if the pre-mining interest to which the amount relates had instead
been a mining project interest. For instance, the sale of taxable resources
that have been extracted under a mineral development lease will give rise
to an amount of pre-mining revenue. In some instances, the amounts of
pre-mining revenue will exceed the amounts of pre-mining expenditure
for a pre-mining interest for an MRRT year to produce a pre-mining
profit. Pre-mining profits are discussed in Chapter 12. [Section 70-40]
Mining loss allowances
6.60 A mining project interest has a mining loss allowance for an
MRRT year if the interest has a mining profit remaining after all higher
ranked allowances (royalty allowance, transferred royalty allowance and
pre-mining loss allowance) have been applied and there is an available
mining loss for the interest. [Section 75-10]
6.61 The amount of a mining loss allowance is the lesser of the
remaining mining profit and the available mining losses for the mining
project interest. When working out the amount of a mining loss
allowance, mining losses are applied in the order in which they arise. So,
a mining loss that arises in the 2012-13 MRRT year will be applied before
a mining loss that arises in the 2013-14 MRRT year. [Section 75-15]
6.62 A mining project interest has a mining loss for an MRRT year if
its mining expenditure exceeds its mining revenue for the year. The
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Allowances
amount of the mining loss for that year is the amount of the excess.
[Subsections 75-20(1) and (2)]
6.63 The amount of a mining loss available in a later year is the
mining loss available for the previous year less the amount of it that was
applied during that preceding year in working out a mining loss allowance
or transferred mining loss allowances. The result is uplifted by the
LTBR + 7 per cent. [Subsection 75-20(3)]
Example 6.11: Mining losses
Slow Start Pty Ltd's mining project interest makes a mining loss for
each of the 2013, 2014, 2015, 2016 and 2017 MRRT years. It then
makes a mining profit in the 2018 and 2019 MRRT years.
Assume:
· LTBR for all years is 6 per cent, so the uplift factor is
1.13 (0.06 + 1.07).
· There are no other relevant allowances or transferred allowances.
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Minerals Resource Rent Tax
Tax year 2013 2014 2015 2016 2017 2018 2019
$m $m $m $m $m $m $m
Mining (100) (50) (200) (100) (20) 400 800
profit/loss
Previous
amount of
loss
2013 - (100) (113) (127.69) (144.29) (163.05) -
2014 - - (50) (56.50) (63.85) (72.14) -
2015 - - - (200) (226) (255.38) (154.35)
2016 - - - - (100) (113) (127.69)
2017 - - - - - (20) (22.60)
2018 - - - - - - -
Uplifted prior
year loss
2013 - (113) (127.69) (144.29) (163.05) (184.24) -
2014 - - (56.50) (63.85) (72.14) (81.52) -
2015 - - - (226) (255.38) (288.58) (174.41)
2016 - - - - (113) (127.69) (144.29)
2017 - - - - - (22.60) (25.54)
2018 - - - - - - -
Remaining 0 0 0 0 0 0 455.76
mining profit
The 2018 MRRT year's mining profit of $400 million is reduced by a
mining loss allowance worked out taking into account so much of each
available mining loss as does not exceed the mining profit, starting
with the oldest. The mining loss for the 2013 MRRT year, as uplifted
to the 2018 MRRT year ($184.24 million), is applied first.
This is followed by the mining loss for the 2014 year, as uplifted to the
2018 year ($81.52 million). Then the mining loss for the 2015 year, as
uplifted to the 2018 year ($288.58 million), is applied but only to the
extent that it reduces the mining profit in the 2018 year to nil.
Therefore, only $134.24m of that loss is used up
($400m - $184.24m - $81.52m)
This remaining $154.34 million of the mining loss for the 2015 year
will be uplifted for the 2019 year (to $174.40 million) to be an
available mining loss to be applied in calculating the mining loss
allowance to be deducted from the $800 million mining profit for the
2019 year.
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Allowances
6.64 The mining loss from a particular MRRT year ceases to be a
mining loss if it has been fully applied in working out either one or more
mining loss allowances or one or more transferred mining loss
allowances. [Subsection 75-20(4)]
Transferred pre-mining loss allowances
6.65 Because most mineral exploration in Australia is conducted by
entities that do not themselves mine their successful discoveries, the
transfer of pre-mining losses is dealt with differently from the transfer of
mining losses. Pre-mining losses do not have to satisfy a common
ownership test before they can be transferred. However, they do have to
satisfy the requirements that transfers occur between interests related to
the same type of taxable resource and held by the same entity or by a
closely associated entity. The transfer of pre-mining losses is also capped
where they are acquired for an amount that is less than their tax value.
When does a miner have a transferred pre-mining loss allowance?
6.66 A miner has a transferred pre-mining loss allowance for a
mining project interest if it has any remaining mining profit after
deducting all higher ranked allowances and there are available pre-mining
losses. [Section 95-10]
6.67 There are two situations in which a mining project interest can
have a transferred pre-mining loss allowance.
6.68 The first is where the miner (or a close associate) has a mining
project interest and holds a pre-mining project interest in relation to the
same type of taxable resource. The pre-mining losses associated with the
pre-mining project interest can be applied to work out a transferred
pre-mining loss allowance for the mining project interest.
[Subsections 95-20(1) and (2)]
6.69 The second is where a miner has a mining project interest that
originated from a pre-mining project interest that had a pre-mining project
loss. `Origination' was discussed in more detail above. In these
circumstances, the originating mining project interest inherits the
pre-mining loss, which can be applied to work out a transferred
pre-mining loss allowance another mining project interest of the miner, or
a close associate. [Subsections 95-20(1) and (3)]
Meaning of closely associated
6.70 An entity is closely associated with another entity at a particular
time if they are both members of the same consolidatable group for
income tax purposes, or would be if the entities were Australian residents.
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Minerals Resource Rent Tax
Broadly speaking, the concept of a `consolidatable group' in the income
tax law is relevant to deciding whether a group of wholly-owned entities
could be treated as a single entity for income tax purposes. However, the
income tax concept does not permit foreign residents to be the head or
members of a consolidatable group. However, reflecting the MRRT
policy of requiring the transfer of pre-mining losses between all members
of a group, the Australian residence requirement of the definition of
`consolidatable group' is ignored for these purposes. [Subsection 95-20(5)
and section 300-1, definition of `consolidatable group']
Amount of a transferred pre-mining loss allowance
6.71 The amount of a transferred pre-mining loss allowance is the
amount of the available pre-mining losses (or the amount of the mining
project interest's remaining mining profit if that is less).
[Subsection 95-15(1)]
6.72 In calculating the amount of the allowance, pre-mining losses
are applied in the order in which they arose. If there are several
pre-mining losses that arose in the same year (because they arose from
different pre-mining project interests), the miner can choose which of
them to transfer first. [Subsection 95-15(2)]
Capping the amount of a transferred pre-mining loss allowance
6.73 On the sale of a pre-mining project interest or a mining project
interest, any pre-mining losses that exist in relation to that interest will be
transferred with it. These transfers are explained in Chapter 10.
6.74 The purchaser can then apply the pre-mining losses to reduce
mining profits of its (or its close associates) mining project interests.
6.75 However, to prevent trading in pre-mining losses that have a
greater economic value than the underlying project interest (the loss
interest), the extent to which those pre-mining losses can be transferred to
another mining project interest (the receiving interest) may be capped
when an interest is acquired. [Sections 95-25 and 95-30]
6.76 The cap applies if either the receiving interest or the loss interest
was not held by the miner or a close associate at all times from the start of
the loss year until the end of the year in which the loss is being
transferred. This common ownership test is not focused on whether there
has been a change in the direct ownership of the interests, nor is it asking
if the interests have remained in the one entity or group. Rather, the test
focuses on the relationship between the holders of the two project interests
and asks whether, at each moment within the test period, both were held
by the same entity or by entities within the same common group (even if
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Allowances
the entities holding them, or the group they were part of, changed from
time to time within the period). [Paragraph 95-25(2)(b) and subsection 95-25(3)]
6.77 The cap only applies to pre-mining losses that arose before the
cap arises and which are to be transferred in that year or a later year. In
other words, the cap does not limit the transfer of pre-mining losses that
arise for a year after the cap arises. [Paragraphs 95-25(2)(c) and (d)]
6.78 The cap arises in relation to a loss interest or a receiving interest
when an entity starts to have the interest. However, as an exception to
this, the cap does not arise when the interest starts to exist (such as on the
initial grant of a production or an exploration right). The cap also does
not apply if the entity starts to have the interest simply because it is the
head company of a group that consolidates, or is the entity leaving a
consolidated group. [Paragraph 95-30(1)(a)]
6.79 The cap also arises when the entity that has the receiving interest
or the loss interest joins a consolidatable group (or would if the Australian
residence requirements of that definition were ignored). This means that
the cap will arise when an entity that holds the loss interest becomes
closely associated with a miner that has the receiving interest.
[Paragraph 95-30(1)(b)]
6.80 The amount of the cap is worked out by grossing-up the amount
paid for the receiving interest or the loss interest. Where the entity that
has the interest joins a consolidatable group, the cap is worked out by
grossing up so much of the amount paid for that entity as is attributable to
the interest. [Subsection 95-30(2)]
Example 6.12: Cap on transferable pre-mining losses
Log Jam Co. buys:
· a mining project interest for $1 million; and
· a pre-mining project interest for $2 million, which has $10 million
of pre-mining losses from an earlier year.
Assume that the mining project interest has sufficient mining profit to
utilise any of the pre-mining losses available. At the end of the MRRT
year, Log Jam is required to transfer its pre-mining losses to the
mining project interest, subject to the following caps:
· for the mining project interest -- the cap is $4.44 million
($1m/0.225); and
· for the pre-mining project interest -- the cap is $8.88 million
($1m/0.225).
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Minerals Resource Rent Tax
Log Jam must transfer only $4.44 million of its pre-mining losses to
the mining project interest.
Transferred mining loss allowances
6.81 A miner has a transferred mining loss allowance for a mining
project interest for an MRRT year if the interest has a mining profit (after
the application of all other allowances) and there is a mining loss that is
available to be transferred. [Section 100-10]
6.82 The amount of a transferred mining loss allowance cannot
exceed the remaining mining profit the mining project interest has.
[Subsection 100-15(1)]
6.83 Mining losses that can be transferred must be applied in the
order in which they arose. However, if several losses arose at the same
time (for example, if there are several mining project interests with losses
available for transfer), the miner can decide the order in which they are
applied. [Subsection 100-15(2)]
6.84 A mining loss of a mining project interest must be transferred to
another mining project interest if:
· the two mining project interests satisfy the common
ownership test [paragraph 100-20(1)(a)];
· the mining loss is not attributable to an MRRT year in
respect of which an election was made to use the alternative
valuation method for its mining project interest
[paragraph 100-20(1)(b)]; and
· the two mining project interests both relate to iron ore or both
relate to taxable resources that are not iron ore (that is, a coal
mining project interest cannot transfer its mining loss to
reduce a mining profit from an iron ore mining project
interest and vice versa) [paragraph 100-20(1)(c)].
Example 6.13: Order of application of mining losses
Hidden Treasure Mines Ltd has mining project interest A, which it has
owned since before the MRRT and which has mining losses for each of
the 2013 to 2016 MRRT years. In the 2014 MRRT year, it acquires
mining project interest B. Mining project interest B has a remaining
mining profit (after higher ranking allowances are applied) in the 2016
MRRT year. Due to the common ownership test, mining project
interest A's mining losses of 2013 and 2014 cannot be applied to
mining project interest B. They will be carried forward (and uplifted)
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Allowances
to be used against mining project interest A's own future mining
profits.
In the 2016 MRRT year, the mining losses of project interest A for the
2015 and 2016 MRRT years must be applied against mining project
interest B's 2016 mining profit (after all other allowances have been
applied). The loss for 2015 must be applied first and that for 2016
applied if there is any profit remaining.
Common ownership test
6.85 The common ownership test is satisfied if, at all times from the
start of the year for which the mining loss arose to the end of the year in
which the mining loss is to be applied, the two mining project interests
were held by the same miner or by miners who are closely associated with
each other. [Section 100-25]
6.86 The common ownership test is not focused on whether there has
been a change in the direct ownership of the mining project interests, nor
is it asking if the interests have remained in the one entity or group.
Rather, the test focuses on the relationship between the holders of the two
mining project interests and asks whether, at each moment within the test
period, both were held by the same entity or by entities within the same
common group (even if the entities holding them, or the group they were
part of, changed from time to time within the period).
6.87 This test is similar to the common ownership test that can limit
the transfer of some pre-mining losses (discussed above). However, while
a pre-mining loss that fails the common ownership test may only be
limited in the extent to which it is transferred, a mining loss that fails to
meet the common ownership test cannot be transferred at all.
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Minerals Resource Rent Tax
Example 6.14: Same miner has both interests
Echo Coal Co is the head of a consolidated group (which consolidated
for MRRT purposes in 2012). Mining project interest P1 has a mining
loss for the 2013 year and mining project interest P2 has a mining
profit for that year. Because it is a consolidated MRRT group, both
interests are treated as being held by the group's head entity,
Echo Coal Co, from the start of the loss year until the end of the
transfer year. P1's mining loss is available to reduce P2's mining
profit for the year. Similarly, P1's mining loss is available to be
applied in calculating a transferred mining loss that will reduce mining
profits of P3, P4 or P5.
Example 6.15: Transfer of the group containing loss and profit
project interests
Following on from the previous example, Foxtrot Coal Co purchases
Bravo Coal Co (which owns P1 and P2). Bravo Coal Co is now part of
Foxtrot's consolidatable group. P1 and P2 have moved from Echo's
consolidated group to Foxtrot's consolidatable group. While P1 and
P2 have existed in two different groups during the test period, the two
interests have always been in the same group as each other. There has
been no interruption to their relationship; they have continually been
closely associated with each other. P1 is required to transfer any
available mining loss to P2 as it has a mining profit, up to the amount
of that profit. However, P1's mining loss cannot be transferred from
P1 to P6 or P7 since P1 was not in common ownership with P6 and P7
at all times from the start of the year in which the mining loss arose to
the end of the year in which the mining loss is to be applied.
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Allowances
Example 6.16: Loss project interest transferred within same
consolidatable group
Following on from the previous example, Foxtrot Co undertakes a
restructure and moves ownership of P2 from Bravo Coal Co to Hotel
Coal Co. As Foxtrot's group is not consolidated, each subsidiary
within the group is a miner and responsible for its own MRRT liability.
While P1 and P2 are now held by different miners, each miner is
within the same consolidatable group. Therefore both mining project
interests have at all times been held by miners closely associated with
each other. P1's available mining loss would still be required to be
transferred to P2 up to the amount of P2's remaining mining profit but
those mining losses could still not be transferred to P6 or P7 for the
same reason as in the previous example.
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Minerals Resource Rent Tax
Example 6.17: Loss and profit project interests sold simultaneously
Following on from the previous example, India Coal Co, a single entity
miner, simultaneously purchases P1 and P2 from Bravo Coal Co and
Hotel Coal Co. P1 and P2 are now held by the same miner (a single
entity). As P1 and P2 were purchased by India Coal Co at the same
time, both mining project interests continue to have always been
closely associated with each other. Therefore, any available mining
loss in P1 still needs to be transferred to P2 up to the amount of P2's
remaining mining profit.
118
Chapter 7
Starting base allowances
Outline of chapter
7.1 This chapter explains Part 3-5 (Divisions 80, 85 and 90) of the
Minerals Resource Rent Tax Bill 2011 (MRRT Bill), which deals with
starting base allowances. Starting base allowances reduce a mining
project interest's Minerals Resource Rent Tax (MRRT) liability for an
MRRT year.
7.2 All legislative references throughout this chapter are to the
MRRT Bill unless otherwise indicated.
Summary of new law
7.3 Starting base allowances recognise investments in assets
(starting base assets) relating to the upstream activities of a mining project
interest that existed before the announcement of the resource tax reforms
on 2 May 2010. They also recognise certain expenditure on such assets
made by a miner between 2 May 2010 and 1 July 2012.
7.4 A mining project interest has a starting base allowance if it has
profit remaining after using all other higher ranked allowances, and it has
one or more starting base losses. Unlike other losses, starting base losses
are never transferable to other mining project interests.
7.5 A starting base loss reflects the annual depreciation (decline in
value) of the starting base assets. If there is insufficient profit to use a
starting base loss, it is carried forward and uplifted.
7.6 A miner can choose to work out the starting base losses for its
mining project interest based on either:
· the market value of starting base assets (including rights to
the resources) at 1 May 2010; or
· the most recent accounting book value of starting base assets
(not including rights to the resources) available at that time.
7.7 Under the market value approach, a starting base asset is
depreciated over the shorter of: the asset's remaining effective life; the life
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Minerals Resource Rent Tax
of the mine; and the period until 30 June 2037. The undepreciated value
of a starting base asset is not uplifted, though the real value of any unused
losses is preserved by uplifting them by the consumer price index (CPI).
7.8 Under the book value approach, a starting base asset is
depreciated over five years. The undepreciated value of a starting base
asset is uplifted each year by the long term bond rate plus 7 per cent
(LTBR + 7 per cent). Any unused losses are also uplifted by the
LTBR + 7 per cent.
Detailed explanation of new law
A miner has an allowance when it can use a starting base loss
7.9 A mining project interest has a starting base allowance if it has
sufficient profit to use some or all of its starting base losses, after using all
other higher ranked allowances [sections 80-10 and 80-15]. Royalty,
transferred royalty, pre-mining loss, and mining loss allowances are all
higher ranked allowances [section 10-10].
7.10 A mining project interest has a starting base loss for a year when
the miner holds a starting base asset and there is a decline in value of that
asset. The loss is reduced to the extent it is applied as a starting base
allowance, and ceases to exist when it has been fully applied.
[Section 80-20]
Starting base assets produce starting base losses
What is a starting base asset?
7.11 Starting base assets include most tangible and intangible assets
that are relevant to the upstream operations of a mining project interest.
[Section 80-25]
7.12 A starting base asset is one that is used, installed ready for use,
or being constructed for use in carrying on the upstream mining
operations in relation to a mining project interest at the `start time'
[subsections 80-25(1) and (2)]. The concept of `upstream mining project
operations' is explained in Chapter 5. The `start time' is explained below.
7.13 The definition of a starting base asset is based on the income tax
definition of a `CGT asset' (see section 108-5 of the Income Tax
Assessment Act 1997 (ITAA 1997)), which means any kind of property or
a legal or equitable right.
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Starting base allowances
7.14 The `asset' concept is a broad one, encompassing all types of
legal property and rights. Where a miner holds an interest in an asset, the
interest in the underlying asset is itself capable of being a starting base
asset. [Section 250-15]
7.15 Land that is used in upstream mining operations can be a starting
base asset. Improvements to land or fixtures on land are treated as
separate assets, not as part of the land, regardless of whether they can be
removed from the land or are permanently attached. This ensures that a
miner can hold these things as starting base assets, regardless of whether it
holds the land on which the improvement or fixture exists.
[Subsection 80-25(5)]
Some starting base assets are combined under the market value approach
7.16 Notwithstanding that improvements to land are treated as
separate to the land, under the market value approach, any improvement
to land (but not a fixture) in the project area of a mining project interest is
taken to be part of the same starting base asset as the rights and interests
constituting the mining project interest. This inclusion reflects the
practical difficulty in ascribing a separate market value to improvements
to land, which of their nature cannot be dealt with separately from the
underlying mining rights. [Paragraph 80-30(1)(d)]
7.17 In further recognition of these valuation difficulties, under
the market value approach, an improvement to land that existed on
1 May 2010 is recognised in the starting base even if it is consumed or
destroyed before the start time [paragraph 80-25(4)(b)]. In contrast, other
starting base assets must be used, installed ready for use, or being
constructed for use in the upstream mining operations at the start time
[subsection 80-25(1)].
7.18 For an interest using the market value approach, mining
information (as defined in subsection 40-730(8) of the ITAA 1997) is
treated as an item of property or a legal or equitable right. This is
necessary since information is not otherwise considered a legal asset as it
is not capable of assignment (for example, see Hepples v FCT (1990) 90
ATC 4497 and Taxation Determination TD 2000/33).
[Paragraph 80-25(4)(a) and section 300-1, definition of `mining, quarrying and
prospecting information']
7.19 Like improvements to land, any mining information relating to a
mining project interest is taken to be part of the same starting base asset as
the rights and interests that comprise the mining project interest. Again,
this reflects the interdependent nature of these assets and the difficulties
that would arise if they were to be valued separately. For the same reason,
any goodwill that would otherwise be considered a separate starting base
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Minerals Resource Rent Tax
asset is instead taken to be part of this single starting base asset.
[Subsection 80-30(1)]
7.20 This composite starting base asset is taken to be a depreciating
asset (unless none of the constituent assets are depreciating assets), which
has an effective life equal to the longest effective life of any of those
rights and interests. As a consequence, it will be written off over the
shorter of that life and the period until the end of 30 June 2037.
[Subsections 90-15(1), (2) and (3)]
Some starting base assets are excluded under the book value approach
7.21 For a mining project interest using the book value approach, the
rights and interests that make up the mining project interest itself are not
included in the definition of a starting base asset. This reflects the policy
to exclude the value of the taxable resources if a miner chooses the book
value approach. For the same reason, the value of mining information is
also excluded. It is unlikely that goodwill would be an asset that can be
meaningfully identified in relation to the upstream operations of a mining
project interest (as goodwill is normally associated with a business
enterprise as a whole). However, to the extent that it would otherwise be
considered a starting base asset, goodwill is also excluded under the book
value approach. [Paragraph 80-25(3)(a)]
Mine development expenditure as a starting base asset
7.22 Some expenditure that is incurred between 2 May 2010 and
1 July 2012 is included in the starting base even though it does not relate
to another starting base asset. This expenditure, called mine development
expenditure, is itself taken to be a starting base asset. It is expenditure
incurred in carrying on upstream mining operations that relates to
developing a mine. It includes the costs of removing overburden,
excavating a pit and sinking a mineshaft, which are generally treated as a
revenue expense and so would not otherwise be included in the starting
base. Mine development expenditure is discussed further under `interim
expenditure' below. [Section 80-35]
There are no starting base assets unless a starting base return is lodged
7.23 An asset is not considered to be a starting base asset where a
miner fails to make a valid choice about whether to use the market value
or the book value approach or fails to lodge a starting base return. The
starting base choice is described below and the starting base return is
discussed in Chapter 18. [Paragraph 80-25(3)(b)]
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Starting base allowances
Assets used, installed ready for use, or being constructed for use
7.24 The concept of an asset being `used, or installed ready for use'
also appears in the depreciation provisions of the income tax law (see
section 40-60 of the ITAA 1997).
7.25 The word `used' takes its ordinary meaning, which in any
particular case will depend on the context in which the word is employed
and the purpose for which the asset is held (Newcastle City Council v
Royal Newcastle Hospital (1956) 96 CLR 493).
7.26 The degree of physical or active use that is required to constitute
`use' will depend to a certain extent on the nature of the asset and the
purpose for which it is held. For a tangible depreciating asset, physical or
active employment of the asset would generally be expected in order for
an asset to be considered to be being `used'. For an intangible asset,
employment of the asset may not be physical and the asset may be
considered to be being `used' in the context of passive use. However, use
would generally be expected to involve an exploitation of the inherent
character of the asset.
7.27 The phrase `installed ready for use' is defined in
subsection 995-1(1) of the ITAA 1997 and requires not only that the asset
be installed ready for use but also that it be `held in reserve'. In that
context, a thing is `held in reserve' if it is held for future use in an existing
operation and the concept of holding in reserve is not `so wide as to
embrace income producing operations which may be undertaken at some
future time' (Case X46 90 ATC 378 (at 381)). [Section 300-1, definition of
`installed ready for use']
7.28 In the context of the MRRT starting base, the phrase `being
constructed for use' is intended to cover assets that are in the process of
being created by the miner for later use in the upstream operations of the
mining project interest. A similar concept exists in section 41-25 of the
ITAA 1997 in respect of the investment allowance, and there is case law
on the former investment allowance provisions which provides guidance
on the concept. See, for example, FC of T v. Tully Co-operative Sugar
Milling Association Limited 83 ATC 4495; Monier Colourtile Pty Ltd v.
FCT (1984) 84 ATC 4846, and Utah Development Co. v. FCT (1983) 83
ATC 4545.
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Minerals Resource Rent Tax
Start time for starting base assets
7.29 A starting base asset is one that is used, installed ready for use,
or being constructed for use in carrying on the upstream mining
operations in relation to the mining project interest at the later of:
· 1 July 2012; and
· the time production (other than incidental production)
commences for the mining project interest.
[Subsection 80-25(2)]
7.30 This time is referred to as the `start time' of the starting base
asset. It defines the time from which the asset's decline in value is
worked out to produce starting base losses. Before this time, the assets
will not be recognised as starting base assets and so will not be capable of
producing starting base allowances. In this way, the start time defines the
way in which recognition of the starting base is deferred until there is
production of taxable resources from a mining project interest.
7.31 Many mining project interests that exist on 1 July 2012 will
already be producing taxable resources and so, for them, the start time will
be that date.
Production other than incidental production
7.32 However, some mining project interests will be in a
development phase on 1 July 2012 and will not be producing until a later
time. For these interests, the start time is deferred until that production
gets underway.
7.33 The start time does not occur when there has merely been
incidental production of taxable resources from the project area of a
mining project interest. That is, it is not sufficient that a mining revenue
event has occurred in relation to a taxable resource extracted from a
project area.
7.34 Whether the extraction of taxable resources amounts to
`production' or merely `incidental production' is a question of fact that
should be determined having regard to the purpose for which, and the
manner and volume in which, those resources are being extracted. For
instance, the extraction of taxable resources that occurs before the
development of a mine may constitute `incidental production'. However,
`production' is not intended to be necessarily limited to the way in which,
and the extent to which, taxable resources are planned to be extracted
when the mine is fully developed and operational.
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Starting base allowances
Example 7.1: Not incidental production
Blue Tongue Co. has a mining project interest, which relates to an
underground coal mine it is developing on land covered by its
production right.
On 1 July 2012, Blue Tongue Co. is extracting coal as part of its work
to build the shaft and underground development workings of the mine.
It is able to sell these resources for $50 million. It is liable to pay
MRRT in relation to the sale of these resources.
The amount of coal being extracted, and the value at which it is sold is
significant enough to represent non-incidental production,
notwithstanding that part of the purpose for which the coal is extracted
is to further develop the mine.
Blue Tongue Co. will be able to recognise and write off its starting
base assets from 1 July 2012 even though it has not yet started to
produce taxable resources in the volumes it intends when the mine is
fully operational.
Example 7.2: Incidental production
Tiger Co. holds a production right on which it is considering
developing an open cut mine. In assessing the viability of that
potential development, Tiger Co. decides to mine enough coal to make
a trial shipment to a potential customer in Japan, to test the quality of
the coal in a Japanese blast furnace. Tiger Co. mines 20,000 tonnes of
coal from the mine and sells it as one cargo for $4 million. It is liable
to pay MRRT in relation to the sale of these resources.
This production is considered to be incidental production, as it was a
single cargo, prior to a commitment to build the coal mine on the area
covered by the production right. While it was able to sell these taxable
resources, Tiger Co. is not producing resources in sufficient quantities
to meet regular orders from customers. As this extraction is merely
incidental to a wider purpose of testing the feasibility of a mine it is not
production that meets the test for determining the start time of starting
base assets.
Start time of a combined mining project interest under the market value
approach
7.35 In some cases, a miner can choose to combine mining project
interests that are integrated in their downstream mining operations. This
is discussed in detail in Chapter 9. The interests that are combined are
referred to as `constituent interests'. Under the market value approach,
the start time of an asset that is, or includes, one of these constituent
interests is deferred until the time that production commences in relation
to that constituent interest. [Paragraph 80-25(2)(b) and subsection 80-30(2)]
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Minerals Resource Rent Tax
7.36 In other words, for a single starting base asset that relates to a
constituent interest that, apart from a downstream integration choice,
would be a separate mining project interest, the start time is the time
production (other than incidental production) commences in the project
area of the constituent interest.
7.37 However, where a miner has a mining project interest that
includes constituent interests that are combined because they are upstream
integrated, and the market value approach is chosen, the start time for the
asset that is, or includes, one of these constituent interests is when
production commences from any of those constituent interests. So, if a
mine covers multiple production rights that meet the upstream integration
test, the start time for the single starting base asset comprising those rights
is when the production occurs from any of those rights.
[Paragraph 80-25(2)(b)]
Example 7.3: Downstream integration of constituent interests that
include upstream integrated interests
Nelson Minerals Co. has two separate iron ore mines, Grimley and
Stolarek. Grimley mine is made up of two production rights. The
production rights making up Grimley mine satisfy the upstream
integration test. The two mines are also sufficiently integrated to meet
the downstream integration test. Nelson Minerals Co. has chosen to
combine the mines into a single mining project interest.
At 1 July 2012, Grimley mine is producing taxable resources from an
area covered by one of its production rights, but not the other. The
start time for the starting base asset that includes the two production
rights that relate to Grimley mine is 1 July 2012.
At that time, no taxable resources are extracted from the area covered
by the production right that relates to Stolarek mine. The start time for
the starting base asset that includes that production right occurs when
taxable resources start to be produced from that production right.
When does a miner hold a starting base asset?
7.38 The MRRT meaning of `hold' broadly adopts the income tax
definition for depreciation purposes (see section 40-40 of the ITAA 1997),
which generally refers to the economic owner of the asset. However, in
order to ensure that the entity that will bear an MRRT liability also has the
benefit of a starting base, the entity that has a mining project interest is
taken to hold the starting base asset that is the rights and interests
constituting the mining project interest. [Sections 250-5 and 250-10]
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Starting base allowances
Amount of a starting base loss
7.39 The starting base loss is based on a portion of the value (the
decline in value) of the starting base assets. The principles and
mechanisms used in the depreciation provisions of the income tax law
(Division 40 of the ITAA 1997) have, to the extent possible, been adopted
to work out the decline in value of a starting base asset.
Amount of a starting base loss in the year in which it arises
7.40 For the year in which the starting base loss arises, it is worked
out as follows:
· Step 1: Work out the decline in value of each starting base
asset the miner held in the year.
· Step 2: Reduce that result to the extent that the asset is used,
installed ready for use, or being constructed for use, for a
purpose other than upstream mining operations of the mining
project interest.
· Step 3: Reduce the result further to the extent the asset
relates to a use that would not be deductible under the
MRRT.
· Step 4: Add up the resulting amounts for each of the starting
base assets.
Step 1 -- Decline in value of each starting base asset
7.41 The starting base loss includes an amount equal to the `decline
in value' for a year of a starting base asset that a miner held for any time
during the year. This is explained further below. [Subsection 80-40(1)]
Step 2 -- Ignore the decline in value to the extent it does not relate to
upstream mining operations
7.42 The starting base loss does not include any part of the asset's
decline in value that is attributable to the miner using the asset, having it
installed ready for use, or constructing it for use, for a purpose other than
upstream mining operations in relation to the mining project interest.
[Subsections 80-40(2) and (3)]
7.43 Any decline in value that is not attributable to upstream mining
operations will not contribute to a loss. However, this does not affect the
decline in value itself, which will continue irrespective of the use of the
asset. This means that any decline that is attributable to a period when the
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Minerals Resource Rent Tax
asset was not used for upstream mining operations is not available to form
part of a starting base loss in a later year.
Example 7.4: Ignore decline in value for downstream use
Fran Co. has one starting base asset with a base value for the MRRT
year of $10 million. The decline in value of the asset for the year is
$1 million.
Fran Co. uses the asset 20 per cent in the upstream mining operations
of its mining project interest. Therefore, the starting base loss is
$200,000 (which is the full decline, reduced by $800,000 to reflect the
use of the asset other than in upstream mining operations).
Fran Co. has chosen the market value approach for the mining project
interest, so the base value of the asset for the next MRRT year is
$9 million.
7.44 The narrow base of the MRRT means there is a need to
apportion the decline in value. This will be relevant when starting base
assets are partly used to mine taxable resources and partly used to mine
non-taxable resources, or even when assets used solely to mine taxable
resources are partly used for downstream mining operations (that is,
activities after the valuation point). As under the general mining
expenditure provision (discussed in Chapter 5), this apportionment should
be made on a fair and reasonable basis.
Step 3 -- Ignore the decline in value to the extent it relates to amounts
that would be explicitly not deductible
7.45 The starting base loss does not include any part of the asset's
decline in value that would be excluded expenditure if it were an amount
that was incurred on or after 1 July 2012 [subsections 80-40(2) and (4)]. So, to
the extent that the circumstances which lead to an amount being
specifically non-deductible apply in relation to a starting base asset in a
year, the decline in value of that asset is so reduced. For an explanation of
`excluded expenditure', see Chapter 5.
Example 7.5: Ignoring the decline that relates to excluded
expenditure
Cham Co. has a starting base asset which is a building located away
from the project area. In the 2013-14 year, the building is used partly
for accounting activities. If Cham Co. had incurred a capital amount
during the year in relation to the building it would be excluded
expenditure to that extent. As a consequence, to that extent the decline
in value of the starting base asset (the building) for the year is not
taken into account in working out the starting base loss.
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Starting base allowances
7.46 Expenditure incurred to acquire an interest in a production right
is one type of excluded expenditure [section 35-35]. However, if the market
value approach is chosen, the decline in value of a starting base asset that
is a production right (or an interest in a production right) is not reduced
simply because it relates to the production right [subsection 80-40(5)].
Example 7.6: Decline that relates to a starting base asset that is a
production right
Fox Co. chooses to use the market value approach. It has a starting
base asset which is an interest in a production right. If Fox Co.
incurred an amount during the year to acquire this interest, it would be
excluded expenditure. However, the decline in value for the year for
the starting base asset (the interest) is not affected in these
circumstances.
Step 4 -- Add up the remaining amounts for each starting base asset
7.47 The starting base loss is the total of the amounts worked out
under steps 1 to 3 for each starting base asset [subsections 80-40(1) and (2)].
In other words, a miner adds together the decline in value of each of the
starting base assets of a particular mining project interest to work out the
interest's starting base loss for the year (less any reductions under steps 2
and 3). As explained above, this starting base loss produces an allowance
to the extent that the interest has sufficient mining profits to offset these
losses.
Amount of a starting base loss after the year in which it arises
7.48 In a later year, the starting base loss includes any unused starting
base loss for the mining project interest for the previous year, increased by
an uplift factor. [Section 80-45]
7.49 An unused starting base loss is any part of a starting base loss
that did not become a starting base allowance in the previous year. In
other words, it is the amount (if any) by which the starting base loss for
the previous year exceeded the mining profit for the previous year, after
all higher ranked allowances had been applied.
7.50 To the extent that a starting base loss is not used in a year, it is
uplifted and carried forward to the next year. The uplift factor that applies
is:
· under the book value option -- LTBR + 7 per cent
[paragraph (a) of the definition of `uplift factor' in subsection 80-45(1)];
and
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Minerals Resource Rent Tax
· under the market value option -- the CPI for the previous
year ending 31 March. The CPI is expressed in the same
way as in subsection 960-275(1) of the ITAA 1997
[paragraph (b) of the definition of `uplift factor' in subsection 80-45(1)].
Example 7.7: Starting base loss for a year after the loss arose
Link Co. has a starting base loss of $1 million for the 2015-16 MRRT
year. It has no mining profits remaining after it applies its higher
ranked allowances, so it carries forward the entire loss to the next year.
Link Co. has chosen the book value approach for the mining project
interest, so it uplifts the loss by the LTBR + 7 per cent. Assume the
long term bond rate (LTBR) for the 2015-16 MRRT year is 6 per cent.
Therefore, in the 2016-17 MRRT year, the amount of the 2015-16
starting base loss is $1.13 million ($1m × (0.06 + 1.07)).
Starting base losses of a mining project interest originating from
pre-mining project interests with different valuation approaches
7.51 A starting base loss can arise in relation to a pre-mining project
interest from which a mining project interest originates. Also, a mining
project interest can originate from two or more pre-mining project
interests. Where this occurs and a miner has chosen to use the book value
approach in relation to one or more of the pre-mining interests and the
market value approach in relation to one or more of the other pre-mining
interests, then there are two starting base losses that arise in an MRRT
year for the mining project interest. One is a starting base loss in relation
to any pre-mining interest that uses the book value approach, and the other
is a starting base loss in relation to any pre-mining interest that uses the
market value approach. Of the two starting base losses that arise in the
same year, the starting base losses that relate to book value approach will
be applied first, then the starting base losses that relate to market value
approach. This is also what happens when two mining project interests
that use different valuation methods combine, which is discussed in more
detail in Chapter 9. [Section 80-50]
Choosing between the market value and book value approaches
7.52 A miner can choose to value and write off all the starting base
assets in relation to a mining project interest using either the market value
or the book value approach. [Paragraph 85-5(1)(a), subsection 85-5(2) and
section 85-15]
7.53 The choice can also be made in relation to a pre-mining
project interest. Although a starting base will not apply in relation to a
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Starting base allowances
pre-mining interest, the choice can be exercised in relation to that interest
so that a mining project interest originating from the pre-mining project
interest can apply that choice. [Paragraph 85-5(1)(b)]
Choice applies to all assets used in a project
7.54 The choice as to which approach to adopt needs to be made by a
miner in relation to all the starting base assets in a particular mining
project interest. As the choice may need to be made before the start time,
it applies to those assets that are not yet, but may become, starting base
assets of the mining project interest or of a mining project interest that
will originate from the pre-mining project interest. [Subsection 85-5(1)]
7.55 Where a miner has more than one mining project interest, it can
adopt different approaches in relation to the different interests. As starting
base losses are not transferable between different mining project interests,
there is no requirement that the different mining projects of a miner (or a
closely associated miner) have adopted the same approach.
Making the choice
7.56 The starting base choice is made by lodging a starting base
return in the approved form that specifies the choice to use the market
value or book value approach and provides information about the base
value of starting base assets. The starting base return is discussed in
greater detail in Chapter 18. [Section 85-5 and Schedule 1 to the Minerals
Resource Rent Tax (Consequential Amendments and Transitional Provisions) Bill 2011
(MRRT (CA&TP) Bill), item 8, section 117-20 of Schedule 1 to the Taxation
Administration Act 1953 (TAA 1953)]
7.57 Generally, an entity is able to make its starting base choice and
lodge its starting base return up to the earlier of the day its MRRT return
for the first MRRT year is due (or would have been due if it was required
to lodge a return for that year), or within a further time allowed by the
Commissioner of Taxation (Commissioner). However, where the project
interest is transferred after 1 July 2012 and before a choice is made, the
transferee must make the choice and lodge the starting base return by the
same time the transferor would have been required to if it had continued
to have the interest.
7.58 The choice is irrevocable [Schedule 1 to the MRRT (CA&TP) Bill,
item 8, section 119-10 of Schedule 1 to the TAA 1953]. It applies to the starting
base assets of the mining project interest for the first MRRT year and all
later years [subsections 85-5(1) and (5)].
7.59 However, the irrevocable choice could be problematic if there is
uncertainty as to what constitutes a mining project interest at the time the
choice needs to be made. In these circumstances, there would be
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Minerals Resource Rent Tax
compliance and administrative difficulties if an entity was required to
specify the particular mining project interests to which a choice applies.
For example, at that time there may be doubt as to whether mining project
interests were integrated and so able to combine (see Chapter 9 for an
explanation of integration and combination). In order to ameliorate these
potential difficulties, an entity can choose to use a valuation approach in
relation to the mining project interest(s) or pre-mining project interests
that relate to a particular area, rather than nominating the project interests
directly. [Subsection 85-5(4)]
Example 7.8: Choice covering an area
Bay Co. has two mining operations, Alpha and Beta, which it initially
considers to be two mining project interests. The start time for each is
1 July 2012.
Bay Co. elects to use the book value approach in relation to any mining
project interest(s) it has at 1 July 2012 that relate to the area covered by
Alpha.
Bay Co. elects to use the market value approach in relation to any
mining project interest(s) it has at 1 July 2012 that relate to the area
covered by Beta.
After making the choice, Bay Co. identifies that it actually held three
mining project interests on 1 July 2012, as it had been mistaken about
the ability to combine two mining project interests (Gamma and Delta)
into the one mining project interest Beta.
Bay Co.'s choice to use the market value approach validly applies to
Gamma and Delta as these mining project interests relate to an area
covered by the choice, notwithstanding the irrevocable nature of the
choice which it originally thought applied to Beta.
Example 7.9: Choice covering more than one mining project interest
Port Co. has two mining operations, Epsilon and Zeta, which it initially
considers to be separate mining project interests. The start time for
each is 1 July 2012.
Port Co. elects to use the book value approach in relation to Epsilon,
and to use the market value approach in relation to the other mining
project interests it has at 1 July 2012. At a later time, Port Co.
identifies that it actually held one mining project interest on
1 July 2012, as it had been mistaken about the ability to separately
identify Epsilon and Zeta, which should have been identified as a
single mining project interest, Omega.
Port Co.'s choice to use the market value approach in relation to the
other mining project interests it has at 1 July 2012 validly applies to
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Starting base allowances
Omega, notwithstanding the irrevocable nature of the choices which it
originally thought applied to Omega.
Restrictions on when a miner can choose the book value approach
7.60 Any miner can choose the market value approach to work out
the value of its starting base assets. However, a miner can only choose the
book value approach if an audited financial report was prepared in relation
to the mining project interest during the 18 months before 2 May 2010.
[Paragraph 85-10(1)(a)]
7.61 This financial report must also relate to a financial period that
ended in the 18 months prior to 2 May 2010. This precludes the use of a
financial report that relates to a financial period that ended before that
time, even if the report was prepared in the 18 months prior to
2 May 2010. [Paragraph 85-10(1)(b)]
7.62 The miner (or the consolidated entity of which it is a part) must
have prepared the financial report in accordance with the accounting
standards. The financial report must also have been audited in accordance
with the auditing standards. [Paragraphs 85-10(1)(a) and (c) and
subsection 85-10(2)]
7.63 A `financial report' means an annual financial report or a
half-year financial report prepared under Chapter 2M of the
Corporations Act 2001. Either of these is acceptable, though the initial
book value would be the value of the asset recorded in the most recent
audited financial report available before 2 May 2010.
[Paragraph 90-25(3)(a)]
7.64 `Accounting standard' and `auditing standard' are both defined
as having the same meaning as in the Corporations Act 2001 [section 300-1,
definitions of `accounting standard' and `auditing standard']. `Consolidated entity'
is also defined in the Corporations Act 2001 to mean a `company,
registered managed investment scheme or disclosing entity together with
all the entities it is required by the accounting standards to include in
consolidated financial statements'.
What happens if a miner does not make a valid choice?
7.65 As mentioned above, if an entity fails to make a valid choice
about whether to use the market value or the book value approach and
lodge a starting base return, it will not have any starting base assets
[paragraph 80-25(3)(b)]. However, the Commissioner may allow further time
for an entity to do this [Schedule 1 to the MRRT (CA&TP) Bill, item 8,
subsection 117-20(3) of Schedule 1 to the TAA 1953].
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Minerals Resource Rent Tax
How to work out the decline in value of starting base assets
7.66 As discussed above, the starting base loss will be based on the
decline in value of the starting base assets. The decline in value of a
starting base asset is worked out using the following formula:
Starting base days
Base value Write off rate
365
[Section 90-5]
7.67 The `base value' of an asset represents the value of the asset that
can be further declined. It is a year-start amount on which the decline in
value for the year can be worked out. The base value of a starting base
asset will depend on whether the miner has elected to use the book value
approach or the market value approach. This is explained further below.
7.68 `Starting base days' are the days in the year (other than those
that occur before the start time or after a starting base adjustment event) in
which the miner held the starting base asset and either used it, had it
installed ready for use, or was constructing it, for any purpose
[subsection 80-40(6)]. This part of the formula apportions the decline in
value where an asset is held for less than the full MRRT year (such as
where it is disposed of during the year). Consistent with other parts of the
tax law, this apportionment is done over 365 days, regardless of whether
the year is a leap year. As explained above, where a miner uses its
starting base asset for purposes other than upstream mining operations,
this will not affect the decline in value but it will affect the amount of the
starting base loss.
7.69 The `write off rate' of a starting base asset will depend on
whether the miner has elected to use the book value approach or the
market value approach.
Write off rate under the book value approach
7.70 The following table lists the annual write off rates under the
book value approach. [Section 90-10]
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Starting base allowances
Table 7.1: Annual write off rates under the book value approach
For this MRRT year: The write off rate is:
the MRRT year in which the start time for 36%
the asset occurs
the first MRRT year commencing after the 37.5%
start time for the asset occurs
the second MRRT year commencing after 37.5%
the start time for the asset occurs
the third MRRT year commencing after 60%
the start time for the asset occurs
the fourth MRRT year commencing after 100%
the start time for the asset occurs
7.71 These rates are based on those announced on 2 May 2010.
However, the rates have been adjusted to reflect the declining balance
approach used in the formula above.
7.72 The 2 May 2010 announcement stated that depreciation was to
occur over five years with the following profile: 36 per cent; 24 per cent;
15 per cent; 15 per cent; and 10 per cent. However, this profile assumed a
fixed balance being depreciated in each year. Under the declining balance
approach, the equivalent write off rates are: 36 per cent; 37.5 per cent;
37.5 per cent; 60 per cent; and 100 per cent.
7.73 The results under each approach are identical. However, the
declining balance approach has been chosen as a more efficient legislative
expression, given the need to make adjustments to increase the base value
of an asset for any interim expenditure and the LTBR + 7 per cent uplift.
Write off rate under the market value approach
7.74 Under the market value approach, the write off rate of a starting
base asset for an MRRT year is worked out by reference to its remaining
effective life, according to the following equation:
100%
Remaining effective life of the asset
[Subsection 90-15(1)]
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Minerals Resource Rent Tax
7.75 The `remaining effective life' of an asset that is a depreciating
asset (under Division 40 of the ITAA 1997) is any period of its effective
life that is yet to elapse as at the start of the MRRT year.
[Subparagraph (a)(i) of the definition of `remaining effective life' in
subsection 90-15(1)]
7.76 For this purpose, the effective life of a starting base asset is the
period worked out under Division 40, as at the asset's start time. This
may require a miner to reassess the effective life of its assets at the start
time, rather than relying on its original estimates for income tax purposes.
This may be significant when the original estimates have not taken into
account changes in the way the assets are used.
7.77 The term `effective life' describes the length of time over which
any entity could reasonably expect to use the particular asset. The
estimated effective life of an asset is expressed in years. Part years are
expressed as a fraction, and are not rounded to the nearest whole year (see
sections 40-100 and 40-105 of the ITAA 1997).
7.78 Under Division 40 of the ITAA 1997, a taxpayer usually has the
option to use an effective life determined by the Commissioner or to work
out the effective life of the asset itself according to how long the asset can
be used to produce income (see section 40-95 of that Act). An exception
is the effective life of a mining, quarrying or prospecting right, which is
the period over which the taxpayer reasonably expects the reserves can be
extracted from the mine.
7.79 The remaining effective life of the combined starting base asset
(explained above) is taken to be the longest remaining effective life of any
of the constituent assets are that are depreciating assets. If none of the
constituent assets are depreciating assets, then the combined asset will not
be taken to be a depreciating asset. [Subsection 90-15(3)]
Example 7.10: Effective life of the starting base asset that includes
the mining project interest and mining information
Tool Co. has a single starting base asset that consists of its interest in
production right Kappa, and another interest in production right Sigma.
The remaining effective life of the single starting base asset is worked
out according to the longest effective life of these rights, as worked out
under Division 40 of the ITAA 1997 at the start time.
On 1 July 2012 (the start time), Tool Co. works out the effective life of
Kappa to be 15 years, and Sigma to be 10 years (according to Tool's
estimates on 1 July 2012 about the reserves of the different mines to
which each right relates).
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Starting base allowances
The remaining effective life of the starting base asset is based on the
period of the effective life of Kappa that is yet to elapse. Therefore, at
the end of 30 June 2013, the remaining effective life of the starting
base asset is 14 years.
7.80 The remaining effective life of a starting base asset may be
capped to the shorter of the following:
· the longest remaining effective life of any right or interest
that makes up the mining project interest; and
· the period until 1 July 2037 (which is 25 years after the
MRRT commences).
[Subsection 90-15(2) and subparagraphs (a)(ii) and (iii) of the definition of `remaining
effective life' in subsection 90-15(1)]
7.81 In other words, an asset with a remaining effective life that
exceeds any of these caps is taken to have a remaining effective life equal
to the shorter of the caps.
7.82 Starting base assets that are not depreciating assets (and so do
not have an effective life for income tax purposes, such as land and many
intangibles) will also be taken to have a remaining effective life equal to
the shortest of those caps. [Subsection 90-15(2) and paragraph (b) of the definition
of `remaining effective life' in subsection 90-15(1)]
Base value under the book value approach
Base value for the year in which the start time occurs
7.83 Under the book value approach, for the MRRT year in which the
start time occurs, the base value of a starting base asset that was held in
relation to the mining project interest (or the pre-mining project interest
from which the mining project interest originates) at all times in the
interim period is:
· the initial book value of the asset [subparagraph 90-25(1)(a)(i)];
plus
· any valuation amounts (uplifted interim expenditure)
[subparagraph 90-25(1)(a)(ii)].
7.84 If the starting base asset was not held at all times in the interim
period (because it was acquired during that period), then its initial base
value is simply the sum of the valuation amounts (uplifted interim
expenditure) [paragraph 90-25(1)(b)]. `Interim period' is explained below.
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Minerals Resource Rent Tax
Initial book value
7.85 The initial book value of a starting base asset is:
· the amount recorded in the accounts that produced the most
recent audited financial report available before 2 May 2010,
uplifted from the date of that report until the end of the year
in which the start time occurs; or
· if the auditor's report recorded another value in relation to
the asset -- that value, uplifted from the date of the auditor's
report until the end of the year in which the start time occurs.
The uplift factor is the LTBR + 7 per cent. [Subsections 90-25(3) and (5)]
Valuation amounts for interim expenditure
7.86 Valuation amounts for interim expenditure include the interim
expenditure (explained below) in relation to starting base assets, uplifted
by the LTBR + 7 per cent for the period between when the amount is
incurred and the end of the year in which the start time for the asset
occurs. [Subsections 90-25(6) and (7)]
Base value for later years
7.87 For every later MRRT year, the base value of the asset is
reduced by the decline in value, and the result is then uplifted by the
LTBR for the previous year + 7 per cent. [Section 90-30]
Base value under the market value approach
7.88 Under the market value approach, the base value of a starting
base asset reflects its market value as at 1 May 2010, plus any interim
expenditure in relation to the asset. [Subsection 90-40(1) and section 90-35]
Base value for the year in which the start time occurs
7.89 For the MRRT year in which the start time occurs, the base
value of a starting base asset that was held in relation to the mining project
interest (or the pre-mining project interest from which the mining project
interest originates) at all times from 2 May 2010 to 30 June 2012 is:
· the market value of the asset on 1 May 2010
[subparagraph 90-40(1)(a)(i)]; plus
· any interim expenditure [subparagraph 90-40(1)(a)(ii)].
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Starting base allowances
7.90 If the starting base asset was not held at all times in the interim
period (because it was acquired during that period), then its initial base
value is simply the sum of the interim expenditure. [Paragraph 90-40(1)(b)]
Market value of the asset
7.91 `Market value' is not defined in the legislation, though its
ordinary meaning is modified for the effect of GST and the costs of
converting non-cash benefits. [Section 300-1, definition of `market value']
7.92 The common law definition of market value (discussed in
Spencer v Commonwealth of Australia (1907) 5 CLR 418) is based on the
principles of:
· a willing but not anxious vendor and purchaser;
· a hypothetical market;
· the parties being fully informed of the advantages and
disadvantages associated with the asset being valued; and
· both parties being aware of current market conditions.
7.93 The market value of a starting base asset will be the amount
worked out using these principles. In addition, the general MRRT
valuation principles discussed in Chapter 14 are particularly relevant to
the determination of the market value of a starting base asset.
7.94 Where a mining project interest originates from a pre-mining
project interest that existed on 1 May 2010, the market value of the
mining project interest is taken to be the market value of that pre-mining
project interest as at 1 May 2010. [Section 90-45]
7.95 The market value of a starting base asset that is (or includes) a
mining project interest should be worked out ignoring any liability to pay
a private mining royalty [subsection 90-40(3)]. This ensures that these
liabilities, which would be excluded expenditure, do not reduce the value
of the starting base. However, this does not include private mining
royalties paid on or after 1 July 2012 under a pre 2-May 2010
arrangement, as these are not excluded expenditure (explained in
Chapter 5).
Market value of starting base assets that relate to a pre-mining project
interest that existed on 2 May 2010
7.96 In some circumstances, an entity that has chosen to write off its
starting base assets using the market value approach will not be required
to actually market value those assets.
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Minerals Resource Rent Tax
7.97 Where the market value approach is chosen for a pre-mining
project interest that existed on 2 May 2010, an entity can make a further
choice to work out the base value of its starting base assets using a `look
back' approach. The look-back approach is intended to ease compliance
costs for entities that would otherwise find it difficult or costly to
undertake a proper market valuation of assets. [Subsection 180-5(1)]
7.98 This choice (like the choice to use the market value approach) is
irrevocable and needs be made as part of the starting base return
(discussed above and in Chapter 18). [Section 180-5 and Schedule 1 to the
MRRT (CA&TP) Bill, item 8, sections 117-20 and 119-10 of Schedule 1 to the
TAA 1953]
7.99 The look-back choice can only be made in relation to a
pre-mining project interest that existed on 2 May 2010. However, the
choice itself will be made soon after the end of the first MRRT year. By
this time, a mining project interest may have originated from the
pre-mining project interest. In this case, the choice applies to the starting
base assets that relate to that mining project interest. [Subsection 180-5(1)]
7.100 The effects of the choice to use the look-back approach are that:
· all the starting base assets are treated as a single asset; and
· the initial base value of that single starting base asset is taken
to be the sum of pre-mining expenditure incurred in the
10 years before 2 May 2010. Chapter 6 explains the types of
expenses that are included in pre-mining expenditure.
[Section 180-10]
Interim expenditure
7.101 The initial base value of a starting base asset will also include
any interim expenditure incurred in relation to it. In contrast to the book
value approach, interim expenditure under the market value approach is
not uplifted for the period between when it is incurred and the end of the
year in which the start time for the asset occurs. [Section 90-40]
Base value for later years
7.102 For every later MRRT year, the base value of a starting base
asset is its base value for the previous year less the decline in value for the
previous year. In contrast to the book value approach, this amount is not
uplifted for the year under the market value approach. [Section 90-50]
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Starting base allowances
Interim expenditure
7.103 Under either the book value approach or the market value
approach, the base value of a starting base asset can include `interim
expenditure'. Interim expenditures are certain amounts incurred on
starting base assets in the interim period -- being the period ending on
30 June 2012 and starting on:
· under the book value approach -- the date of the accounts
that are reflected in the audited financial report; and
· under the market value approach -- 2 May 2010.
[Subsections 90-55(1), (4) and (5)]
7.104 Interim expenditure includes amounts incurred on assets held
throughout this period, as well as expenditure on assets that start to be
held in this period. [Subsection 90-55(1)]
7.105 Interim expenditure includes the following kinds of amounts
incurred in this period in relation to a starting base asset:
· if the starting base asset is a `depreciating asset' for income
tax purposes -- amounts included in the `cost' of that asset
for income tax purposes [subparagraph 90-55(1)(a)(i)]; and
· if the starting base asset is a `CGT asset' (but not a
depreciating asset) for income tax purposes -- amounts
included in the `cost base' of that asset for income tax
purposes, except for `third element' costs (which are the
costs of owning the asset, such as interest costs -- see
subsection 110-25(4) of the ITAA 1997)
[subparagraph 90-55(1)(a)(ii) and subsection 90-55(2)].
7.106 Interim expenditure also includes mine development
expenditure that relates to the mining project interest. [Subsection 90-55(6)]
Mine development expenditure
7.107 Mine development expenditures are the amounts a miner incurs
between 2 May 2010 and 1 July 2012 in developing the project area of its
mining project interest as part of carrying on its upstream operations. In
particular, it includes expenditure incurred in:
· removing overburden from the project area;
· excavating a pit in the area; and
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Minerals Resource Rent Tax
· sinking a mineshaft in the area.
[Section 80-35]
7.108 To the extent it is not interim expenditure on another starting
base asset, mine development expenditure itself is taken to be a starting
base asset [paragraph 80-35(1)(c)]. The deemed asset is taken to be held for
as long as the miner has the mining project interest, and is taken to be
used in the upstream mining operations [subsections 80-35(2) and 250-10(2)].
The deemed asset is not a depreciating asset and so, if the market value
approach is chosen, will be written off accordingly [paragraph (b) of the
definition of `remaining effective life' in subsection 90-15(1) and subsection 90-15(2)].
7.109 Mine development expenditure cannot itself be interim
expenditure relating to another amount of mine development expenditure
[subsection 90-55(7)]. That is, any amount of mine development expenditure
that does not relate to another starting base asset (other than one deemed
to be an asset because it was another amount of mine development
expenditure) is taken to be a separate starting base asset.
Example 7.11: Mine development expenditure is taken to be a
starting base asset
Mystic Mining Co. incurs mine development expenditure on
1 June 2011. The expenditure does not relate to any of its other
starting base assets for the mining project interest. Therefore, the
expenditure is taken to be a new starting base asset that Mystic
Mining Co. holds and uses in the upstream mining operations of the
mining project interest.
Mystic Mining Co. incurs another amount of mine development
expenditure on 1 July 2011. The expenditure does not relate to any of
its other starting base assets for the mining project interest. The
expenditure cannot be considered interim expenditure relating to the
new starting base asset (that is, the earlier mine development
expenditure). Instead, the expenditure is taken to be another starting
base asset that Mystic Mining Co. holds and uses in the upstream
mining operations of the mining project interest.
Other reductions to base value
Recoupment of base value
7.110 In most cases where a miner receives an amount for a starting
base asset a starting base adjustment will apply (see Chapter 13).
However, if a miner receives an amount for a starting base asset that is not
part of a starting base adjustment event, then the base value of the asset is
reduced to the extent there is an economic recoupment of the asset's base
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Starting base allowances
value [section 90-65]. This is equivalent to the recoupment of mining
expenditure (which is explained in Chapter 4).
Example 7.12: Recoupment of the base value of a starting base asset
Continuing the previous example, on 30 June 2011 Mystic Mining Co.
receives a government grant that subsidises the activities on which
Mystic Mining Co. had incurred the mine development expenditure to
the extent of 50 per cent. The base values of the starting base assets
that were taken to have arisen when the expenditure was incurred are
reduced by half of the subsidy (which is the proportion of the grant that
has the effect of offsetting the base value for each asset).
Partial disposals of starting base assets
7.111 The base value of a starting base asset is also reduced to the
extent that the miner disposes of any interest in the asset before its start
time. This ensures that the impaired value of an asset is reflected in a
lower base value for the asset. [Section 90-60]
7.112 Where a miner stops holding a part of a starting base asset after
the start time, there is a starting base adjustment, which is discussed in
Chapter 13.
Starting base and schemes to avoid MRRT
7.113 The general anti-avoidance rule (discussed in Chapter 17)
applies to schemes that increase the base value of a starting base asset.
This means that the increase in the base value of a starting base asset will
be treated as an `MRRT benefit' for the purposes of applying the general
anti-avoidance rule. [Schedule 4 to the MRRT (CA&TP) Bill, item 12]
7.114 The fact that the starting base is recognised over a number of
MRRT years (whereas capital expenditure is otherwise recognised
immediately under the MRRT) and that starting base losses are not
transferable (whereas mining losses are transferable to close associates)
means that there will be an incentive for entities to access the value in the
starting base more quickly than intended by transferring starting base
assets between mining project interests. Such arrangements are also
subject to the general anti-avoidance rule, which is discussed in
Chapter 17.
143
Chapter 8
Small miners
Outline of chapter
8.1 This chapter explains:
· how the low profit offset applies to fully or partially relieve
small miners of their Minerals Resource Rent Tax (MRRT)
liability for an MRRT year; and
· the operation of the simplified MRRT.
8.2 All legislative references throughout this chapter are to the
Minerals Resource Rent Tax Bill 2011 unless otherwise indicated.
Summary of new law
Low profit offset
8.3 There is no MRRT liability for miners with group mining profits
(as measured for MRRT purposes) of $50 million or less. Nil liability is
achieved through an offset, called a `low profit' offset.
8.4 To ensure that the low profit offset does not distort the
production behaviour of an entity approaching the $50 million threshold,
it phases-out for profits between $50 million and $100 million.
Simplified MRRT
8.5 A miner can use the simplified MRRT method for an MRRT
year if its group profit (as measured for accounting purposes) is below
certain limits.
8.6 If a miner chooses to use the simplified MRRT method, it will
have no MRRT liability for the MRRT year, but its starting base and its
allowances are extinguished rather than carried forward.
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Minerals Resource Rent Tax
Detailed explanation of new law
Low profit offset
Mining profits equal to or less than $50 million
8.7 The low profit offset shields miners from an MRRT liability
when the miner's group mining profit of each mining project interest is
less than or equal to $50 million in an MRRT year. [Subsection 45-5(1)]
8.8 A miner's group mining profits include the mining profits (as
measured for MRRT purposes) of entities that are connected to or
affiliated with the miner in the way described in Subdivision 328-C of the
Income Tax Assessment Act 1997 (ITAA 1997). [Subsection 45-5(1)]
8.9 If a miner's group mining profit is less than or equal to
$50 million, the offset is the sum of the miner's MRRT liabilities for each
of the miner's mining project interests for the year [subsection 45-5(2)]. This
reduces a miner's MRRT liability to nil [section 10-15].
8.10 The reason for basing the test on a miner's group mining profits
is to ensure that miner's cannot split their interests between different
entities so that each falls below the threshold and is able to access the
offset.
Mining profits between $50 million and $100 million
8.11 If an entity were fully liable for MRRT on mining profits once
its group mining profits exceeded the $50 million threshold, an incentive
would exist for the entity to delay production in order to remain below the
threshold. To remove this distortion, this formula phases-out the offset
for profits between $50 million and $100 million:
Miner's share
$50 million - Taper - Miner's group × of group mining
amount MRRT allowances profit
[Subsection 45-10(1)]
8.12 If the miner's group mining profit is over $50 million and the
formula produces a positive amount, the miner's low profit offset is:
[amount from the formula] × MRRT rate
[Subsection 45-10(2)]
146
Small miners
8.13 A miner's group MRRT allowances is the sum of the MRRT
allowances for each mining project interest for the year of the miner and
its closely associated entities. [Subsection 45-10(1)]
8.14 A miner's share of group mining profit is the sum of the
miner's mining profit for each of its mining project interests for the year,
divided by the miner's group mining profit for the year.
[Subsection 45-10(1)]
8.15 The taper amount is the difference between the miner's group
mining profit for the year and $50 million. [Subsection 45-10(1)]
8.16 Where the result produced by this calculation is less than zero,
there is no low profit offset. Where the result is greater than zero, the
miner is entitled to a share of the offset amount calculated by reference to
its percentage share of the group's mining profits.
8.17 The phase-out reduces the maximum possible tax offset
provided by the low profit offset by $0.225 for every $1 of group mining
profits above $50 million.
8.18 Once the low profit offset entitlement is determined, it is applied
to reduce the miner's MRRT liability for the year. [Section 10-15]
Example 8.1: Entitlement to a low profit offset where mining profits
are greater than $50 million and less than $100 million
In the 2013-14 MRRT year, Strayan Ltd operates Project B.
Strayan Ltd is a subsidiary of Bigger Strayan Resource Corporation,
which owns Project A.
Project A Project B Group Total
$m $m $m
Mining profits $20.00 $60.00 $80.00
Royalty allowance $4.40 $8.00 $12.40
Mining loss allowance $0.10 $0.00 $0.10
Starting base allowance $0.10 $0.20 $0.30
Total MRRT allowances $4.60 $8.20 $12.80
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Minerals Resource Rent Tax
Strayan Ltd works out if it is entitled to a low profit offset using the
following steps:
Step 1: It works out its group mining profits as $80 million by adding
the mining profits of Project A and Project B and the group MRRT
allowances as $12.8 million by adding the total allowances of
Project A and Project B. As group mining profits are greater than
$50 million and less than $100 million, Strayan Ltd may have a low
profit offset.
Step 2: It applies the formula as follows:
Taper amount: $80m - $50m = $30m
Miner's group MRRT $4.6m + $8.2m = $12.8m
allowances:
Miner's share of group $60m/$80m = 75%
mining profits:
[($50m - $30m) - $12.8m] × 75% = $5.4m
Step 3: Then it multiplies its share of the group profit by the MRRT
rate:
$5.4m × 22.5% = $1.215m
Therefore, Strayan is entitled to a low profit offset of $1.215 million.
8.19 The low profit offset is not intended to reduce compliance costs.
However, a miner with group mining profits below $50 million may also
be eligible to use the simplified MRRT method, which is intended to have
that effect.
Simplified MRRT method
8.20 Some miners have the prospect of being below the $50 million
MRRT threshold for an extended period. Requiring such miners to fully
comply with the MRRT would be burdensome. These miners will have
the option of electing to use a simplified MRRT method.
Choosing to use the simplified MRRT method
8.21 To be able to make the simplified MRRT choice, a miner must
satisfy one of two alternative tests.
8.22 Under the first test, the aggregate of the miner's group profit (as
measured for accounting purposes) must be less than $50 million for the
year. [Subsection 200-10(1)]
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Small miners
8.23 Therefore, the first test is similar to the low profit offset test.
Indeed, a miner that satisfies this requirement is unlikely to have an
MRRT liability in the year because its MRRT profits should be
sufficiently low as to fall below the $50 million threshold for the low
profit offset.
8.24 Under the second test, a miner is eligible for the simplified
MRRT method if the sum of the miner's group profits is less than
$250 million. However, if the miner's group profits are less than
$250 million, but it, or one of its close associates, has a mining project
interest with royalty liabilities that are less than 25 per cent of the profit
for that interest for the year, the miner is ineligible for the simplified
MRRT. [Subsections 200-10(2) and (3)]
8.25 The choice must be made in the approved form and the miner
must give it to the Commissioner of Taxation (Commissioner) by the date
its MRRT return would have been due, had it been required to lodge one.
[Subsection 200-10(4), and Schedule 1 to the MRRT (CA&TP) Bill, item 8, Division 119
of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953)]
Group profit measured in accordance with accounting principles
8.26 An entity's profit for simplified MRRT purposes is its profit
from activities relating to the mining of taxable resources, determined in
accordance with general accounting principles, and adjusted for interest,
taxation, royalties and exceptional items. [Section 200-15]
8.27 The adjustments for interest, taxation and exceptional items are
made in order to produce an amount that is a reasonable estimate of the
entity's earnings before interest and taxation. The further adjustment for
royalties is to align the earnings before interest and taxation amount with
the treatment of royalties under the MRRT.
8.28 The profit for simplified MRRT method purposes is intended as
a reasonable proxy for an entity's mining profits that is simpler to work
out.
Consequences of using the simplified MRRT method
8.29 If a miner chooses to use the simplified MRRT method for a
year, then:
· the miner's MRRT liability for each mining project interest
the miner has for the year is zero [paragraph 200-5(a)];
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Minerals Resource Rent Tax
· all allowance components the miner has that relate to the
mining project interest, or a pre-mining project interest, are
extinguished [paragraph 200-5(b)];
· the starting base assets that the miner has that relate to the
mining project interest cease to accrue starting base losses
[paragraph 200-5(c)]; and
· the entity does not have to lodge an MRRT return for the
year [Schedule 1 to the MRRT (CA&TP) Bill, item 8,
paragraph 117-5(4)(a) of Schedule 1 to the TAA 1953].
8.30 The allowance components are extinguished because a miner
who elects into the simplified MRRT method will have limited records
from which the historical tax attributes of a mining project interest can be
ascertained.
8.31 Miners that no longer satisfy either of the requirements for
electing into the simplified MRRT method or that opt not to elect into it in
a subsequent year would need to comply with their full MRRT obligations
in that subsequent year.
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Chapter 9
Combining mining project interests
Outline of chapter
9.1 This chapter explains when mining project interests can combine
and the effects of such combination. What constitutes a mining project
interest is fundamental to the operation of the Minerals Resource Rent
Tax (MRRT).
9.2 Combined interests supersede the constituent interests as the
basis upon which MRRT liability is determined. Mining revenue, mining
expenditure and allowance components are tracked in relation to
combined interests.
9.3 All legislative references throughout this chapter are to the
Minerals Resource Rent Tax Bill 2011 unless otherwise indicated.
Summary of new law
Combining mining project interests
9.4 If a miner has two or more mining project interests that are
integrated, the mining project interests may be able to combine to form a
combined mining project interest.
9.5 Two mining project interests may be integrated if the mining
operations of the mining project interests are integrated.
9.6 Pre-mining project interest cannot be integrated or combine.
9.7 Integrated mining project interests can only combine if the
combination will not result in the effective transferability of otherwise
quarantined allowance components.
9.8 If mining project interests can combine, they must combine.
9.9 Integrated mining project interests will combine if:
· all royalty credits (if any) are transferable between the
integrated mining project interests;
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Minerals Resource Rent Tax
· all pre-mining losses (if any) are transferable between the
integrated mining project interests;
· all mining losses (if any) are transferable between the
integrated mining project interests; and
· the integrated mining project interests have starting base
losses or starting base assets and certain ownership
requirements are met.
9.10 If the integrated mining project interests cannot combine, the
miner can choose to cancel the allowance components that are preventing
combination to allow the interests to combine.
9.11 A miner that has a combined mining project interest will not
have to separately track mining revenue, mining expenditure, allowance
components and base values of starting base assets for each of the
constituent interests. Instead, the miner will only need to track these
amounts for the combined mining project interest.
9.12 For the avoidance of doubt, mining project interests can
combine from 2 May 2010.
Detailed explanation of new law
9.13 A miner that has a combined mining project interest will not
have to separately track mining revenue, mining expenditure, allowance
components and base values of starting base assets for each of the
constituent interests. Instead, the miner will only need to track these
amounts for the combined mining project interest.
9.14 The combined interest will provide the basis upon which MRRT
liability is determined. The combined interest will inherit the tax histories
of all the constituent interests. The combined mining project interest will
aggregate each type of allowance component that it inherits from the
constituent interests.
Integration of mining project interests
9.15 Only integrated mining project interests can combine.
[Paragraph 115-10(1)(a)]
9.16 Whether mining project interests are integrated is a question of
fact. If interests that were combined cease to be integrated there will be a
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Combining mining project interests
mining project split [paragraph 125-10(3)(d)]. (Chapter 10 deals with mining
project splits, which occur when interests cease to be integrated.)
9.17 Two mining project interests will be integrated on a day if:
· the same miner has the two interests
[paragraphs 255-5(a) and 255-10(a)];
· the interests relate to the same type of taxable resource (that
is, both relate to iron ore or both relate to coal)
[paragraphs 255-5(b) and 255-10(b)]; and
· the interests either:
- relate to the same mine or proposed mine (upstream
integration) [paragraph 255-5(c)]; or
- are integrated in their downstream mining operations (or
the mining operations as a whole are integrated) and the
miner has made the choice to be downstream integrated
[paragraphs 255-10(c) and 255-10(d)].
9.18 Each of these conditions must be satisfied for two mining
project interests to be integrated. Integration is automatic when all these
conditions are satisfied.
The same miner must have the mining project interests
9.19 The same miner must have each of the mining project interests
for them to be integrated [paragraphs 255-5(a) and 255-10(a)]. The miner will
have two or more mining project interests if it is the entity that has each of
the interests [section 15-5].
9.20 If a group has made the choice to consolidate for the MRRT,
then all the mining project interests that are within the group are taken to
be the interests of the head entity of the group. This is discussed in
Chapter 16. The effect of this is that it allows mining project interests that
are held by different subsidiaries in the one MRRT consolidated group to
combine (provided they meet all the other combination requirements).
[Division 215]
The mining project interests must relate to the same type of taxable
resource
9.21 The mining project interests must all relate to the same type of
taxable resource. A mining project interest will either relate to iron ore or
it will relate in some way to coal. [Paragraphs 255-5(b) and 255-10(b)]
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Minerals Resource Rent Tax
9.22 A mining project interest will relate to iron ore if what is
extracted from the production right area is:
· iron ore [paragraph 20-5(1)(a)]; or
· anything produced from consuming or destroying iron ore in
situ [paragraph 20-5(1)(c)].
9.23 A mining project interest will relate to coal, if what is extracted
from the production right area is:
· coal [paragraph 20-5(1)(b)];
· coal seam gas extracted as a necessary incident of coal
mining [paragraph 20-5(1)(d)]; or
· anything produced from consuming or destroying coal in situ
[paragraph 20-5(1)(c)].
Example 9.1: Mining project interests relating to iron ore
Rocky Resources has two mining project interests. One mining project
interest is in respect of production right A, the other mining project
interest is in respect of production right B. Production rights A and B
both give Rocky Resources the authority to extract iron ore.
The two mining project interests that Rocky Resources has relate to
iron ore.
Example 9.2: Mining project interests relating to coal
Col Co has two mining project interests. One mining project interest is
in respect of a production right that entitles Col Co to extract coal. The
other mining project interest is in respect of a production right that
entitles Col Co to burn the coal in situ and extract the gas produced.
The first mining project interest relates to coal. The second mining
project interest relates to the gas produced by consuming the coal in
situ.
Both mining project interests that Col Co has relate to coal, meaning
that this integration condition is satisfied.
Example 9.3: Mining project interests that do not relate to the same
taxable resource
Diverse Co has 10 mining project interests. Nine of the mining project
interests relate to iron ore. One mining project interest relates to coal.
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Combining mining project interests
The nine iron ore mining project interests may be able to be integrated
but the one coal mining project interest is not capable of integrating
with the other nine mining project interests.
Whether mining project interests relate to the same mine or proposed
mine (upstream integration)
9.24 The mining project interests must relate to the same mine or
proposed mine to be upstream integrated. [Paragraph 255-5(c)]
What constitutes a mine
9.25 The concept of a mine takes its ordinary meaning.
Usually, a mine is understood to be a combination of resource deposits,
workings, and equipment and machinery needed to extract or recover the
resource from its naturally occurring state. A mine can include
underground excavations and surface workings.
9.26 The question of whether particular operations constitute one or
more mines is a question of fact and degree to be determined by reference
to all of the circumstances of a particular case.
9.27 The following are factors that may be relevant in determining if
one or more mines exists:
· the extent and location of relevant ore bodies (noting that the
existence of a single ore body does not necessarily equate to
the existence of a single mine);
· the geological and other connections between relevant ore
bodies;
· the extent and location of the workings;
· the extent and location of extraction facilities and the manner
in which they are operated;
· systems for managing the extractive operations; and
· the existence and content of relevant mine plans, prepared in
accordance with the Joint Ore Reserves Committee's
Australasian Code for Reporting of Exploration Results,
Mineral Resources and Ore Reserves (commonly known as
the `JORC Code'), governing production in relation to one or
more ore bodies.
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Minerals Resource Rent Tax
Example 9.4: Two separate mines
Coal Co has two production rights, both of which entitle it to extract
coal. Coal Co has a mining project interest in relation to each of the
production rights.
Coal Co's head office manages the human resources for employees
involved in the upstream mining operations of the two mining project
interests without any distinction between the two production rights.
Mine Co manages the logistics of the upstream mining operations (that
is, extraction and transportation of the taxable resource from the
project areas to the valuation point). These activities are managed
separately in relation to each production right. There is no shared
upstream equipment or infrastructure, nor are the extraction activities
undertaken in a coordinated manner.
The two mines are distinct and cannot be considered to be the same
mine. While Coal Co has both of the relevant interests, and both
interests relate to coal, it does not operate the two sites as a single
mine. Integrated human resources management alone is not enough to
result in there being one mine.
As each mining project interest has its own distinct mine, the mining
project interests are not upstream integrated.
Example 9.5: One mine
MineCo Mining Pty Ltd has two mining project interests in respect of
two production rights (A and B). It extracts coal from five open cut
pits. Two of the pits are located on production right A and the other
three pits are located on production right B.
The five pits are managed by a single management group and are
covered by a single life-of-mine plan. Mining equipment is shared
across the five pits and is continually transferred between pits
depending on mining needs at any given time. All production
employees are employed under a single enterprise bargaining
agreement. All administration and equipment maintenance activities
are performed from a central location and are shared across all five
pits.
All coal extracted from the pits is hauled by trucks to a single
run-of-mine stockpile before being beneficiated (screened, dewatered,
separated and washed) through a coal processing plant. The coal is
then processed through the plant to produce the saleable product and
stored on a single product stockpile. The saleable product is then
loaded onto a train and transported to port to be loaded for export.
Taking all these factors into account, MineCo Mining is operating one
mine because infrastructure and equipment is shared, there is a single
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Combining mining project interests
life-of-mine plan, the operations are managed by a single management
team and all the coal is placed on a single stockpile. Therefore, the
mining project interests are upstream integrated.
What is a proposed mine
9.28 A proposed mine will be indicated by the existence of an ore
body and work preparatory to extraction. Such work might include:
· clearing the site;
· installing water, light and power;
· erecting housing and welfare facilities; and
· locating equipment or machinery at the site.
Example 9.6: One mine, multiple mining project interests
Rock Doctor Co has mining project interests in relation to each of its
seven production rights.
The production rights are all governed by a single life-of-mine plan
under which production is scheduled to commence on all production
rights within a specified period.
Two production rights have not commenced production. However, all
production rights are planned to be in production concurrently for a
significant number of years.
Rock Doctor Co is producing from 11 open-cut pits across five of the
production rights. Rock Doctor Co has employees that work across all
the pits. Similarly, all the trucks and other infrastructure that are used
across the production rights are operated in an integrated manner.
There is one manager responsible for all 11 pits. All the coal extracted
from these pits is taken to the one run-of-mine stockpile. The same
staff will also service two non-producing production rights when they
commence production.
All of the ore bodies are structurally connected and geologically
similar.
Taking all these factors together, Rock Doctor Co is operating one
mine. Despite the fact that there are some timing differences, the ore
bodies are all connected and similar; the production rights are all
serviced, or will be serviced, by a single staff unit; the ore bodies are
being developed concurrently (albeit in a staggered manner); and the
operations are economically integrated.
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Minerals Resource Rent Tax
Therefore the seven mining project interests are upstream integrated
with each other.
Whether downstream mining operations are integrated (downstream
integrated)
9.29 Two mining project interests are downstream integrated if either
the downstream mining operations for each of the interests, or the mining
operations as a whole for each of the interests, are integrated and the
miner has made a choice to be downstream integrated.
[Paragraphs 255-10(c) and (d)]
Downstream mining operations
9.30 Downstream mining operations are those mining operations that
are not upstream mining operations. Downstream mining operations are
those activities or operations that are necessary to get the taxable
resources from the valuation point and into the form and location in
which:
· a mining revenue event happens to them
[subparagraph 35-20(1)(b)(i)]; or
· they are first applied to producing something in relation to
which a mining revenue event happens
[subparagraph 35-20(1)(b)(ii)].
[Sections 35-15, 35-20 and 255-15]
9.31 An activity or operation cannot, in the same instance, be both an
upstream and a downstream mining operation. However, the costs of an
activity may relate to both upstream and downstream operations and may
need to be apportioned between them on a reasonable basis.
Diagram 9.1: Mining operations, upstream mining operations and
downstream mining operations
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Combining mining project interests
9.32 Operations or activities are not downstream mining operations if
they are undertaken after the taxable resources:
· reach the form and location in which they are in at the mining
revenue event; or
· are first applied to produce something in relation to which a
mining revenue event occurs.
[Subsections 35-20(1) and 255-15(1)]
Example 9.7: Downstream mining operations
Deanna Coal Co has a mine covering a single production right from
which it extracts coal that is exported to a foreign steel maker. Deanna
has a single mining project interest. The coal is sold as it is loaded
onto the ship at the port. The coal extracted is taken to a run-of-mine
stockpile.
The coal is removed from the run-of-mine stockpile by a reclaimer and
taken by conveyer belt to a common crusher for easier processing. The
coal is then sent to a processing plant where it is screened, de-watered
and separated in order to produce the final saleable product. That
product is then taken from the processing plant, loaded onto a train and
transported to port. At port, the coal is offloaded to stockpiles, from
which it is loaded on to ships in the same form that it leaves the
processing plant. That is, it is not blended at port with any other coal.
The coal is sold as it goes over the rail of the ships.
Deanna's downstream mining operations begin when the coal is
removed from the run-of-mine stockpile (that is, the valuation point)
and end when it goes over the rail at port. This is because the coal, at
that point, is in the form and location it is in when it is sold (the mining
revenue event).
Example 9.8: Downstream mining operations -- several mining
project interests
Fox Fines Pty Ltd has two production rights which entitle it to extract
iron ore. Fox has a mining project interest in relation to each of these
production rights. The iron ore extracted from each production right
has different iron content. The miner contracts with a foreign steel
mill to provide iron ore of specific iron content and the contract
specifies that the iron ore is sold as it is loaded on to a ship.
The iron ore extracted from each production right is taken to
run-of-mine stockpiles, a different stockpile for each production right.
Iron ore is removed from a run-of-mine stockpile and taken to a
crusher and loaded onto trains operated by a third party. The trains
take the iron ore to a port where it is deposited in separate piles. A
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Minerals Resource Rent Tax
quantity is taken from each pile, blended into one product which is
loaded onto ships, such that the shipment satisfies the contractual iron
content.
The downstream operations for each of Fox's mining project interest
begin when the iron ore is removed from the respective run-of-mine
stockpiles and end as it goes over the ship's rail.
Integrated
9.33 `Integrated' takes its ordinary meaning. In essence, things are
integrated when separate elements come together in a coordinated or
interrelated manner.
9.34 Whether the downstream mining operations or the mining
operations of two mining project interests are integrated is a question of
fact, but must be determined having regard to the manner in which those
operations are carried on, including the way in which infrastructure and
equipment is used and operated. [Paragraph 255-10(c)]
9.35 If the mining operations are managed as an integrated operation,
demonstrated through the same downstream infrastructure being used or
operated in an integrated manner in respect of production from the mining
project interests, then the downstream integration tests will be met.
9.36 The integration test would not be satisfied just because two or
more mining project interests utilise the same downstream infrastructure.
They would need to be integrated in the way they use that infrastructure.
For example, integration may be demonstrated through the scheduling and
use of the infrastructure, to combine resources from different mining
project interests into a blended product.
Example 9.9: Downstream integration -- blended product
Riley Co has five mines, each of which is a single mining project
interest. Each mine has its own run-of-mine stockpile. In addition,
each mine extracts iron ore with different iron content.
Riley Co also owns and operates a rail network system which is
connected to each of the run-of-mine stockpiles. The iron ore is taken
from the various run-of-mine stockpiles and delivered to Riley Co's
trains, which travel on the rail network to the port facility, which it also
owns and operates. At port, iron ore from each of the mines is
delivered to separate holding piles, according to the iron content.
Riley Co then blends ore from the various piles in order to load a
shipment with the required iron content.
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Combining mining project interests
Riley Co contracts with overseas customers to deliver iron ore, with
specified iron content, to ships at its port. Riley Co's contracts specify
that the iron ore is sold to its customers on a free-on-board basis.
Riley Co schedules the extraction activities and transportation of the
extracted ore from each of the mines in a way that ensures it has a
constant supply of iron ore of varying iron content at the port
stockpiles.
Taking into account the manner in which the operations are carried out
and the extensive integration of infrastructure used and operated in
carrying out these operations, each of the mining project interests that
Riley Co has are downstream integrated.
Example 9.10: Downstream integration -- undertaken by a third
party on behalf of the miner
Lachlan Co has three coal mines, each of which is a separate mining
project interest. Coal from each mine is of slightly varying qualities
and must be blended to be of a quality that satisfies customer
requirements.
Lachlan Co has a service agreement with Train Corp (an entity
unrelated to Lachlan Co) whereby Lachlan Co delivers coal from each
of its run-of-mine stockpiles to Train Corp trains for transport to port.
Lachlan Co pays Train Corp a fee for its transport service. Lachlan
Co's coal is delivered to a port which is owned and operated by Port
Coal Services Pty Ltd (PCS). PCS is unrelated to Lachlan Co.
Lachlan Co's coal is stored in stockpiles at the port facility until it is
loaded onto ships to fulfil Lachlan Co's contracts with overseas
customers. Lachlan Co's sales contracts specify that the coal is sold on
a `free on board' basis. Before Lachlan Co's coal is loaded onto ships,
PCS blends the varying quality of coal to a blend that satisfies the
contract description. PCS provides this service to Lachlan Co for a
fee.
Although none of the downstream mining operations are owned or
operated by Lachlan Co, the transporting and blending at port are
necessary to get the coal into the form and location in which it is sold
and are the downstream mining operations of Lachlan Co in relation to
its mining project interest. Due to the manner in which the
downstream operations are carried on and the integrated way
infrastructure is used in carrying out those downstream operations, the
downstream mining operations of each of the mining project interests
that Lachlan Co has are integrated for the purpose of the MRRT.
Example 9.11: Downstream integration -- mining operation as a
whole is integrated
Mining Co has 10 coal mines, each of which is a separate mining
project interest. Each mine is operated under a separate life-of-mine
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Minerals Resource Rent Tax
plan and has a separate run-of-mine stockpile. The coal is removed
from the run-of-mine stockpiles and taken to separate coal preparation
plants.
Mining Co has service agreements in place with multiple rail and port
operators. Mining Co schedules the transportation of coal on the rail
corridors and delivery to the port in a way that ensures that the timing
and rate of extraction from each of the mining project interests is
managed having regard to the quality, characteristics and volume
across the overall system. Contracted capacity for the rail corridors
and the port is managed in order to ensure reliable supply to customers
in accordance with contract descriptions and market demand.
Mining Co has a dedicated production, rail and port infrastructure team
that is responsible for managing the outbound supply chain. This team
is accountable for the integrated planning of the rail corridors and the
port. Sales and operations planning and supply chain performance
management is managed for each of Mining Co's mining project
interests centrally. The scheduling of activities downstream of the
run-of-mine stockpiles is undertaken in an integrated manner.
Each of the mining project interest that Mining Co has is integrated
because of the way in which it conducts its downstream operations,
taking into account the overall mining operations, are highly
coordinated.
Example 9.12: Downstream integration -- single processing plant
Francis Coking Coal has four production rights (A, B, C, and D).
There is a mining project interest in respect of each production right.
On production right A, there are three underground coal mines (A1, A2
and A3). On production rights B, C and D there are three open cut
pits.
Premium coking coal is extracted from the three underground mines
located in production right A and medium quality coking coal,
pulverised coal injection coal and thermal coal is extracted from the
three open cut pits (on B, C and D). Each of the underground and open
cut pits has its own run-of-mine stockpile. The coal from each
run-of-mine stockpile is then conveyed on a series of overland
conveyors to a single coal processing plant.
All the coal from both the underground and open cut operations is
processed through a single coal processing plant in which the coal is
beneficiated (screened, dewatered, separated and washed) to produce
saleable product. As part of the beneficiation process, lower quality
coal from the open cut pits is blended in the processing plant with the
premium coking coal from the underground operations to produce a
hybrid saleable product. The beneficiated coal is then stored on a
common product stockpile area, separated according to the type and
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Combining mining project interests
quality of coal. The saleable product is then loaded onto trains and
transported to port to be loaded for export.
Francis Coking Coal's mining project interests are downstream
integrated, due to the coordinated manner in which the coal is
processed and transported.
Downstream integration choice
9.37 Even if the downstream mining operations of the mining project
interests are factually integrated and the other conditions for integration
are satisfied, the interests will not be downstream integrated unless the
miner has made a choice to treat the interests as integrated.
[Paragraph 255-10(d) and section 255-20]
Example 9.13: Integrated operations, but no choice has been made
On 1 July 2012, Geologue Jacqueline Pty Ltd has two mining project
interests, each relating to coal. The two interests do not relate to the
same mine but their downstream mining operations are factually
integrated.
Geologue Jacqueline Pty Ltd has not made the choice to downstream
integrate. Therefore, despite the downstream mining operations being
factually integrated, the two interests are not recognised as integrated
for the MRRT.
9.38 The downstream integration choice does not lapse. Once made,
the choice operates to integrate all mining project interests that the miner
has, including subsequent mining project interests that the miner acquires
(so long as they satisfy the other conditions for downstream integration).
[Section 255-20]
9.39 The choice will have effect from the day the choice is made, or
the day all the other conditions for downstream integration are met,
whichever is later. Put simply, two mining project interests will be
integrated when they meet all the downstream integration conditions,
including the making of a valid choice. [Section 255-10]
9.40 The choice to downstream integrate will cease to have effect in
relation to a particular mining project interest after the miner that made
the choice stops having the interest. [Subsection 255-20(3)]
Example 9.14: Integrated on day of choice
Following on from the example above, Geologue Jacqueline Pty Ltd
chooses downstream integration on 27 February 2013. Geologue
Jacqueline's two mining project interests will be integrated with each
other from 27 February 2013.
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Minerals Resource Rent Tax
Example 9.15: Choice made in advance of integrated operations
On 1 July 2012, Bowen Integrated Materials Co (BIM Co) holds
several mineral development licences in various locations throughout
the Bowen Basin. BIM Co is in the process of obtaining production
rights in respect of the mineral development licences. BIM Co plans to
manage the downstream mining operations in relation to each of the
production rights as an integrated operation. BIM Co has determined it
would want the mining project interests to be recognised as integrated
for the purpose of the MRRT (if they are factually integrated in their
downstream mining operations).
On 23 April 2013, the production rights are granted in relation to each
of the mineral development licences. BIM Co, now a miner with
mining project interests, also makes the downstream integration choice
on that day.
BIM Co satisfies all of the other conditions for downstream integration
on 1 September 2013. Each of the mining project interests that
BIM Co has are integrated with the other interests from
1 September 2013.
Retrospective downstream integration
9.41 A transitional rule allows the downstream integration choice to
have retrospective effect in limited circumstances. These limited
circumstances are where the conditions for integration, excluding the
making of the choice, are satisfied in respect of mining project interests
between 2 May 2010 and 30 June 2012. In such cases, if the miner makes
the choice on or before the lodgement date for the MRRT return for the
first MRRT year, the interests will be taken to have been integrated from
the time all the other conditions were satisfied. [Schedule 4 to the Minerals
Resource Rent Tax (Consequential Amendments and Transitional Provisions) Bill 2011
(MRRT (CA&TP) Bill), subitem 7(2)]
9.42 This transitional rule takes account of the fact that a miner
cannot make a downstream integration choice before 1 July 2012.
Regardless, two mining project interests should still be able to be treated
as integrated at an earlier time. This enables mining project interests to be
integrated from 2 May 2010, despite the miner not having made a choice
at that time.
Example 9.16: Downstream mining operations -- transitional choice
On 2 May 2010, Miner Co has two production rights which entitle it to
extract iron ore. The downstream mining operations in relation to each
of the production rights are integrated.
Upon commencement of the MRRT, Miner Co will be taken to have
two mining project interests in relation to the two production rights at
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Combining mining project interests
2 May 2010. Each interest relates to iron ore and the downstream
mining operations of the interests are integrated.
Miner Co makes the downstream integration choice at the time it
lodges its MRRT return in relation to the first MRRT year.
Despite having not made the downstream integration choice on
2 May 2010, once it makes the choice Miner Co's interests will be
treated as integrated with each other from 2 May 2010.
Combining mining project interests
9.43 For the most part, mining project interests that can combine,
must combine. Combination is automatic and not optional.
[Section 115-10)]
9.44 Unlike integration, which tests the relationship between two
mining project interests, combination applies to a collection of mining
project interests. Mining project interests must combine to the fullest
extent possible. For example, a miner cannot choose to only combine two
mining project interests if there are actually four interests that can
combine.
9.45 Mining project interests (`constituent interests') that combine are
taken to be a single mining project interest (`combined interest') for the
purposes of the MRRT law. [Subsection 115-10(1)]
9.46 The constituent interests are not recognised as a combined
interest for the purpose of testing whether they must combine. This is to
allow the integration provisions to look-through the combined interest and
test whether the constituent interests are integrated. [Subsection 115-10(1)]
9.47 Mining project interests are taken to be a combined interest from
the time the constituent interests can combine. This time is called the
`combining time'. [Subsection 115-10(1)]
9.48 Combination is not an annual test. It is determined at and from
the combining time. However the miner is liable to pay MRRT for the
combined interest as if the constituent interests had been combined from
the beginning of the MRRT year. [Subsection 115-10(1) and section 115-40]
9.49 A number of conditions must be satisfied for mining project
interests to combine. Integration is the first condition for combination.
Only interests that are integrated with each of the other interests can
combine. [Paragraph 115-10(1)(a)]
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Minerals Resource Rent Tax
9.50 Integrated mining project interests can only combine if:
· any royalty credits that any of the interests has would be able
to be applied in working out a transferred royalty allowance
for each of the other interests [paragraph 115-10(1)(b) and
section 115-20];
· any pre-mining loss that any of the interests has (or would
have if the MRRT year were to end at the combining time)
would be able to be applied in working out a transferred
pre-mining loss allowance for each of the other interests
[paragraph 115-10(1)(c) and section 115-25];
· any mining loss that any of the interests has (or would have if
the MRRT year were to end at the combining time) would be
able to be applied in working out a transferred mining loss
allowance for each of the other interests [paragraph 115-10(1)(d)
and section 115-30]; and
· any of the interests that has a starting base loss or a starting
base asset:
- existed on 2 May 2010 (or originated from a
pre-mining project interest that existed on 2 May 2010)
[paragraphs 115-10(1)(e) and 115-35(a)]; and
- has been held, at all times since 2 May 2010, by the same
miner as held all the other constituent interests (or the
pre-mining project interests from which they originated)
[paragraphs 115-10(1)(e) and 115-35(b)].
9.51 A constituent interest that has had a suspension day is unable to
combine. See Chapter 11 for a discussion on suspension days.
[Subsection 115-10(3)]
9.52 These conditions must be satisfied to ensure that combination
does not enable the transferability of either quarantined tax history or
future starting base losses.
9.53 If integrated mining project interests are unable to combine
because they have allowance components that do not meet the above
criteria, the miner can nonetheless make a choice to combine. However,
this would have the effect of cancelling those allowance components that
otherwise prevent it from combining. [Section 115-15]
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Combining mining project interests
9.54 If two mining project interests are integrated with each other and
neither interest has a royalty credit, pre-mining loss, mining loss, starting
base loss or starting base asset, the interests can and must combine.
Royalty credits must be transferable to combine
9.55 If any of the integrated mining project interests has a royalty
credit, it can only combine if all the royalty credits are fully transferable to
each of the other interests. Chapter 6 explains what a royalty credit is and
when one arises. [Section 115-20]
9.56 Royalty credits are transferable if they would be available to be
applied in working out a transferred royalty allowance for each of the
other interests. That is, they are transferable if the mining project interests
have been integrated from the time the royalty credit arose until the time
the mining project interests are seeking to combine (and the royalty credit
did not arise when the interest was using the alternative valuation
method). [Subsection 65-20(1)]
9.57 In determining whether the royalty credits would be transferable
it does not matter whether the royalty credit would have been used by
another mining project interest if it was actually available to be applied.
[Paragraph 115-20(b)]
Example 9.17: Royalty credits not fully transferable
Miner Co has two mining project interests, one of which existed at
1 July 2012 and another that was acquired in 2013 from another miner.
On 1 July 2014, the interests become integrated in their upstream
mining operations. At the time of integration, each interest has royalty
credits for the previous MRRT year. The two interests are unable to
combine as they each have royalty credits that arose prior to the
interests being integrated. (However, the mining project interests may
be able to transfer future royalty credits that arise while the two mining
project interests are integrated with each other.)
9.58 If any of the royalty credits arose while the mining project
interests were not integrated, or they arose when using the alternative
valuation method, the mining project interests will be unable to combine
unless the miner makes a choice to cancel the royalty credits and enable
the combination. This is discussed below. [Section 115-15]
Pre-mining losses must be transferable to combine
9.59 If any of the integrated mining project interests has a pre-mining
loss (or would have a pre-mining loss if the MRRT year ended at the
combining time) they can only combine if all the pre-mining losses are
fully transferable to each of the other integrated mining project interests.
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Minerals Resource Rent Tax
Chapter 6 explains what a pre-mining loss is and when one arises.
[Section 115-25]
9.60 A mining project interest would have a pre-mining loss if the
MRRT year were to end at the combining time, if the pre-mining
expenditure for the interest for the period from the start of the
combination year until the combining time exceeds the pre-mining
revenue for the interest for the same period.
9.61 A mining project interest will only have pre-mining revenue and
pre-mining expenditure for the combination year if the mining project
interest originated from a pre-mining project interest during the
combining year but before the combining time.
9.62 Pre-mining losses are transferable if they are available to be
applied in working out a transferred pre-mining loss allowance for the
other mining project interests. That is, the mining project interests must
relate to the same type of taxable resource (that is, iron ore or coal), the
mining project interests must be held by the same miner or by close
associates and the common ownership test must be satisfied. [Section 95-20]
9.63 If one of the mining project interests is a combined interest, for
the pre-mining loss to be transferable to the combined interest it must be
transferable to each of the constituent interests. [Paragraph 115-25(b) and
section 115-55]
9.64 In determining if the pre-mining loss would be transferable, it
does not matter whether the pre-mining loss would have actually been
used by another mining project interest. [Subparagraph 115-25(a)(ii)]
9.65 If the pre-mining losses are not available for transfer, the two
mining project interests will be unable to combine, unless the miner
makes a choice to cancel the pre-mining losses to enable the combination.
This is discussed below. [Section 115-15]
Mining losses must be transferable to combine
9.66 If any of the integrated mining project interests has a mining loss
(or would have a mining loss if the MRRT year ended at the combining
time) it can only combine if all the mining losses are fully transferable to
each of the other integrated mining project interests. Chapter 6 explains
what a mining loss is and when one arises. [Section 115-30]
9.67 A mining project interest would have a mining loss if, the
MRRT year were to end at the combining time, the mining expenditure
for the interest for the period from the start of the combination year until
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Combining mining project interests
the combining time would exceed the mining revenue for the interest for
the same period.
9.68 Mining losses are transferable if they are available to be applied
in working out a transferred mining loss allowance for the other mining
project interests. That is, they are transferable if the mining project
interests relate to the same type of taxable resource (that is, iron ore or
coal), the mining project interests satisfy the common ownership test and
the mining loss did not arise when the interest was using the alternative
valuation method. [Subsection 100-20(1)]
9.69 If one of the mining project interests is a combined interest, for
the mining loss to be transferable to the combined interest it must be
transferable to each of the constituent interests. [Paragraph 115-30(b) and
section 115-60]
9.70 In determining if the mining loss would be transferable, it does
not matter whether the mining loss would have actually been used by
another mining project interest. [Subparagraph 115-30(a)(ii)]
9.71 If the common ownership test is not satisfied or any of the
mining losses arose when using the alternative valuation method, the two
mining project interests will be unable to combine, unless the miner
makes a choice to cancel the mining losses to enable the combination.
This is discussed below. [Section 115-15]
Example 9.18: Mining losses not fully transferrable
Miner Co has two mining project interests. It has always had one of
the interests but it only acquired the other interest recently. The
second interest it acquired has a mining loss for a previous MRRT
year.
The mining loss of the second interest cannot be applied in working
out a transferred mining loss allowance of the first interest, as the
common ownership test is not satisfied.
The two interests are unable to combine as the second interest has a
mining loss that is unable to be transferred to the first interest.
Starting base losses and starting base assets -- the same miner must
have had the interests from 2 May 2010
9.72 If any of the integrated mining project interests have a starting
base loss or a starting base asset, the interests can only combine if they
existed, or originated from a pre-mining project interest that existed, on
2 May 2010 and at all times since that time the miner that has each of the
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Minerals Resource Rent Tax
interests (or the pre-mining project interest from which it originated) is the
same miner. [Section 115-35]
9.73 If mining project interests that were not held by the same miner
at that time but which had starting base losses or assets were able to
combine, this would effectively allow starting base losses to be transferred
from the old interest to the new interest. Chapter 7 explains when a miner
has a starting base loss and a starting base asset. Chapter 6 explains what
a pre-mining project interest is and when a mining project interest
originates from a pre-mining project interest.
9.74 A mining project interest that has a starting base loss or a
starting base asset may be able to combine with another interest, if both
interests (or the pre-mining project interests from which they originated)
existed on 2 May 2010. [Paragraph 115-35(a)]
9.75 If the mining project interests (or the pre-mining project interests
from which they originate) existed on 2 May 2010, the interests can
combine if they have always been held by the same miner as each other.
[Paragraph 115-35(b)]
9.76 This enables all mining project interests of a miner that relate to
exploration or production rights that existed on 2 May 2010 to be capable
of combining with other interests that existed on this date (subject to the
other conditions).
Example 9.19: Pre-mining project interest existing on 2 May 2010
Expo Co holds an exploration right at 2 May 2010, in respect of which
there is a pre-mining project interest. Subsequently, Expo Co is
granted a production right that covers an area that the exploration right
covered. The production right originates from the exploration right,
therefore the mining project interest that Expo Co now has originates
from the pre-mining project interest.
The pre-mining project interest from which the mining project interest
originated existed on 2 May 2010 and is therefore capable of
combining with other interests that existed on 2 May 2010 (subject to
the other conditions).
Example 9.20: Pre-mining project interest not existing on 2 May 2010
At 2 May 2010, Digger Co is in the process of finalising its application
to obtain an exploration right. The exploration right was granted on
1 July 2010, triggering the existence of a pre-mining project interest.
Subsequently, Digger Co is granted a production right that covers an
area that the exploration right covered. The production right originates
from the exploration right, therefore the mining project interest
originates from the pre-mining project interest.
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Combining mining project interests
The pre-mining project interest from which the mining project interest
was derived did not exist on 2 May 2010, it only started to exist on
1 July 2010. Therefore, it is unable to combine with other interests that
existed on 2 May 2010.
9.77 Requiring the same miner to have each of the mining project
interests is similar to the ownership requirement in the common
ownership test for transferred mining loss allowances. One important
distinction is that, for the purpose of determining whether mining project
interests can combine, the same miner must have the mining project
interests; it is not sufficient that a closely associated miner has that
interest. If a consolidated group has made the choice to consolidate for
MRRT purposes, the head company will be the miner that has all mining
project interests that exist within the group.
9.78 A change of ownership does not necessarily stop interests from
being combined. Rather, the test focuses on the relationship between the
two mining project interests and considers whether they have always been
held by the same miner, even if the identity of that miner has changed
from time to time. As long as there has been no interruption to the
relationship, the mining project interests will have always been held by
the same miner.
Example 9.21: Same miner has mining project interests
Miner Co has two mining project interests at 2 May 2010. Each of
those mining project interests has starting base assets that will be
depreciated in relation to the mining project interests. On
1 October 2012, Miner Co sells the two interests to CHPP Ltd.
From 2 May 2010 to 30 September 2012, Miner Co had the interests.
From 1 October 2012 onwards, CHPP Ltd had the two interests.
Despite different miners having the interests, at all times both interests
have been held by the same miner.
Example 9.22: Same miner has not had mining project interests
Head Co is the head entity of a consolidated group for income tax
purposes. A Co and B Co are subsidiaries of Head Co.
Head Co has not made the choice to consolidate for the purposes of the
MRRT. Therefore, A Co is a miner as it has mining project interest 1
(MPI 1) and mining project interest 2 (MPI 2). B Co is also a miner as
it has mining project interest 3 (MPI 3).
A Co and B Co have had their respective MPI's since 2 May 2010.
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Minerals Resource Rent Tax
MPI 3 cannot combine with MPI 1 or MPI 2 as the miner that has
MPI 3 (B Co) and the miner that has MPI 1 and MPI 2 (A Co) are not
the same miner.
MPI 1 and MPI 2 can combine as A Co has both the mining project
interests.
Head
Co
A Co B Co
MPI MPI MPI
1 2 3
Example 9.23: Combination in the case of acquisition of a group
Following on from the example above, Mega Co is the head entity of a
consolidated group for the purpose of income tax and the MRRT.
Mega Co has three subsidiaries, D Co, E Co and F Co, each of which
has a mining project interest, respectively, MPI 4, MPI 5 and MPI 6.
Because Mega Co has made the choice to consolidate for the purpose
of the MRRT, Mega Co is the miner and has MPI 4, MPI 5 and MPI 6.
D Co, E Co and F Co are not entities recognised for MRRT purposes.
On 1 July 2015, Mega Co acquires Head Co. Head Co is now part of
Mega Co's consolidated group, therefore Mega Co is now the miner in
relation to MPI 1, MPI 2 and MPI 3.
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Combining mining project interests
Acquisition Mega
Co
Head
Co D Co E Co F Co
A Co B Co MPI MPI MPI
4 5 6
MPI MPI MPI
1 2 3
Assume all of the mining project interests have starting base assets
with base values.
Mega Co can, provided all the other combination conditions are met,
combine all the mining project interests that it now has, provided the
same miner has always had each of the interests.
Therefore, Mega Co can combine MPI 1 and MPI 2. It can also
combine MPI 4, MPI 5 and MPI 6. MPI 3 is unable to combine as
there is no other mining project interest that shares its ownership
history.
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Minerals Resource Rent Tax
Which miner has the MPI? Same miner as each other?
2 May 2010 -- 1 July
30 June 2015 2015
onwards
MPI 1 A Co Mega Co The same miner has always had MPI 1 and MPI 2
MPI 2 A Co Mega Co The same miner has always had MPI 1 and MPI 2
MPI 3 B Co Mega Co No other MPI has the same ownership history as MPI 3
MPI 4 Mega Co Mega Co The same miner has always had MPI 4, MPI 5 and MPI 6
MPI 5 Mega Co Mega Co The same miner has always had MPI 4, MPI 5 and MPI 6
MPI 6 Mega Co Mega Co The same miner has always had MPI 4, MPI 5 and MPI 6
Upon combination, Mega Co will be left with three mining project
interests. Two combined interests, one comprising MPI 1 and MPI 2
and the other comprising MPI 4, MPI 5 and MPI 6, and the mining
project interest that cannot combine with any of the others, MPI 3.
Mega
Co
Head
Co D Co E Co F Co
A Co B Co
Combined
MPI
(MPI 4, MPI
5 and MPI
Combined 6)
MPI MPI
(MPI 1 and 3
MPI 2)
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Combining mining project interests
Choice to combine -- cancellation of allowance components
9.79 If a miner has interests that are unable to combine because doing
so would enable the transferability of either quarantined tax history or
future starting base losses, the miner can make a choice to combine.
[Subsection 115-15(1)]
9.80 The effect of making the choice is that any allowance
components that are otherwise preventing the interests from combining
are cancelled. This includes reducing the base value of starting base
assets to zero. [Subsection 115-15(2)]
9.81 Not all the allowance components are necessarily cancelled,
only those which are preventing combination from being allowed.
9.82 This choice is intended to give a miner the ability to combine
without first having to use up the allowance components that are
preventing it from combining.
Example 9.24: A miner can choose to combine and cancel relevant
allowance components
Sprinklingheart Resources is a miner with two integrated mining
project interests (MPI 1 and MPI 2).
MPI 2 has no allowance components. MPI 1 has unapplied mining
losses for the 2013, 2014 and 2015 MRRT years. The 2014 and 2015
losses are transferable to MPI 2, however, the 2013 losses are not.
As some of the mining losses are not transferable, MPI 1 and MPI 2
are unable to combine.
Sprinklingheart Resources makes a choice to combine. Having made
this choice, the carried forward mining losses for the 2013 MRRT year
are cancelled. MPI 1 retains the mining losses for the 2014 and 2015
MRRT years.
MPI 1 and MPI 2 combine. The combined interest will therefore
inherit MPI 1's mining losses for the 2014 and 2015 MRRT years.
Effects of combining mining project interests
Inherited history
9.83 The MRRT liability for the whole MRRT year will rest with the
miner who has the combined interest at the end of the MRRT year.
[Section 115-40]
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Minerals Resource Rent Tax
MRRT liability
9.84 In the year in which the constituent interests combine, called the
`combining year', the miner that has the combined interest will be liable
to pay MRRT that is payable in relation to the combined interest, as if the
constituent interests had been combined from the start of the year. The
miner is not separately liable to pay MRRT in relation to the constituent
interests. [Section 115-40]
9.85 The miner will also be liable to pay MRRT that is payable in
relation to the combined interests for future MRRT years (provided the
constituent interests remain combined and the miner continues to have the
combined interest). [Section 10-1]
9.86 The allowance components of the constituent interests are taken
to be the allowance components of the combined mining project interest.
[Section 115-45]
9.87 The royalty credits of the constituent interests are inherited by
the combined interest. Royalty credits are not aggregated (as they arise
for a particular day and not annually for an MRRT year).
[Subsection 115-45(1)]
9.88 Pre-mining losses that the combined interest inherits from the
constituent interests are aggregated to the extent they relate to the same
MRRT year. [Subsection 115-45(2)]
9.89 Mining losses that the combined interest inherits from the
constituent interests are aggregated to the extent they relate to the same
MRRT year. [Subsection 115-45(3)]
9.90 Starting base losses that the combined interest inherits from the
constituent interests are aggregated to the extent they relate to the same
MRRT year and have had the same starting base valuation method applied
(that is, book value or market value). [Subsections 115-45(4) and (5) and
section 115-50]
Starting base losses -- where some starting base assets are subject to
book value and others to market value
9.91 The starting base valuation method is a choice a miner makes in
relation to a mining project interest. The constituent interests that relate to
the combined interest may have different starting base valuation methods
applied to value their starting base assets. Book value and market value
starting base losses are subject to different uplift rates and therefore
cannot be aggregated in the same way as pre-mining losses and mining
losses. [Subsections 115-45(4) and (5) and section 115-50]
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Combining mining project interests
9.92 The aggregated book value starting base losses will be subject to
the book value uplift long term bond rate + 7 per cent (LTBR + 7 per
cent) and the aggregated market value starting base losses will be subject
to the market value uplift consumer price index (CPI). [Section 115-50]
9.93 The starting base losses for the constituent interests that the
combined interest is taken to have are not necessarily aggregated. Rather,
the starting base losses are only aggregated to the extent they relate to the
same valuation approach for an MRRT year. [Section 115-50]
9.94 If some starting base assets were initially valued using book
value and others using market value, the miner will have two starting base
losses for the combined interest for the MRRT year, a book value starting
base loss and a market value starting base loss. [Section 115-50]
9.95 The book value starting base loss for an MRRT year will be the
sum of the book value starting base losses that would have arisen for a
constituent interest for the MRRT year. The market value starting base
loss for an MRRT year will be the sum of the market value starting base
losses that would have arisen for a constituent interest for the MRRT year.
[Subsections 115-50(2) and (3)]
9.96 The two starting base losses will be applied in working out the
starting base allowance for the miner. The starting base losses that relate
to book value will be applied first, then the starting base losses that relate
to market value. [Subsection 115-50(4)]
Example 9.25: Aggregating starting base losses with same valuation
method
Miner Co has two mining project interests, MPI A and MPI B. Miner
Co made the choice to use the book value starting base methodology
for starting base assets that relate to MPI A and MPI B.
From 1 July 2015, MPI A and MPI B are taken to be a combined
interest, MPI AB. At the combining time, MPI A had a $200 starting
base loss for the 2013 year and a $500 starting base loss for 2014 year
and MPI B had a $100 starting base loss for the 2013 year and a $200
starting base loss for the 2014 year.
Upon combination, MPI AB will be taken to have the starting base
losses that relate to MPI A and MPI B and the starting base losses for
each year will be aggregated as they apply to the same starting base
valuation method. Therefore, MPI AB will have a book value starting
base loss for the 2013 year of $300 ($200 + $100) and a book value
starting base loss for the 2014 year of $700 ($500 + $200).
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Minerals Resource Rent Tax
Example 9.26: Aggregating starting base losses with different
valuation methods
Assume all the same facts as the previous example, except this time
Miner Co has made the choice to use the book value methodology in
relation to MPI A and the market value methodology in relation to
MPI B.
Upon combination MPI AB will be taken to have the starting base
losses that relate to MPI A and MPI B but none of the losses will be
aggregated as different starting base valuations applied in relation to
the starting base losses. Therefore, MPI AB will have book value
starting base losses for 2013 and 2014 of $200 and $500 respectively
and market value starting base losses for 2013 and 2014 of $100 and
$200 respectively.
In the 2015 MRRT year, MPI AB has a mining profit. Assume
MPI AB has a $100 book value starting base loss and a $100 market
value starting base loss for the 2015 year. When it comes time to
calculate the starting base allowance for MPI AB there is $1,000
remaining mining profit, therefore the starting base allowance cannot
exceed $1,000.
In working out the starting base allowance, the book value starting
base losses are applied first, then the market value starting base losses.
Therefore, MPI AB will apply the starting base losses in the following
order, $200 book value starting base loss for the 2013 year (attributable
to MPI A), $500 book value starting base loss for the 2014 year
(attributable to MPI A), $100 book value starting base loss for the
2015 (attributable to MPI A), $100 market value starting base loss for
the 2013 year (attributable to MPI B) and $100 of the $200 market
value starting base loss for the 2014 year (attributable to MPI B). The
remaining $100 from 2014 and the $100 from 2014 (both market
values starting base losses) will be carried forward to 2016 and uplifted
by the CPI.
Choices
9.97 The downstream integration choice and the simplified MRRT
choice both apply to all mining project interests a miner has. When the
constituent interests combine, if the miner had made a downstream
integration choice or a simplified MRRT choice, these choices will
continue to apply to the combined interest.
9.98 Similarly, the starting base valuation choice, while made in
respect of a mining project interest, continues to apply to the starting base
assets as per the choice made by the miner in relation to the constituent
interests.
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Combining mining project interests
9.99 An alternative valuation method choice made in respect of a
constituent interest will have no effect on the combined interest.
[Section 115-65]
9.100 The miner can, if it meets the requirements, choose to use the
alternative valuation method in respect of the combined interest.
Transfer of pre-mining losses and mining losses to and from a
combined interest
9.101 There are special rules for transferring pre-mining losses and
mining losses to or from a combined interest. [Sections 115-55 and 115-60]
9.102 When a miner is seeking to transfer a pre-mining loss, or a
mining loss, to or from a combined interest, the common ownership tests
for the respective losses must be satisfied in relation to each of the
constituent interests and the other mining project interest that is
transferring or accepting the loss. [Sections 115-55 and 115-60]
9.103 This rule only applies in relation to pre-mining losses and
mining losses that arose in an MRRT year before the combining year, as
each of the constituent interests will have the same ownership from the
time of combination onwards. [Paragraphs 115-55(1)(b) and (2)(b) and
115-60(1)(b) and (2)(b)]
9.104 This rule applies regardless of whether a pre-mining loss or a
mining loss is otherwise transferable under the general transfer rules.
[Subsections 115-55(3) and 115-60(3)]
Example 9.27: Unable to transfer mining losses to combined interest
At the beginning of the 2016 MRRT year, Miner Co has five mining
project interests (MPIs). Since 1 July 2012, Miner Co has always had
MPI 1, 2, 4 and 5. Miner Co acquired MPI 3 at the beginning of the
2014 MRRT year.
MPIs 1 to 4 became factually integrated from the start of the 2016
MRRT year and do not have any allowance components, so they
combine from the beginning of the 2016 year. MPI 5 is unable to
combine as it is not integrated with any of the other interests. The
combined interest makes a mining profit for the 2016 MRRT year.
MPI 5 has a mining loss from 2013 and makes another mining loss in
2016.
The combined interest still has a remaining mining profit when it
comes time to apply the transferred mining loss allowance. To
determine whether the mining loss for MPI 5 for the 2013 MRRT year
can be applied in working out the transferred mining loss allowance of
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Minerals Resource Rent Tax
the combined interest, the common ownership test needs to be satisfied
in relation to MPI 5 and each of the constituent interests, MPIs 1 to 4.
The common ownership test will be satisfied if the same miner had
MPI 5 and each constituent interest from the start of the year for which
the mining loss arose until the end of the year for which the mining
loss is being transferred.
The common ownership test will not be satisfied for MPI 5 and
constituent interest MPI 3 as Miner Co only acquired MPI 3 at the
beginning of the 2014 MRRT year.
Therefore, the 2013 mining loss of MPI 5 cannot be applied in working
out the transferred mining loss allowance of the combined interest for
the 2016 MRRT year.
MPI 1
Combined
MPI 2
MPI 1 MPI 2 interest
has a
mining
Acquired profit in
MPI 3 MPI 4 the 2016
in 2014 MPI 3
year
x
MPI 4
2013
Mining loss cannot be transferred
mining MPI 5
loss
Application and transitional provisions
9.105 Mining project interests can combine from 1 July 2012.
9.106 However, there is a transitional provision that ensures mining
project interests can be taken to be combined from a time earlier than
1 July 2012, provided they satisfy all the other conditions for
combination. [Schedule 4 to the MRRT (CA&TP) Bill, subitem 7(1)]
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Combining mining project interests
9.107 Allowing mining project interest to be able to combine from
2 May 2010 is particularly important for the purpose of working out the
starting base for mining project interests.
181
Chapter 10
Transfers and splits of mining and
pre-mining project interests
Outline of chapter
10.1 This chapter explains when a mining project interest, or a
pre-mining project interest, is transferred or split. The miner that has an
interest after a transfer or split is liable to pay the Minerals Resource Rent
Tax (MRRT) for that interest for the whole year, not just for the period
after the transfer or split.
10.2 All legislative references throughout this chapter are to the
Minerals Resource Rent Tax Bill 2011 unless otherwise indicated.
Summary of new law
10.3 A mining project interest is the basis upon which a miner's
MRRT liability is determined. It anchors the operation of the MRRT. If a
miner has mining revenue, mining expenditure, allowance components or
starting base assets, it will have them for a mining project interest.
10.4 A mining project transfer is an arrangement that results in the
whole mining project interest being transferred from one miner to a single
other entity.
10.5 A mining project split is an arrangement that results in the whole
or a part of a mining project interest being transferred from one miner to
one or more other entities.
10.6 A mining project split also happens if:
· a production right to which the mining project interest relates
is split; or
· the constituent interests of a combined interest cease being
integrated with each other.
10.7 A mining project interest that is transferred from a miner to
another entity by way of a mining project transfer is taken to continue in
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Minerals Resource Rent Tax
the hands of the new miner. That is, the tax history of the original interest
remains with the interest after the transfer.
10.8 The miner that has the mining project interest after the transfer is
the miner liable to pay MRRT for that interest for the entire MRRT year,
including the period before the transfer.
10.9 Similarly, mining project interests that result from a mining
project split are taken to be continuations of the mining project interest
that was split. That is, the tax history of the mining project interest is
inherited by the interests that emerge from the split and the miners that
have those interests are liable for the MRRT payable in relation to the
original interest for the entire MRRT year, including the period before the
split.
10.10 For a mining project split, the extent to which the tax history and
tax liability of the original mining project interest are inherited by the new
interests is determined by applying the split percentage.
10.11 The split percentage is a reasonable approximation of the market
value of a new interest relative to the total market values of all the
interests arising from the split.
10.12 Similar rules deal with pre-mining project transfers and
pre-mining project splits.
Detailed explanation of new law
When a mining project transfer occurs
10.13 A mining project transfer is an arrangement that results in a
whole mining project interest being transferred from the original miner to
another entity, the new miner. [Subsection 120-10(3)]
10.14 The miner's entitlement may be a share in the output of a mining
venture or an entitlement to extract taxable resources [section 15-5]. The
mining project transfer is effected when a miner gives that particular
entitlement, being the share in an output of a mining venture or the
entitlement to extract taxable resources, to another entity.
Example 10.1: Mining project transfer
A Co has a mining project interest because it has an entitlement to
extract taxable resources from the area covered by a production right (a
residual mining project interest).
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Transfers and splits of mining and pre-mining project interests
A Co enters into an arrangement that has the effect of transferring its
entitlement to B Co. B Co now has the entitlement to extract taxable
resources from the area covered by the production right (the residual
mining project interest).
This is a mining project transfer.
10.15 `Arrangement' has the same wide meaning as in the Income Tax
Assessment Act 1997 (ITAA 1997). [Section 300-1, definition of `arrangement']
10.16 A mining project transfer may be effected by a sale, sub-lease,
gift, or by any other means.
10.17 To avoid doubt, a mining project transfer can occur in the period
2 May 2010 to 30 June 2012. [Schedule 4 to the Minerals Resource Rent Tax
(Consequential Amendments and Transitional Provisions) Bill 2011 (MRRT (CA&TP)
Bill 2011), item 8]
Deemed mining project transfer
10.18 A mining project transfer will be deemed to have occurred if a
miner's entitlement to extract taxable resources (a `residual interest') is
replaced (in its entirety) with an entitlement to share in the output of a
mining venture (a `mining venture interest'). That is, if the type of
entitlement the miner had has changed. [Section 120-25 and subsections 15-5(1)
and (4)]
Example 10.2: Deemed mining project transfer
Cavier is granted a production right by the State Government. It has a
mining project interest (MPI 1) because it has an entitlement to extract
taxable resources from the area covered by a production right. MPI 1
is a residual mining project interest.
Cavier then undertakes to extract all the taxable resources from the
area covered by the production right. Once extracted, it will process
the taxable resource before exporting them for sale. This is a mining
venture that it participates in on its own. It takes 100 per cent of the
output.
The commencement of the mining venture gives rise to a new mining
project interest for Cavier (MPI 2). MPI 2 is a mining venture interest
which is separate and distinct from MPI 1. As the mining venture is in
respect of all the taxable resources to which MPI 1 related, MPI 1 no
longer exists. MPI 1 has effectively been replaced by MPI 2.
The start of the mining venture is taken to be a mining project transfer:
MPI 1 is the original interest, MPI 2 is the new interest and Cavier is
both the original and the new miner.
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Minerals Resource Rent Tax
10.19 A deemed mining project transfer has all the same effects as a
normal mining project transfer.
Effects of a mining project transfer
10.20 The main effect of a mining project transfer is that:
· the mining project interest in the hands of the new miner is
taken to be a continuation of the interest that the original
miner had; and
· the MRRT liability for the interest for the transfer year is
payable by the new miner.
[Subsections 120-10(1) and (2)]
Continuation principle
10.21 After a mining project transfer, the original miner will cease to
have the mining project interest and the new miner will start to have the
interest.
10.22 The mining project interest the new miner has after the transfer
is taken to be a continuation of the interest the original miner had just
before the transfer. Because the new interest is taken to be a continuation
of the original interest, everything that happened in relation to the original
interest is taken to have happened in relation to the new interest. For the
purpose of applying the MRRT law in the current and future MRRT years,
mining revenue, mining expenditure and allowance components for the
original miner for the original interest before the transfer are taken to be
mining revenue, mining expenditure and allowance components of the
new miner for the new interest. This ensures that the tax history of the
original interest is inherited by the new interest. [Subsections 120-10(2) and
(4)]
10.23 The new interest is taken to have started on the same day as the
original interest and the same miners had the original interest will be taken
to have had the new interest, at the same times as they had the original
interest.
10.24 Knowing when the interest started and which miners have had
the interest is relevant for determining whether a mining loss can be
applied in working out, for example, a transferred mining loss allowance
in relation to the interest.
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Transfers and splits of mining and pre-mining project interests
Example 10.3: Inherit ownership history
On 1 July 2012, AlexandraGeo has a mining project interest (MPI 1).
At the start of 1 July 2014, it acquires another mining project interest
(`new interest') from Rocky Resources.
The new interest is taken to be a continuation of the interest that Rocky
Resources had and the new interest will continue to have Rocky
Resources' ownership history. When acquired, the new interest has a
mining loss for the 2013 MRRT year.
At the end of the 2014 MRRT year, there is a mining profit for MPI 1,
while the new interest has made a mining loss. AlexandraGeo needs to
determine whether the 2013 or 2014 mining losses for the new interest
can be applied as a transferred mining loss allowance for MPI 1.
In relation to the 2013 mining loss, the mining loss can only be applied
if the same miner had both the new interest and MPI 1 from the
beginning of the 2013 MRRT year until the end of the 2014 MRRT
year.
As the new interest is taken to be a continuation of the original interest
that Rocky Resources had, the new interest will be taken to have been
Rocky Resources' interest for the 2013 MRRT year (before
AlexandraGeo had the new interest). Therefore, the common
ownership test will not be satisfied in relation to the 2013 MRRT year
meaning the 2013 loss will not be able to be transferred. The common
ownership test would, however, be satisfied in relation to the 2014
MRRT year and the loss for this year could be transferred.
10.25 Any starting base asset that was held by the original miner in
relation to the original interest that is held by the new miner in relation to
the new interest (that is, after the mining project transfer), continues to be
a starting base asset in relation to the new interest. The base value of the
asset continues and is unaffected by the transfer (although a change in use
of the starting base asset by the new miner will result in a starting base
adjustment).
10.26 A starting base asset valuation method choice that the original
miner made in relation to the original interest, continues to apply in
relation to the starting base assets of the new interest.
MRRT amounts move with the interest
10.27 For the purpose of working out the MRRT liability of the
transfer year and later MRRT years, mining revenue and mining
expenditure for the original miner for the original interest are taken to be
mining revenue and mining expenditure of the new miner for the new
interest. All the dates and amounts that relate to the mining revenue and
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Minerals Resource Rent Tax
mining expenditure are preserved when they are inherited.
[Subsection 120-10(4)]
10.28 Similarly, any allowance components for the original miner for
the original interest are taken to be allowance components for the new
miner for the new interest. All dates that are specific to the allowance
components are preserved when they are inherited. [Paragraphs 120-10(4)(c)
and (d)]
10.29 Allowance components of the original interest are:
· royalty credits;
· pre-mining losses;
· mining losses; and
· starting base losses.
[Section 300-1, definition of `allowance component']
10.30 So, a mining loss for the original interest for the 2013 MRRT
year remains a 2013 mining loss for the new interest.
10.31 The original miner is not able to use allowance components for
the MRRT year in which the transfer occurs. In particular, the original
miner would not be able to transfer or apply any allowance components
that have accrued for the year to the date of transfer.
MRRT liability for the transfer year
10.32 The new miner is liable for any MRRT that is payable for the
interest for the whole transfer year. This includes being liable for any
MRRT that is payable for the interest for the part of the year in which the
original miner had the interest. [Subsection 120-10(1)]
10.33 The original miner is not liable to pay any MRRT that is payable
for the interest for the transfer year. [Subsection 120-10(1)]
10.34 If the original miner and the new miner have different
accounting periods, the transfer year may not be the same MRRT year for
both the original miner and the new miner. In such cases, the new miner
may be liable to pay MRRT for that interest for a period which is longer
or shorter than its normal MRRT year, as it will be liable to pay MRRT
for the period from the first day of the original miner's transfer year.
[Paragraphs 120-10(4)(a) and (b)]
188
Transfers and splits of mining and pre-mining project interests
Diagram 10.1: Different accounting periods
Original miner's
MRRT year
New miner's
MRRT year
Transfer
10.35 To enable the new miner to determine the MRRT liability in the
transfer year, amounts of mining revenue and mining expenditure that the
original miner had in relation to the original interest for its MRRT year
are instead taken to be mining revenue and mining expenditure of the new
miner in relation to the new interest for its MRRT year. Excluded
expenditure for the original interest remains excluded expenditure for the
new interest. [Paragraphs 120-10(4)(a) and (b)]
10.36 The information transfer rules require the original miner to
notify the new miner of amounts that are relevant to the mining project
interest. [Schedule 1 to the MRRT (CA&TP) Bill, item 8, Division 121 in Schedule 1
to the Taxation Administration Act 1953 (TAA 1953)]
10.37 However, the information transfer rules do not require such a
notice where the original miner and the new miner are the same entity,
which would be the case in a deemed mining project transfer.
[Section 120-25]
10.38 Chapter 18 has further information on information transfers.
10.39 In future MRRT years, the new miner will have the interest from
the beginning of the MRRT year and will be liable to pay MRRT for the
interest for the whole year, as it would for any other interest it has.
However, this does not mean that the amounts of mining revenue, mining
expenditure and allowance components that the new miner is taken to
have had for a previous year are no longer relevant. For example, if the
new miner sells an asset in respect of which the original miner included an
amount as mining expenditure, an amount of recoupment for the new
miner would be determined with reference to the mining expenditure that
the original miner had (which the new miner is taken to have).
[Paragraph 120-10(4)(b) and section 30-40]
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Minerals Resource Rent Tax
Choices
10.40 Choices that the original miner made in relation to the original
interest generally continue to apply in relation to the new interest. One
example is the starting base valuation method choice.
10.41 There are some exceptions to this general rule.
Downstream integration choice
10.42 If the original miner made a downstream integration choice to
treat its mining project interests as downstream integrated, that choice
does not affect the interest when the original miner stops having the
interest. That is, the new miner is not bound by the original miner's
downstream integration choice. [Subsection 255-20(3)]
10.43 If the original miner is the same entity as the new miner, which
is the case where there is a deemed mining project transfer, the original
miner will not have ceased having the interest and therefore any
downstream integration choice will still apply to that interest.
[Section 120-25 and subsection 255-20(3)]
Alternative valuation method and simplified MRRT method choices
10.44 If the original miner made one of the following two choices in
respect of the mining project interest for the transfer year, the new miner
is not bound by the choice for its transfer year (unless the new miner is the
same entity as the original miner, which can only occur when there is a
deemed mining project transfer):
· alternative valuation method choice (see Chapter 14); or
· simplified MRRT method choice (see Chapter 8).
[Subsection 120-10(5) and 120-25(2)]
10.45 After the transfer, the new miner can determine whether or not it
wants to make such choices in respect of the new interest for the transfer
year. [Subsection 120-10(5)]
10.46 For example, if an original miner has made an alternative
valuation method choice for the transfer year and the new miner does not
make such a choice for the year, the new miner includes in its mining
revenue for the transfer year the raw mining revenue for the mining
revenue event (that is, the amounts unaffected by the alternative valuation
method).
190
Transfers and splits of mining and pre-mining project interests
10.47 Similarly, if the original miner chose to use the simplified
MRRT method in the transfer year then the new miner will not be bound
by that choice. The new miner is obliged to account for MRRT in the
same manner as they would have if the choice had never been made for
that MRRT year.
10.48 However, if the original miner, or another miner who held the
mining project interest, previously made the choice to apply the simplified
MRRT method in a prior MRRT year, then any consequences arising from
that choice, that is the cancellation of allowance components and the
denial of starting base losses, continue to remain in effect. The new miner
will not be able to reconstruct the allowance components for those
previous years; they will remain extinguished.
Example 10.4: The original miner made a simplified MRRT choice
Part way through the year, S&S Resources purchases a mining project
interest from HC Minerals. Before the transfer, HC chose to use the
simplified MRRT method for that year. HC made royalty payments in
relation to the interest during the pre-transfer part year, but, because it
chose to use the simplified MRRT method, this will not give rise to
royalty credits in relation to the interest. HC had also chose to use the
simplified MRRT method in previous MRRT years and had a number
of other allowance components that were extinguished because of
those choices.
When S&S Resources acquires the mining project interest, it does not
make the choice to use the simplified MRRT method. S&S Resources
will be able to have allowance components for the transfer year,
including any royalty credits that would have been extinguished if HC
continued to have the interest. However, S&S will be unable to
reconstruct previous years' allowance components, they will remain
extinguished.
Suspension day choice
10.49 If the old miner made a suspension day choice, the new miner
will not be bound by that choice in future MRRT years (unless the new
miner is the same entity as the original miner, which can only occur when
there is a deemed mining project transfer). However, allowance
components that have previously been cancelled because of the
suspension day will continue to be cancelled, they cannot be
reconstructed. Suspension days are discussed in Chapter 11.
[Subsection 120-10(6) and 120-25(2)]
10.50 After the transfer, the new miner can determine whether or not it
wants to choose to suspend the new interest.
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Minerals Resource Rent Tax
Original miner and new miner are the same entity
10.51 If the original miner and the new miner are the same entity, all
choices made by the original miner in relation to the original interest
continue to apply to the entity when it is the new miner in relation to the
new interest. The entity cannot remake the choice when it is the new
miner. [Subsection 120-25(2)]
Events happening to the original miner after the transfer
10.52 If an amount of mining revenue or mining expenditure comes
home to the original miner after the mining project transfer has occurred,
the amount is taken to be mining revenue or mining expenditure of the
new miner in relation to the new interest. The same applies to anything
that affects the MRRT liability, including allowance components and the
rehabilitation tax offset. This rule also applies if there has been more than
one mining project transfer (including pre-mining project transfers), and
to all the entities who were previously miners (or explorers) in respect of
the interest. [Section 120-20]
10.53 The rule also applies if there has been one or more mining
project splits (or pre-mining project splits). In such cases it is subject to
the split percentage. [Subsection 120-20(2)]
Example 10.5: Mining revenue after transfer
OldMinerCo extracts 50,000 tonnes of iron ore from a project area on
20 September 2012 and the full amount of the ore remains housed at
OldMinerCo's run-of-mine stockpile.
On 21 January 2013, OldMinerCo transfers the mining project interest
to NewMinerCo. OldMiner Co does not supply any of the 50,000
tonnes of iron ore before the transfer time.
On 20 February 2013, OldMinerCo supplies the 50,000 tonnes of iron
ore to ForeignCo. NewMinerCo does not receive any amount in
respect of this supply.
If OldMinerCo still had the interest, the amount in relation to this
supply would have been included as mining revenue of the mining
project interest.
The mining revenue in relation to the supply of the 50,000 tonnes of
iron ore by OldMinerCo to ForeignCo, is an amount included in the
mining revenue of NewMinerCo in relation to its mining project
interest.
OldMinerCo must notify NewMinerCo of the amount to be included in
the interest's mining revenue.
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Transfers and splits of mining and pre-mining project interests
10.54 These effects are specifically provided for as they are things that
happen to the original miner in relation to the mining project interest when
the original miner no longer has the interest.
10.55 The information transfer rules require the original miner (or an
entity who was previously a miner in relation to the interest) to notify the
new miner of amounts that are relevant to the mining project interest.
[Schedule 1 to the MRRT (CA&TP) Bill, item 8, Division 121 in Schedule 1 to the
TAA 1953]
10.56 However, the information transfer rules do not require such a
notice where the original miner and the new miner are the same entity,
which would be the case in a deemed mining project transfer.
[Section 120-25]
Property transferred with the mining project interest
10.57 When property is transferred from the original miner to the new
miner as part of the arrangement that effects the mining project transfer,
the part of the consideration for the arrangement that is attributable to the
property would ordinarily be mining expenditure of the new miner in
relation to the transferred mining project interest [Division 35]. Similarly,
the consideration that the new miner paid to the original miner in respect
of that property would be a recoupment of mining expenditure for the
original miner in respect of the mining project interest [section 30-40].
10.58 However, under inherited history, the new miner is liable for the
MRRT for the mining project interest for the whole transfer year
[subsection 120-10(1)]. Therefore, the new miner would have mining
expenditure on acquiring the property and would also include the amount
recouped by the original miner in the mining revenue of the interest for
the year [section 120-20]. This would be somewhat circular.
10.59 To prevent that circularity, a special rule exists to deal with
these cases. The intended effect is to cancel out the mining expenditure
and the recoupment. [Subsections 120-15(2) and (3)]
10.60 The special rule applies when:
· any property, or any legal or equitable right that is not
property (the transferred property), is transferred to the new
miner under the mining project transfer;
· the original miner used the transferred property in the mining
operations of the mining project interest; and
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Minerals Resource Rent Tax
· the transferred property:
- gave rise to an amount of mining expenditure for the
original miner, or a previous miner, in relation to the
interest; or
- is, or may become, a starting base asset in relation to the
interest.
[Subsection 120-15(1)]
Effect of transferring property
10.61 The effect of transferring such property, is that:
· the original miner is taken not to have received a recoupment
[subsection 120-15(2)]; and
· the new miner is taken to have an amount of excluded
expenditure [subsection 120-15(3)].
10.62 To avoid doubt, the mining project transfer, and the transfer of
transferred property, is not, of itself, an event or circumstance that gives
rise to an adjustment. [Subsection 120-15(4)]
10.63 The amount that is taken to not be a recoupment and to be
excluded expenditure is the amount of the consideration for the mining
project transfer that is attributable to acquiring the particular property.
Example 10.6: Transferred property
Ironman Resources has a mining project interest (MPI 1). In 2015, it
sells the interest, along with all the assets used in MPI 1 to Washerman
Co. Washerman pays Ironman $150 million for MPI 1 and the
associated property. Of the $150 million, $10 million is for a fleet of
trucks. Ironman purchased the fleet for $11 million in 2013 and
included the $11 million in its mining expenditure for the 2013 MRRT
year.
The $10 million that Ironman received for the fleet of trucks would
normally be a recoupment to be included in the mining revenue of the
interest. However, as the fleet of trucks was transferred as part of a
mining project transfer, Ironman's recoupment is ignored.
Similarly, rather than including the $10 million as mining expenditure
for the 2015 MRRT year, the expenditure is excluded expenditure for
Washerman.
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Transfers and splits of mining and pre-mining project interests
10.64 Starting base assets that are transferred as part of a mining
project transfer continue to be starting base assets in relation to the mining
project interests and do not result in an amount of mining expenditure for
the new miner. [Section 120-15]
10.65 The new miner inherits the original miner's use of the starting
base asset. If the new miner uses the starting base asset differently (for
example, uses it more or less than the original miner used it in relation to
the mining project interest) this will be reflected in the calculation of the
starting base loss. [Division 90]
10.66 Similarly, if the new miner uses a non-starting base asset more
or less than the original miner, there would be an adjustment. [Division 160]
When a mining project split occurs
10.67 A mining project split is an arrangement that results in:
· the whole of the entitlement comprising the mining project
interest being transferred from a miner to two or more other
entities [paragraph 125-10(3)(a)]; or
· a part of the entitlement comprising the mining project
interest being transferred from a miner to one or more other
entities [paragraph 125-10(3)(b].
10.68 A mining project split will also happen if:
· a production right to which the mining project interest relates
is split [paragraph 125-10(3)(c)]; or
· the constituent interests of a combined interest cease being
integrated with the other constituent interests
[paragraph 125-10(3)(d)].
10.69 The entities which have a mining project interest after the split
will be the new miners in relation to their respective interests. Unlike
transfers, there will be multiple new interests and new miners as a result
of a split. However, if the original miner retains part of the interest, it will
be a new miner in respect of the part that it retains.
[Paragraphs 125-10(3)(b) to (d)]
10.70 `Arrangement', which is necessary in some, but not all, mining
project splits, has the same wide meaning as in the ITAA 1997.
[Section 300-1, definition of `arrangement']
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Minerals Resource Rent Tax
10.71 The arrangement may be effected by a sale, sublease, gift, or any
other means.
10.72 Constituent interests will cease to be integrated if they no longer
meet the conditions for integration [sections 255-5 and 255-10]. The
conditions for integration are discussed in Chapter 9.
10.73 A mining project split can occur in the period 2 May 2010 to
30 June 2012. [Schedule 4 to the MRRT (CA&TP) Bill, item 8]
Deemed mining project split
10.74 A mining project split will be deemed to have occurred if a
miner's entitlement to extract taxable resources (a `residual interest') is
reduced because an entitlement to share in the output of a mining venture
(a `mining venture interest') in respect of some of those taxable resources
starts to exist. [Paragraph 125-35(1)(a) and subsections 15-5(1) and (4)]
10.75 A mining project split will also be deemed to have occurred if a
miner stops having an entitlement to extract taxable resources (a `residual
interest') and entitlements to share in the output of a mining venture (a
`mining venture interest') in respect of the taxable resources start to exist
for more than one entity (one of which may be the miner who had the
residual interest). All the new entitlements to share in the output of the
mining venture collectively cover all the taxable resources to which the
residual interest previously related. [Paragraph 125-35(1)(b) and
subsections 15-5(1) and (4)]
Example 10.7: Deemed mining project split
A Co has three production rights, in respect of which it has three
mining project interests (three residual interests).
A Co enters into a mining venture with B Co to extract and process
taxable resources from an area that spans across parts of each of the
production rights. The mining venture is to run for 10 years. A Co
will take 70 per cent of the output of the mining venture and B Co will
take 30 per cent.
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Transfers and splits of mining and pre-mining project interests
MPI 1 MPI 2
Mining
venture
MPI 3
The start of the mining venture gives rise to an entitlement to an output
of the mining venture for A Co and B Co. Therefore A Co and B Co
have mining project interests in relation to the mining venture (`mining
venture interests'). As the mining venture spans across three
production rights, A Co and B Co will each have a separate mining
venture interest in respect of each production right.
As the mining venture is limited to a period of 10 years, the venture
covers some but not all the taxable resources that were previously part
of MPI 1, MPI 2 and MPI 3, each of these mining project interests will
have reduced in value as they now only relate to the taxable resources
that are not covered by the mining venture.
As the start of the mining venture gives rise to mining venture interests
in relation to some of the taxable resources that MPI 1, MPI 2 and
MPI 3 covered, there is a deemed mining project split of MPI 1, MPI 2
and MPI 3.
MPI 1 will split into three interests; the reduced residual interest of
MPI 1, the mining venture interest for A Co (MPI 4) and the mining
venture interest for B Co (MPI 5).
MPI 2 will split into three interests; the reduced residual interest of
MPI 2, the mining venture interest for A Co (MPI 6) and the mining
venture interest for B Co (MPI 7).
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Minerals Resource Rent Tax
MPI 1 MPI 2
MPI 4 (A Co) and MPI 6 (A Co) and
MPI 5 (B Co) MPI 7 (B Co)
MPI 6 (A Co) and
MPI 7 (B Co)
MPI 3
MPI 3 will split into three interests; the reduced residual interest of
MPI 3, the mining venture interest for A Co (MPI 8) and the mining
venture interest for B Co (MPI 9).
At the end of 10 years, when the mining venture ends, each of the
mining venture interests (MPI 4, 5, 6, 7, 8 and 9) will also end.
However, the residual interests (MPI 1, 2 and 3) will continue in
respect of all the area covered by the respective production right,
including the area formerly covered by the mining venture.
Effects of a mining project split
10.76 The main effect of a mining project split is that:
· the mining project interest in the hands of the new miner is
taken to be a continuation of the interest that the original
miner had; and
· the MRRT liability for the transfer year is payable by the
new miner.
[Subsections 125-10(1) and (2)]
Continuation principle
10.77 The consequences of a mining project split are very similar to
those of a mining project transfer. The new interests are taken to be a
continuation of the original interest, the new miners will inherit the tax
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Transfers and splits of mining and pre-mining project interests
history of the original miner in relation to the interest, and the new miners
are liable for the MRRT liability for the new interests for the whole split
year. [Subsection 125-10(2)]
10.78 The important distinction is that each of these will only happen
to the new interests to the extent of their respective split percentages. This
ensures the tax history that is relevant to the original interest is inherited
by the new interests to the extent of their respective shares.
[Subsection 125-10(4)]
10.79 If any starting base asset that was held by the original miner in
relation to the original interest is held by a new miner after the mining
project split to some extent, the asset continues to be a starting base asset
in relation to the new interest. The base value of the asset continues
unaffected by the split (although a change in use of the starting base asset
by a new miner will result in a starting base adjustment).
10.80 A starting base asset valuation method election that the original
miner made in relation to the original interest continues to apply in
relation to the starting base assets of the new interest.
Split percentage
10.81 The split percentage is a reasonable approximation of the market
value of the new interest, expressed as a percentage of the total market
values of all the new interests arising from the split. The market values of
the new interests are calculated immediately after the split. Each new
interest has its own split percentage, the sum of which must equal 100 per
cent. [Section 125-15]
Example 10.8: Simple split percentage
ACo sells half its entitlement to share in the output of a mining venture
in respect of a production right to BCo. After the mining project split,
there are two new interests of equal value. Therefore, the split
percentage for each of the new interests is 50 per cent.
Example 10.9: Complex split percentage
ACo has a mining project interest (P). ACo sells to BCo an
entitlement to the first 1 million tonnes of a taxable resource recovered
from the project area for each year. This gives rise to a mining project
interest for BCo. In this case, the entitlement that ACo sells to BCo
cannot be expressed as a fixed percentage because it will change from
year to year.
ACo determines the market value of each of the new interests
immediately after the split. ACo's new interest (P1) is valued at
$10.5 billion and the new interest that BCo has (P2) is valued at
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Minerals Resource Rent Tax
$600 million. The split percentage for ACo's P1 is 95 per cent and the
split percentage for BCo's P2 is 5 per cent:
10.5/(10.5 + 0.6) = 95%
0.6/(10.5 + 0.6) = 5%
MRRT liability for the split year and later years
10.82 The new miners are each liable to pay any MRRT that is payable
for their respective new interests for the whole transfer year but only to
the extent of their new interests. This includes being liable to pay any
MRRT that is payable for the interest for the part of the year prior to the
split. [Subsection 125-10(1)]
10.83 The original miner is not liable for any MRRT that is payable
for the interest for the transfer year (unless it is one of the new miners
because it has retained part of the interest).
10.84 When a mining project split occurs, the tax attributes (including
mining revenue, mining expenditure and allowance components) of the
mining project interest are disaggregated and inherited by each of the new
interests to the extent of their respective split percentages.
[Subsection 125-10(4)]
10.85 If the original miner and the new miner have different
accounting periods, the split year may not be the same MRRT year for
both the original miner and the new miner. In such cases, the new miner
may be liable to pay MRRT for a period that is longer or shorter than its
normal MRRT year, as it will be liable to pay MRRT for the period from
the first day of the original miner's split year. [Subsection 125-10(4)]
Diagram 10.2: Different accounting periods
Original miner's
MRRT year
New miner's
MRRT year
Split
10.86 In future MRRT years, the new miner will have had the interest
from the beginning of the MRRT year and will be liable to pay MRRT for
the interest for the whole year, as it would be for any other interest it has.
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Transfers and splits of mining and pre-mining project interests
MRRT amounts move with the interest
10.87 To enable the new miners to determine the respective MRRT
liabilities for the new interests for the split year and later years, amounts
of mining revenue and mining expenditure that the original miner had in
relation to the original interest for the split year and previous MRRT years
are instead taken to be mining revenue and mining expenditure of the new
miners in relation to the new interest (to the extent of the split percentage).
Excluded expenditure for the original interest remains excluded
expenditure for the new interest. [Paragraphs 125-10(4)(a) and (b)]
10.88 Similarly, any allowance components for the original interest
will be taken to be allowance components for the new miners for each of
the new interests, to the extent of their respective split percentages. This
includes royalty credits that arose in the split year before the split and also
any allowance component that the interest was carrying forward from a
previous year. [Paragraphs 125-10(4)(c) and (d)]
10.89 All the dates that are specific to the allowance components are
preserved when they are inherited. For example, a mining loss for the
original interest for the 2013 MRRT year will remain a 2013 mining loss
for the new interests.
10.90 The original miner will not be able to use the allowance
components or apply them before the split.
Example 10.10: Applying split percentage to tax attributes
Following on from the previous example, the split percentage for
ACo's P1 is 95 per cent and the split percentage for BCo's P2 is
5 per cent.
The tax history of P will be split between P1 and P2 as follows:
Before the split After the split
($m) ($m)
Tax attributes P P1 P2
Mining revenue 500 475 25
Mining expenditure 200 190 10
Royalty credit (2013) 60 57 3
Royalty credit (2014) 10 9.5 0.5
Starting base loss 5 4.75 0.25
Pre-mining loss (2012) 5 4.75 0.25
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Minerals Resource Rent Tax
10.91 The information transfer rules requires the original miner to
notify the new miners of amounts that are relevant to the mining project
interest. [Schedule 1 to the MRRT (CA&TP) Bill, item 8, Division 121 in Schedule 1
to the TAA 1953]
10.92 However, the information transfer rules do not require such a
notice where the original miner and the new miner are the same entity,
which would be the case in some mining project splits.
Choices
10.93 Choices the original miner made in relation to the original
interest generally continue to apply in relation to the new interests. One
example is the starting base valuation method choice.
10.94 However, there are some exceptions to this general rule.
Downstream integration choice
10.95 If the original miner had made a downstream integration choice
to treat its mining project interests as downstream integrated, that choice
does not affect the interest (or part of the interest) when the original miner
stops having the interest. That is, the new miners are not bound by the
original miner's downstream integration choice. [Subsection 255-20(3)]
10.96 If the original miner is the same entity as the new miner, the
original miner will not have ceased having the interest and therefore any
downstream integration choice will still apply to that interest.
[Subsection 255-20(3)]
Alternative valuation method and simplified MRRT method choices
10.97 If the original miner made one of the following two choices in
respect of the mining project interest for the transfer year, the new miners
are not bound by the choice for their split years (unless the new miner is
the same entity as the original miner):
· alternative valuation method choice (see Chapter 14); or
· simplified MRRT method choice (see Chapter 8).
[Subsections 125-10(5) and (7)]
10.98 After the split, the new miner can determine whether or not it
wants to make such choices in respect of the new interest for the split
year. [Subsection 125-10(5)]
10.99 For example, if an original miner has made an alternative
valuation method choice for the split year and the new miner does not
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Transfers and splits of mining and pre-mining project interests
make such a choice for the year, it includes in its mining revenue for the
split year the raw mining revenue (subject to the split percentage) for the
mining revenue event (that is, the amounts unaffected by the alternative
valuation method).
10.100 Similarly, if the original miner chose to use the simplified
MRRT method in the split year then the new miner will not be bound by
that choice. The new miner is obliged to account for MRRT in the same
manner as they would have if the choice had never been made for that
MRRT year.
10.101 However, if the original miner, or another miner who held the
mining project interest, had previously made the choice to apply the
simplified MRRT method in a prior MRRT year, then any consequences
arising from that choice, that is the cancelling of allowance components
and the inability to claim starting base losses, continue to remain in effect.
The new miner will not be able to reconstruct the allowance components
for those previous years; they will remain extinguished.
Suspension day choice
10.102 If the old miner made a suspension day choice, the new miner
will not be bound by that choice in future MRRT years (unless the new
miner is the same entity as the original miner). However, allowance
components that have previously been cancelled because of the
suspension day will continue to be cancelled, they cannot be
reconstructed. Suspension days are discussed in Chapter 11.
[Subsection 125-10(6)]
10.103 After the split, the new miner can determine whether or not it
wants to choose to suspend the new interest.
Original miner and new miner are the same entity
10.104 If the original miner and the new miner are the same entity, all
choices made by the original miner in relation to the original interest
continue to apply to the entity when it is the new miner in relation to the
new interest. [Subsection 125-10(7)]
Events happening to the original miner after the split
10.105 If an amount of mining revenue or mining expenditure relating
to the original interest comes home to the original miner after the mining
project split has occurred, the amount is instead taken to be mining
revenue and mining expenditure of the new miners (to the extent of their
split percentages) in relation to the new interests. The same applies to
anything that affect the MRRT liability, including allowance components
and the rehabilitation tax offset. This rule also applies if there has been
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Minerals Resource Rent Tax
more than one mining project split (including pre-mining project splits),
and to all the entities that were previously miners (or explorers) in respect
of the mining project interest. [Section 125-30]
Example 10.11: Multiple mining project splits
Midnight Resource has a mining project interest. Midnight sells half
the mining project interest to Sunset Mines. This sale results in a
mining project split. Shortly afterwards, Sunset then sells half of its
mining project interest to Daybreak Co. This results in another mining
project split.
50% MPI 4
(Daybreak)
50%
MPI 2
(Sunset)
MPI 5
(Sunset)
50%
MPI 1
(Midnight)
MPI 3
(Midnight)
50%
Midnight Co sells 2 million tonnes of resources that it extracted from
MPI 1, which results in $50 million of mining revenue for MPI 1.
However, because MPI 1 has been subject to multiple mining project
splits, the $50 million is not included (at least not in its entirety) in the
mining project interest that Midnight retains.
Applying the various split percentages, $25 million would be mining
revenue of MPI 3, $12.5 million would be mining revenue of MPI 4
and $12.5 million would be mining revenue of MPI 5.
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Transfers and splits of mining and pre-mining project interests
Miner and MPI Mining revenue
Midnight MPI 3 $25m ($50m x 0.5)
Daybreak MPI 4 $12.5m ($50m x 0.5 x 0.5)
Sunset MPI 5 $12.5m ($50m x 0.5 x 0.5)
10.106 These effects are specifically provided for as they are things that
happen to the original miner in relation to the mining project interest when
the original miner no longer has the interest.
10.107 The information transfer rules require the original miner (or an
entity who was previously the miner in relation to the interest) to notify
the new miner of amounts that are relevant to the mining project interest.
[Schedule 1 to the MRRT (CA&TP) Bill, item 8, Division 121 in Schedule 1 to the
TAA 1953]
10.108 However, the information transfer rules do not require such a
notice where the original miner and the new miner are the same entity,
which would be the case in some mining project splits.
Property transferred with the mining project interest
10.109 When property is transferred from the original miner to the new
miner as part of the arrangement that affects the mining project split, the
part of the consideration that is attributable to the property would
ordinarily be mining expenditure of the new miners in relation to the new
interests [Division 35]. Similarly, the consideration that the new miners paid
to the original miner in respect of that property would be a recoupment of
mining expenditure for the original miner in respect of the mining project
interest [section 30-40].
10.110 However, under inherited history, the new miners are liable for
the MRRT, to the extent of their split percentages, for the mining project
interest for the whole split year [subsections 125-10(1) and (4)]. Therefore, the
new miner would have mining expenditure on acquiring the property and
it would also include the amount recouped by the original miner in the
mining revenue for the new interest for the year [section 125-30]. This
would be somewhat circular.
10.111 To prevent that circularity, a special rule exists to deal with
these cases [section 125-20]. The intended effect is to cancel out the mining
expenditure and the recoupment [subsections 125-20(2) and (3)].
10.112 The special rule applies when:
· any property, or any legal or equitable right that is not
property (the transferred property), is transferred to the new
miner under the mining project split;
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Minerals Resource Rent Tax
· the original miner used the transferred property in the mining
operations of the mining project interest; and
· the transferred property:
- gave rise to an amount of mining expenditure for the
original miner, or a previous miner, in relation to the
interest; or
- is, or may become, a starting base asset in relation to the
interest.
[Subsection 125-20(1)]
Effect of transferring property
10.113 The effect of transferring such property, is that:
· the original miner is taken not to have received a recoupment
[subsection 125-20(2)]; and
· the new miner is taken to have an amount of excluded
expenditure [subsection 125-20(3)].
10.114 To avoid doubt, the mining project transfer, and the transfer of
transferred property, is not, of itself, an event or circumstance that gives
rise to an adjustment. [Subsection 125-20(4)]
10.115 The amount that is taken to not be a recoupment and to be
excluded expenditure is the amount of the consideration for the mining
project split that is attributable to acquiring the particular property.
10.116 Starting base assets that are transferred as part of a mining
project split continue to be starting base assets in relation to the new
interest and do not result in an amount of mining expenditure for the new
miners. [Section 125-20]
10.117 The new miner inherits the original miner's use of the starting
base asset. If the new miner uses the starting base asset differently (for
example, uses it more or less) than the original miner used it in relation to
the mining project interest, this will be reflected in the calculation of the
starting base loss. [Division 90]
10.118 Similarly, if the new miner uses a non-starting base asset more
or less than the original miner, there should be an adjustment.
[Division 160]
206
Transfers and splits of mining and pre-mining project interests
MRRT liability for the split interest for an earlier year
10.119 The total MRRT liability that a mining project interest has ever
had is relevant in working out a rehabilitation tax offset amount for the
interest [section 225-15]. For more detail on the rehabilitation tax offset, see
Chapter 11.
10.120 For the purpose of working out the rehabilitation tax offset
amount for a mining project interest that has resulted from a mining
project split (the new interest), the MRRT liability for the original interest
is not necessarily apportioned based on the split percentage. Rather, the
previous MRRT liabilities of the original interest should be allocated to
the new interests on a reasonable basis. [Section 125-25]
10.121 This special rule recognises that the split percentage is based on
market values, which takes into account prospective things, such as future
profitability of the new interest. This is appropriate for allocating
allowance components but it is not necessarily appropriate for allocating
past MRRT liabilities. Previous MRRT liabilities should be attributed to
the new interest based on things that have happened in the past, such as
past profitability.
10.122 This is particularly relevant for the interests that are split
towards the end of their life, where there is limited future earning capacity
but large amounts of rehabilitation to be undertaken. If previous MRRT
liabilities of the interest were allocated based on the split percentage this
may significantly limit the new interests' ability to have a rehabilitation
tax offset amount. [Subsection 225-15(4)]
Example 10.12: Reasonably allocating previous year's MRRT
liability
Big Miner has a mining project interest (MPI). Throughout its life,
MPI has had a total of $50 million MRRT liabilities. One part of the
project area has been heavily mined and Big Miner has extracted all
the resources it can from that particular area. Coalin' Campbell
Resources, however, is resourceful and has very specialised skills to
extract the small amounts of remaining resources. Big Miner sells part
of MPI to Coalin' Campbell. MPI has been split into two interests,
Big Miner retains part of the interest (MPI 1) and Coalin' Campbell
has the other part (MPI 2).
After extracting the last resources from MPI 2, Coalin' Campbell will
be required to undertake rehabilitation in respect of the project area of
MPI 2.
The split percentage for the split is 99 per cent for MPI 1 and
1 per cent for MPI 2. If previous MRRT liabilities of MPI were
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Minerals Resource Rent Tax
divided between MPI 1 and MPI 2 on the basis of the split percentage,
MPI 2 will be taken to have had MRRT liabilities of $0.5 million.
This does not take into account that the area that now is covered by
MPI 2 was both heavily mined by, and extremely profitable for,
Big Miner Co. In fact, the area now covered by MPI 2 contributed
about 50 per cent of the profits of MPI and consequently 50 per cent of
the MRRT liability.
For these reasons, the split percentage is not a reasonable basis upon
which to determine the allocation of past MRRT liabilities of MPI for
the purpose of calculating the rehabilitation tax offset amount. Rather,
$25 million of the MRRT liability of MPI (50 per cent) will be
allocated to MPI 2 for the purpose of calculating the rehabilitation tax
offset amount for MPI 2. This will ensure Coalin' Campbell's ability
to have a rehabilitation tax offset amount for MPI 2 is not unduly
limited by the split percentage.
10.123 While the allocation of MRRT liability for the calculation of the
rehabilitation tax offset amount is not required to be based on the split
percentage, this does not mean that there may not be circumstances in
which the split percentage would provide the most reasonable basis upon
which to allocate past liabilities.
Pre-mining project transfers and splits
10.124 Similar rules provide for the transfer and splitting of pre-mining
project interests. [Divisions 145 and 150]
10.125 Pre-mining project transfers and splits can occur in the period
2 May 2010 to 30 June 2012. [Schedule 4 to the MRRT (CA&TP) Bill, item 9]
Pre-mining project transfers
10.126 A pre-mining project transfer is an arrangement that results in
the pre-mining project interest being transferred from the original explorer
to another entity, the new explorer. [Subsection 145-10(2)]
10.127 Unlike mining project interests, the commencement of a mining
venture is not relevant to holding a pre-mining project interest.
Accordingly, there are no special rules to deal with that case.
10.128 The new pre-mining project interest is taken to be a continuation
of the original pre-mining project interest. [Subsections 145-10(1), 145-15(1)
and (2)]
10.129 The new explorer is liable to pay any MRRT for the transferred
interest for the whole transfer year (although a pre-mining project interest
is less likely to have an MRRT liability). [Section 145-15]
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Transfers and splits of mining and pre-mining project interests
10.130 If the original explorer chose to apply the simplified MRRT
method for the transfer year, the new explorer is not bound by this choice.
The new explorer can choose whether this method applies to the new
interest for the transfer year. [Subsection 145-15(3)]
10.131 A difference between the mining project transfer rules and those
for pre-mining project transfers is that the holder of a pre-mining project
interest cannot choose to use the alternative valuation method and cannot
make a suspension day choice and, therefore, the alternative valuation
method and the suspension day choices are not relevant choices for a new
explorer.
10.132 Similarly, it is unlikely a pre-mining project interest would make
a downstream integration choice.
10.133 The effects of transferring property along with the pre-mining
project interest are the same as for mining project interests. [Section 145-20]
10.134 Events happening to the original explorer after the transfer come
home to the new explorer. [Section 145-25]
Mining project interest originates from a pre-mining project interest
10.135 A pre-mining project transfer is taken to happen when the
mining project interest originates from a pre-mining project interest. See
Chapter 6 for further discussion on when a mining project interest
originates from a pre-mining project interest. [Section 145-30]
10.136 This ensures that the continuation principle will apply to treat
the pre-mining project interest and the mining project interest that
originated from it as the same interest, allowing the mining project interest
to inherit the tax history of the pre-mining project interest.
[Paragraph 145-30(1)(b) and subsections 145-10(1), 145-15(1) and (2)]
Pre-mining project splits
10.137 A pre-mining project split is an arrangement that has the effect
of transferring all or part of the pre-mining project interest to one or more
other entities. [Paragraphs 150-10(2)(a) and (b)]
10.138 A pre-mining project split may also happen if the exploration
right that relates to the pre-mining project interest is itself split.
[Paragraph 150-10(2)(c)]
10.139 Unlike mining project splits, a pre-mining project split does not
happen because the constituent interests of a combined interest
disintegrate, as pre-mining project interests are not subject to the
integration rules. [Division 255]
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Minerals Resource Rent Tax
10.140 Unlike mining project interests, the commencement of a mining
venture is not relevant to having a pre-mining project interest. Therefore,
there is no case in which a pre-mining project split is deemed to have
happened.
10.141 The new pre-mining project interests are taken to be a
continuation of the original pre-mining project interest, to the extent of the
split percentage. [Subsections 150-10(1), 150-15(1) and (2)]
10.142 The new explorer is liable to pay any MRRT for the transferred
interest for the whole split year, to the extent of the split percentage.
[Subsection 150-15(1)]
10.143 A simplified MRRT choice of the original explorer does not
bind the new explorer for the split year. The new explorer can make its
own choice as to whether it should apply. [Subsection 150-15(3)]
10.144 A difference between the mining project split rules and those for
pre-mining project splits is that the holder of a pre-mining project interest
cannot choose to use the alternative valuation method and cannot make a
suspension day choice and, therefore, the alternative valuation method and
the suspension day choices are not relevant choices for a new explorer.
10.145 Similarly, it is unlikely a pre-mining project interest would make
a downstream integration choice.
10.146 A difference between the mining project split rules and those for
pre-mining project split rules is that a pre-mining project interest cannot
have a suspension day choice and therefore the suspension day choice is
not mentioned as one that the new explorer is not bound by.
10.147 The effects of transferring property along with the split of the
pre-mining project interest are the same as for mining project interests.
[Section 150-20]
10.148 Events happening to the original explorer after the split, being
things that would happen in relation to the original interest if the original
explorer still had the interest, come home to the new explorer.
[Section 150-30]
10.149 The split percentage for pre-mining project interest is worked
out on the same basis as it is for mining project interests.
[Subsections 150-15(5) to (7)]
10.150 For the purpose of working out a rehabilitation tax offset amount
for the pre-mining project interest, previous MRRT liabilities are allocated
on a reasonable basis (not necessarily the split percentage), as they are for
mining project interests. [Section 150-25]
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Transfers and splits of mining and pre-mining project interests
Mining project interest originates from a pre-mining project interest
10.151 A pre-mining project split is taken to happen when the mining
project interest originates from a pre-mining project interest. See
Chapter 6 for further discussion on when a mining project interest
originates from a pre-mining project interest. [Section 150-35]
10.152 This ensures that the continuation principle will apply to treat
the pre-mining project interest and the mining project interest that
originated from it as the same interest, allowing the mining project interest
to inherit the tax history of the pre-mining project interest (to the extent of
the split percentage). [Paragraph 150-35(1)(b), subsections 150-10(1), 150-15(1)
and 150-15(2)]
Application and transitional provisions
10.153 For the avoidance of doubt, there is a transitional provision that
ensures mining project transfers and splits can occur from a time earlier
than 1 July 2012. [Schedule 4 to the MRRT (CA&TP) Bill, item 8]
10.154 Similarly, there is a transitional provision that ensures pre-
mining project transfers and splits can occur from a time earlier than
1 July 2012. [Schedule 4 to the MRRT (CA&TP) Bill, item 9]
10.155 A transitional provision exists to ensure the information transfer
provisions also apply to mining project transfer, mining project splits,
pre-mining project transfers and pre-mining project splits that occur
between 1 May 2010 and 30 June 2012. [Schedule 4 to the MRRT (CA&TP)
Bill, subitem 14(1)]
10.156 This transitional provision contains a special rule about the date
by which entities are required to provide such notices. [Schedule 4 to the
MRRT (CA&TP) Bill, subitem 14(2)]
211
Chapter 11
Winding down and ending of mining and
pre-mining project interests
Outline of chapter
11.1 This chapter deals with things that become relevant towards the
end of a mining or pre-mining project interest's life.
11.2 All legislative references throughout this chapter are to the
Minerals Resource Rent Tax Bill 2011 unless otherwise indicated.
Summary of new law
11.3 The Minerals Resource Rent Tax (MRRT) recognises that,
towards the end of an interest's life, the activities of the interest will
change. From that time on, special rules treat the interest differently.
Suspension day
11.4 The suspension day for a mining project interest is the earliest
of:
· the day chosen by the miner (after commercial production
has ceased);
· ten years after commercial production most recently took
place; and
· the termination day.
11.5 The suspension day has the effect of cancelling allowance
components and providing access to the rehabilitation tax offset.
Rehabilitation tax offset
11.6 An entity is entitled to the refundable rehabilitation tax offset if
it has a rehabilitation tax offset amount for one or more of its mining
project interests or pre-mining project interests and the entity has paid
MRRT for a previous year or has MRRT liabilities for the current year.
213
Minerals Resource Rent Tax
11.7 An entity has a rehabilitation tax offset amount for a mining
project interest if:
· the suspension day for the interest has occurred;
· upstream rehabilitation expenditure has been incurred in
relation to the interest for the year;
· the expenditure cannot be applied against mining revenue of
the interest or mining profit of another interest; and
· there has been an MRRT liability for the interest for an
MRRT year (regardless of which entity had the interest when
the liability arose).
Termination day
11.8 The termination day for a mining project interest is the day no
entity has the mining project interest. From the termination day onwards,
the last entity to have the interest before it ended is taken to continue to
have it for the purpose of accounting for the MRRT. Therefore, the
interest will still be capable of having mining revenue, mining expenditure
and allowance components.
Pre-mining project interests
11.9 Pre-mining project interests do not have suspension days. They
do, however, have termination days. The termination day for a
pre-mining project interest is the day no entity holds the pre-mining
project interest. The termination day for a pre-mining project interest has
the same effect as the suspension and termination days have for a mining
project interest.
Detailed explanation of new law
Suspension day
11.10 The suspension day for a mining project interest is a point in the
life of a mining project interest from which the interest is taken to be
drawing to a close.
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Winding down and ending of mining and pre-mining project interests
11.11 The suspension day for a mining project interest is the earliest
of:
· the day chosen by the miner (after commercial production
has ceased);
· the day 10 years after commercial production most recently
took place; and
· the termination day.
[Subsection 130-10(1)]
11.12 If more than one of the events happen in relation to the mining
project interest, the suspension day falls on the earliest day.
Day chosen by the miner
11.13 A miner may choose the suspension day for a mining project
interest, provided commercial production of taxable resources from the
project area for the interest has ceased.
[Paragraph 130-10(1)(a) and subsection 130-10(2)]
11.14 All the general rules for making a choice under the MRRT apply
to this choice. In addition, the miner must notify the Commissioner of
Taxation (Commissioner) of the choice. [Subsection 130-10(4) and Schedule 1
to the Minerals Resource Rent Tax (Consequential Amendments and Transitional
Provisions) Bill 2011 (MRRT (CA&TP) Bill); item 8, Division 119 of Schedule 1 to the
Taxation Administration Act 1953 (TAA 1953)]
Ten years after commercial production
11.15 The suspension day for a mining project interest may be the day
occurring 10 years after the most recent day on which commercial
production of taxable resources took place from the project area.
[Paragraph 130-10(1)(b)]
Commercial production
11.16 `Commercial production' takes its ordinary meaning. However,
there are certain factors that must be taken into account when considering
whether commercial production of taxable resources takes place from a
project area.
11.17 The factors that must be taken into account are:
· past and current production of taxable resources;
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Minerals Resource Rent Tax
· past and current expenditure relating to the upstream mining
operations; and
· the extent to which upstream mine equipment has been
decommissioned.
[Subsection 130-10(3)]
11.18 Other factors that may be relevant in determining when
commercial production of taxable resources is taking place include:
· implementation of closure plans;
· demolition and removal of infrastructure;
· reshaping of remaining mining landforms;
· completion of rehabilitation and remediation processes; and
· monitoring, measuring and reporting on the performance of
closure activities.
11.19 In assessing whether there is commercial production, each
situation turns on its own particular facts and no one factor is decisive.
All factors must be considered in combination and as a whole. Whether
there is commercial production will depend on the larger or general
impression gained and whether it has a commercial flavour.
Example 11.1: Commercial production has ceased
Durpy Limited announces the premature closure of its Gaullcos coal
mine (a mining project interest) on 10 July 2013. Following the
announcement, Durpy Limited commenced preparation of a detailed
mine site rehabilitation plan. The rehabilitation plan included the
following activities:
· decommissioning and removing plant and equipment;
· retaining all mined materials on site and a rehabilitated storage
area;
· ensuring effective waste management;
· re-contouring and revegetating the land; and
· ongoing monitoring of soil and water conditions.
The rehabilitation plan will be implemented over 10 years and
rehabilitation work begins on 16 December 2013. Consistent with the
216
Winding down and ending of mining and pre-mining project interests
rehabilitation plan, commercial production from the Gaullcos coal
mine ceases on 1 September 2014.
From 1 September 2014, Durpy Limited can choose a suspension day.
If Durpy Limited does not make such a choice, the suspension day for
the mining project interest will be 1 September 2024, or the
termination day of the mining project interest, whichever occurs first.
11.20 Commercial production can cease at a mine well before a mine
formally closes and before the mining lease has been relinquished.
11.21 In some circumstances, ceasing commercial production may
only be temporary, or the mine may enter a period of care and
maintenance. Provided the cessation of commercial production does not
exceed 10 years (and the miner does not choose a suspension day), it will
not result in a suspension day for the mining project interest.
Example 11.2: Care and maintenance
Colecoal Resources Limited operates the Pertep coal mine (a mining
project interest). The Pertep mine produces 1 million tonnes a year.
Due to an economic downturn, Colecoal places the Pertep coal mine
under a care and maintenance program. As part of the care and
maintenance program, coal production stops on 29 June 2013.
On 29 June 2023, the Pertep mine remains in a care and maintenance
program. This will be the suspension day for the mining project
interest because it is now 10 years since the last commercial
production from the mine.
Recommencing commercial production
11.22 If commercial production recommences before a suspension day
for a mining project interest has occurred, there is no consequence, the
mining project interest will continue.
11.23 However, if a suspension day has occurred for a mining project
interest and the miner undertakes upstream mining operations with a view
to recommencing commercial production from the project area for the
mining project interest, the interest will be taken to have ceased and a new
interest will be taken to have started. The deemed cessation will be a
termination day for the old interest. [Subsection 130-20(1)]
11.24 The deemed cessation of the old interest and the deemed
creation of the new interest is not a mining project transfer.
[Subsection 130-20(2)]
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Minerals Resource Rent Tax
Example 11.3: Recommencing commercial production
Rexneilad Limited operates the Nanihall iron ore mine. As at
11 July 2012, the upstream mining operations of the Nanihall iron ore
mine:
· employed 1,000 people;
· operated 500 trucks;
· had annual operating expenditure of $50 million;
· had $1 billion of capital; and
· produced 10 million tonnes of iron ore a year.
Iron ore production from the Nanihall mine steadily declines to
1 million tonnes a year in 2013. On 24 December 2013, Rexneilad
decides to close the mine and begins rehabilitation of the mine site.
On 12 May 2024, the world iron ore price triples and Rexneilad
decides to recommence mining. By the end of that year, it:
· employs 500 people;
· operates 250 trucks;
· has operating expenditure of $40 million; and
· produces 5 million tonnes of iron ore.
By the end of 2025, production has increased to 15 million tonnes.
On 8 December 2026, iron ore prices return to long term averages and
Rexneilad stops producing iron ore and restarts mine site rehabilitation.
Rexneilad, after taking into account all the relevant factors including
past production, expenditure and use of mining equipment, determines
that commercial production ceased (sometime on or before
24 December 2013). On 12 May 2024, Rexneilad started undertaking
upstream mining operations with a view to recommencing commercial
production. Commercial production ceased for a second time on
8 December 2026.
A suspension day occurs for the interest because there was no
commercial production for 10 years (24 December 2013 to
24 December 2023). When Rexneilad decided to recommence
commercial production, on 12 May 2024, the interest is taken to have
ceased and a new mining project interest is taken to exist. Therefore,
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Winding down and ending of mining and pre-mining project interests
the production from 12 May 2024 is an activity of the new mining
project interest.
Termination day
11.25 The termination day for a mining project interest is the day on
which there is no longer any entity that has the interest [section 135-5]. The
termination day may also give rise to the suspension day, if the miner no
longer has the interest and a suspension day for the interest has not
already occurred [paragraph 130-10(1)(c)].
11.26 The concept of a termination day is discussed in further detail
below. Generally it is the day on which the mining venture or the
production right giving rise to a mining project interest no longer exists.
Effect of suspension
11.27 The suspension day is a point in the life of a mining project
interest that represents the winding down of the interest. There are two
consequences of an interest being suspended.
11.28 First, allowance components can no longer be carried forward
and uplifted and, second, rehabilitation tax offsets may be available.
[Section 130-15 and Division 225]
Cancelling allowance components
11.29 Allowance components are not intended to be carried forward
and uplifted indefinitely. The uplift rate reflects the possibility that a
miner may not get to use its allowance components.
11.30 The suspension day signals a new phase of a mining project
interest, that is, the beginning of the end (or the end, if the suspension day
is also the termination day).
11.31 From the suspension day onwards, the mining project interest
will be less likely to be producing amounts of taxable resources and
consequently less likely to have mining profits against which its
allowance components can be applied.
11.32 A mining project interest that has had a suspension day will still
accrue allowance components within each year and will be able to apply
those allowances against mining profits for the year, be those its own or
those of a related mining project interest.
11.33 In the year in which the suspension day occurs, the mining
project interest can use all its allowance components carried forward from
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Minerals Resource Rent Tax
a previous year and those that have arisen in the current MRRT year. The
interest must apply the allowance components against its mining profit or
the components may form part of a transferred allowance for use by
another interest. The allowance components that remain unapplied at the
end of that year are cancelled. That is, they are not carried forward for
use in a future year. [Paragraph 130-15(a)]
11.34 In an MRRT year after the MRRT year in which the suspension
day for a mining project interest occurred, allowance components will still
arise for the interest and they will be available for use at the end of the
year. However, any allowance components that cannot be applied in that
year are cancelled and cannot be carried forward. [Paragraph 130-15(b)]
11.35 Beyond the cancellation of the allowance components (and the
access to the rehabilitation tax offset which is discussed below), the
mining project interest is otherwise unaffected by having a suspension
day.
11.36 The interest would continue to exist and the miner would still be
liable to pay MRRT. A mining project interest will still be able to accrue
allowance components within each year (including starting base
allowances and transferred allowances) and have the ability to use them at
the end of each year (whether against their mining profit or transferred for
use against another interest's mining profit). But any unapplied allowance
components (including pre-mining losses attaching to the mining project
interest) will be cancelled at the end of the year and not carried forward to
the next MRRT year.
Example 11.4: Cancellation of allowance components
Miner A has two mining project interests, MPI 1 and MPI 2.
Commercial production has ceased from MPI 1. The miner makes a
choice that 1 October 2015 will be the suspension day for the MPI 1.
At this time, there are $100 million of mining loss allowances that
have been carried forward from previous years in relation to MPI 1. At
the end of the MRRT year (30 June 2016) MPI 1 has a $30 million
mining profit. MPI 1 uses $30 million of the mining losses to reduce
its profit to zero. MPI 2 can absorb $40 million of MPI 1's mining
losses. Therefore, MPI 1 transfers $40 million of the losses to MPI 2
for use as a transferred mining loss allowance.
MPI 1's remaining $30 million of mining losses cannot be applied for
the year. These mining losses are cancelled.
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Winding down and ending of mining and pre-mining project interests
Rehabilitation tax offset
11.37 Rehabilitating a mine site is a necessary condition that is
attached to most, if not all, production rights. Some rehabilitation may be
undertaken throughout the life of a mining project interest. However,
most is commonly undertaken towards the end of the mine's life.
11.38 Throughout the life of a mining project interest, rehabilitation
expenditure, to the extent it relates to upstream mining operations, is
mining expenditure that is deductible [sections 35-10 to 35-20]. If mining
expenditure exceeds mining revenue, a mining project interest makes a
mining loss for an MRRT year [subsection 75-20(1)]. Mining losses can
therefore be attributable to rehabilitation expenditure.
11.39 While the rehabilitation expenditure is mining expenditure, the
time at which it is mostly incurred makes it less likely that the interest will
have mining revenue against which the expenditure can be applied. To
recognise this, the expenditure may give rise to a rehabilitation tax offset.
Entitlement to a rehabilitation tax offset
11.40 The rehabilitation tax offset is an amount claimed by the miner
for an MRRT year. It is an entity level offset and not an offset that is
applied against the individual MRRT liabilities of the mining project
interests. However, the amount of the offset that the miner is entitled to is
determined by reference to the rehabilitation tax offset amounts for each
relevant mining project interest. [Section 225-10]
11.41 A miner is only entitled to a rehabilitation tax offset for an
MRRT year if:
· it is, or has been, liable to pay MRRT for any MRRT year
[subsection 225-10(2)]; and
· it has a rehabilitation tax offset amount for a mining project
interest [subsection 225-10(1)].
Amount of a rehabilitation tax offset
11.42 If a miner is entitled to a rehabilitation tax offset amount for an
MRRT year, the amount of the offset is equal to the sum of all the
rehabilitation tax offset amounts that the miner has for its mining project
interests. [Paragraph 225-10(3)(a)]
11.43 However, the amount of the rehabilitation tax offset that a miner
is entitled to for an MRRT year cannot exceed the total MRRT that the
miner is or has been liable to pay, in relation to any mining project interest
221
Minerals Resource Rent Tax
that it has ever had (reduced to take into account the miner's entitlements
to offsets). [Paragraph 225-10(3)(b)]
11.44 The offsets that are taken into account in reducing total MRRT
liabilities are any:
· rehabilitation tax offsets for a previous year
[subparagraph 225-10(3)(b)(i)]; and
· any low-profit offset the miner is entitled to for the current
year [subparagraph 225-10(3)(b)(ii)].
11.45 This limits the miner's ability to claim a refundable tax offset if
the miner has liabilities (in the current or previous years) which have been
previously offset.
11.46 The rehabilitation tax offset reduces the miner's liability to pay
MRRT for the year [subsection 225-25(1)]. If the offset exceeds the amount
of MRRT the miner is liable to pay in any particular year, the
Commissioner will pay the excess to the miner (provided the miner has no
other outstanding tax liabilities) [subsections 225-25(2) and (3)]. Therefore,
the rehabilitation tax offset is a refundable tax offset.
Joint and several liability
11.47 When determining the amount of MRRT that a miner is or has
been liable to pay, there are some instances in which one or more entities
other than the miner may be responsible for discharging the miner's
liability. This occurs where the entities have, or are taken to have, joint
and several liability. For example, if the head company of an MRRT
consolidated group does not pay its MRRT liability, all the members of
the group are jointly and severally liable for that liability.
11.48 To ensure that a single liability is not counted by two or more
entities when working out their respective rehabilitation tax offsets, only
the primary entity is taken to have the liability, regardless of which entity
actually pays the debt. [Subsection 225-10(4)]
Rehabilitation tax offset amount for a mining project interest
11.49 A miner has a rehabilitation tax offset amount for a mining
project interest for a year if:
· there was an MRRT liability for the interest for a previous
year [subsection 225-15(2)];
· the suspension day for the mining project interest has
occurred [paragraph 225-15(1)(a)];
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Winding down and ending of mining and pre-mining project interests
· rehabilitation expenditure was incurred for the interest for the
year [paragraph 225-15(1)(b)]; and
· a mining loss for the current year is cancelled as a result of
the suspension day having occurred [paragraph 225-15(1)(c)].
11.50 The rehabilitation tax offset amount for an interest is the
allowable rehabilitation expenditure multiplied by the MRRT rate.
However, the rehabilitation tax offset amount cannot exceed the total
MRRT liabilities for the mining project interest (for any year, payable by
any miner). [Subsections 225-15(3) and (4)]
11.51 This ensures that a rehabilitation tax offset amount for a mining
project interest cannot be greater than the MRRT liabilities that relate to
the interest.
Allowable rehabilitation expenditure
11.52 The allowable rehabilitation expenditure is the lesser of:
· the sum of all the upstream rehabilitation expenditure
incurred in relation to the mining project interest for the year
[paragraph 225-15(3)(a)]; and
· the amount of mining loss for the current MRRT year that
was cancelled as a result of the suspension day having
occurred [paragraph 225-15(3)(b)].
11.53 This means that the miner's rehabilitation tax offset amount for
a mining project interest, only represents rehabilitation expenditure that
has been unable to be applied for the year.
Example 11.5: Allowable rehabilitation expenditure
Lyon Resources has a mining project interest that has had a suspension
day. For the 2018 MRRT year, Lyon incurred $27 million on upstream
rehabilitation expenditure. The interest has a $50 million mining loss
for the year. Lyon is required to transfer $10 million of the loss to a
related interest but the remaining $40 million cannot be used. The
$40 million mining loss is cancelled. The allowable rehabilitation
expenditure for the interest for the year will be $27 million (being the
lesser of $27 million and $40 million).
The rehabilitation tax offset amount for the interest is $6.075 million
(being the allowable rehabilitation expenditure multiplied by the
MRRT rate).
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Minerals Resource Rent Tax
Upstream rehabilitation expenditure
11.54 The upstream rehabilitation expenditure that can give rise to a
rehabilitation tax offset amount comprises any expenditure on
rehabilitating the project area for the mining project interest or any other
area affected by an upstream activity. Expenditure cannot give rise to a
rehabilitation tax offset to the extent that it relates to rehabilitating areas
affected by downstream activities. [Paragraph 225-15(1)(b]
11.55 To be upstream rehabilitation expenditure, the expenditure must
be:
· included as mining expenditure for the interest for the year
[subparagraph 225-15(1)(b)(i)]; and
· necessarily incurred in carrying on mining operations that are
rehabilitation activities, or activities done in furtherance of
that rehabilitation [subparagraph 225-15(1)(b)(ii) and
paragraphs 35-20(2)(f) and (h)].
11.56 The first requirement brings in all mining expenditure for the
year. The second requirement limits it to the expenditure relating to
rehabilitation.
Example 11.6
ReakesFox Resources Limited intends to close down the Surajeeve
iron ore mine (a mining project interest). ReakesFox Resources
engages an environmental scientist to assist with the rehabilitation of
the mine site, being the area affected by the upstream mining
operations. The environmental scientist works only on rehabilitating
the Surajeeve mine.
The costs of employing the scientist are necessarily incurred in
carrying on upstream rehabilitation activities of the mining project
interest.
11.57 Further examples of upstream rehabilitation expenditure can be
found in Chapter 5.
224
Diagram 11.1: Calculating the rehabilitation tax offset
REHABILITATION TAX OFFSET
subsection 22510(3) Miner
Mining
The lesser of...
project
Winding down and ending of mining and pre-mining project interests
Sum of all rehabilitation tax offset interest
Amounts of MRRT that the amounts for miner's MPIs
miner is or has been liable to paragraph 22510(3)(a)
Rehabilitation tax offset amount for MPI
pay in previous years subsection 22515(3)
plus
MRRT liability of MPIs for
current MRRT year The lesser of...
less
Rehabilitation tax offsets Allowable rehabilitation
claimed in previous years expenditure Total MRRT liabilities
less multiplied by for MPI (all years, by
Low profit offset to be claimed MRRT rate any miner)
subsection 22515(3)
by the miner for current year subsection 22515(4)
paragraph 22510(3)(b) Allowable rehabilitation
expenditure
subsection 22515(3)
The lesser of...
Upstream rehabilitation
expenditure Mining losses for the year that
paragraphs 22515(1)(b) and 22515(3)(a) have been cancelled under
Activities in furtherance of section 13015
Upstream rehab activities paragraph 22515(3)(b)
paragraph 3520(2)(f)
upstream rehab activities
paragraph 3520(2)(h)
225
Minerals Resource Rent Tax
Termination day
11.58 A termination day occurs for a mining project interest when no
entity has the mining project interest [section 135-5]. A change in the
identity of the miner who has the interest will not result in a termination
day. However, it will result in a mining project transfer or a mining
project split.
11.59 The most obvious time that no entity will have an interest is
when there is no longer any production right. However, the cessation of a
mining venture may also give rise to no entity having a particular mining
project interest.
Example 11.7: Production right ends
A miner has a mining project interest because it holds a production
right. The production right expires and is not renewed. This will be
the termination day for the mining project interest.
11.60 Whether an interest has ceased to exist should be determined by
considering the facts and determining whether the facts fall within the
definition of a mining project interest.
11.61 If a suspension day for the mining project interest has not
already happened, the termination day will also be the suspension day.
[Paragraph 130-10(1)(c)]
11.62 As discussed above, a mining project interest will be deemed to
cease if the miner decides to recommence commercial production after the
suspension day for the interest has occurred. This will be the termination
day for the mining project interest (if it has not already had one).
[Subsection 130-20(1)]
No termination day
11.63 A termination day does not occur merely because:
· there is a change to, or renewal of, the production right;
· there is a change to, or renewal of, the mining venture; or
· there is a mining project transfer or mining project split.
[Sections 135-10, 135-15 and 135-20]
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Winding down and ending of mining and pre-mining project interests
Change to, or renewal of, the production right
11.64 A termination day does not occur merely because there is a
change to or renewal of the production right to which the mining project
interest relates. [Subsection 135-10(1)]
11.65 Production rights typically run for a defined period of time.
However, the various mining laws provide for the rights to be renewed
(see, for example, section 147 of the Mineral Resources Act 1989 (Qld),
section 113 of the Mining Act 1992 (NSW) and section 78 of the Mining
Act 1978 (WA)). Similar provisions exist to allow production rights to be
changed. The conditions that are attached to the right or the area covered
by the right may change.
11.66 When there is a change to, or renewal of, the production right
that relates to the mining project interest, the change or renewal does not
result in a termination day. [Section 135-10]
11.67 However, if there is an additional area when a production right
changes, or is renewed, the additional area does not form part of the
mining project interest and forms part of a different mining project
interest. [Subsection 135-10(2)]
11.68 If production rights could be expanded, this would be a way of
circumventing the combination rules and, effectively, opening up
transferability of otherwise quarantined allowance components.
Example 11.8: Additional area
RTIG Co has a mining project interest in respect of a production right.
In 2014, the production right is altered to include a small area adjacent
to the production right.
Original authority Varied authority
The mining project interest that relates to the production right does not
include the additional area. RTIG Co will have a new mining project
interest in respect of the additional area.
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Minerals Resource Rent Tax
Change to, or renewal of, a mining venture
11.69 Similarly, a termination day does not occur merely because there
is a change or renewal of the mining venture to which the mining project
interest relates. [Section 135-15]
11.70 This rule ensures there is a continuation of the mining project
interest when there are changes to, or a renewal of, a mining venture.
11.71 Circumstances which should not result in the termination of a
mining project interest are:
· a change to the entities who are participating in the mining
venture;
· minor changes to the terms of the mining venture; and
· an extension to the term of the mining venture (renewal).
Example 11.9: No termination where mining venture extended
Queen Co and Duke Resources have a mining venture to extract
taxable resources from an area covered by a production right. They
each have a mining project interest in respect of their share of output
from the mining venture. Queen is the production right holder.
The mining venture is for a limited period of three years. Due to bad
weather, production has not met expectations and it is going to take
another year to complete the mining venture. Queen and Duke agree
to extend the mining venture for an extra year.
The extension of the mining venture does not result in the termination
of the mining project interest.
11.72 This rule is not designed to ensure continuity when the mining
venture has substantially changed to the extent that the mining venture can
be characterised as a different mining venture.
11.73 If the mining venture changes and the change results in the
mining venture covering an additional area, this would result in the miner
being entitled to a further extent and there would be a new mining project
interest in respect of that extent. [Subsection 15-5(5)]
Mining project transfer and mining project splits
11.74 A mining project transfer or mining project split does not result
in a termination day for the mining project interest [section 135-15]. There
is a continuation of a mining project interest if it is subject to a transfer or
split [subsections 120-10(2) and 125-10(2)].
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Winding down and ending of mining and pre-mining project interests
Effect of termination
11.75 Even though a mining project interest has had a termination day,
the MRRT still operates as usual in respect of that interest. This is
achieved by deeming the entity who had the mining project interest when
the termination day occurred to continue to have the interest after the
termination day. [Subsection 135-25(1)]
11.76 If the entity that last had the interest is no longer a miner, which
will be the case if the interest in respect of which the termination day
occurred was the only mining project interest that the entity has, that
entity will be deemed to be a miner. [Subsection 135-25(2)]
11.77 These rules ensure that, if a mining revenue event occurs after
the termination day, the fact that the interest has ended does not result in
the mining revenue escaping taxation.
11.78 If a miner extracts taxable resources from a project area but the
mining project interest has a termination day before the miner sells the
resources, there is still mining revenue despite the interest having ended.
All future royalties incurred in respect of those resources are also
recognised. Similarly, mining expenditure that is incurred in carrying on
mining operations for the interest after the termination day is recognised
even if the termination day has occurred before the expenditure is
incurred.
11.79 There is nothing stopping a starting base loss arising for a
mining project interest that has had a termination day. However, the
starting base asset giving rise to the loss would still need to be used in
relation to the upstream mining operations of the interest. If there is
insufficient remaining profit to offset the starting base loss at the end of
the MRRT year, the loss will be cancelled. [Division 90 and section 130-15]
11.80 The effects of the suspension day continue to apply to the
interest after it has had a termination day. All allowance components are
cancelled at the end of each year and the miner may have a rehabilitation
tax offset amount in respect of the mining project interest.
Pre-mining project interests
11.81 Like mining project interests, there are special rules to deal with
the operation of the MRRT in respect of pre-mining project interests that
are nearing the end of their lives.
11.82 Generally, the rules for pre-mining project interests mirror those
for mining project interests. However, there are some differences.
229
Minerals Resource Rent Tax
Suspension day
11.83 There is no suspension day for a pre-mining project interest. Of
the three events that cause a suspension day for a mining project interest,
the termination day is the only one relevant for pre-mining project
interest, as such interests would never satisfy the commercial production
threshold.
11.84 Therefore, allowance components are cancelled, and access to
the rehabilitation tax offset arises, from the termination day for the
pre-mining project interest.
Termination day
11.85 There will be a termination day for a pre-mining project interest
when no entity holds the interest. [Section 155-5]
11.86 The termination day generally occurs when the exploration right
that gives rise to the pre-mining project interest no longer exists. For
example, it may have expired.
11.87 Similar to the rules for termination of mining project interests, a
termination day will not occur for a pre-mining project interest merely
because:
· there is a change to, or renewal of, the exploration right; or
· there is a pre-mining project transfer or split.
[Sections 155-10 and 155-15]
Change to, or renewal of, an exploration right
11.88 A termination day does not occur if there is a change to or
renewal of the exploration right to which a pre-mining project interest
relates [subsection 155-10(1)]. Unlike mining project interests, there is no
similar provision for changes to mining ventures, as mining ventures are
not relevant to an entity having a pre-mining project interests.
11.89 If the varied or renewed exploration right results in the
pre-mining project interest covering an additional area, it needs to be
determined whether that additional area is insignificant.
[Subsection 155-10(2)]
11.90 The insignificant area test is only relevant to changes to
pre-mining project interests (not mining project interests). The
insignificant area test seeks to recognise two things. First, alterations of
an insignificant nature are frequently made to exploration rights (as
230
Winding down and ending of mining and pre-mining project interests
distinct from production rights). Second, pre-mining project interests do
not have starting base loss allowances and therefore the risk of
insignificant changes to an exploration right resulting in the opening up of
otherwise quarantined allowance components is relatively low.
Insignificant additional area
11.91 `Insignificant' takes its ordinary meaning. In determining
whether an additional area is insignificant, the `additional area' includes
all previous additional areas that have been included in the project area as
a result of changes to, or renewals of, the exploration right. This requires
all the additional areas to be added together and an assessment made as to
whether, when taken together, they constitute a significant change to the
area covered by the original exploration right. [Subsection 155-10(3)]
Example 11.10: Determining insignificance of an additional area
RTIG Co holds a pre-mining project interest. In 2014, the exploration
right is altered to include a small area adjacent to the original
exploration right (on the right).
Original authority Varied authority
There have been other changes to the exploration right over the past
12 months (the striped areas). When considering whether the latest
addition is insignificant, all the other previous insignificant additions
are also taken into account.
Original authority Varied authority
While the most recent addition to the area may be insignificant by
itself, the test requires all the previous insignificant additional areas to
be added together and assessed, collectively, as to whether they
constitute an insignificant change.
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Minerals Resource Rent Tax
Taking into account the two previous insignificant additions, as well as
the most recent addition, the collective area is not insignificant and
therefore the most recent addition is an area of another pre-mining
project interest.
11.92 If the additional area is insignificant, that additional area will
form part of the pre-mining project interest. [Paragraph 155-10(2)(a)]
11.93 However, if the additional area is a significant area, the
additional area that is the subject of the most recent change or renewal
will be a different pre-mining project interest. [Paragraph 155-10(2)(b)]
Pre-mining project transfers and pre-mining project splits
11.94 A pre-mining project transfer or pre-mining project split does
not result in a termination day for a pre-mining project interest
[section 155-15]. There is a continuation of a pre-mining project interest if it
is subject to a transfer or split [subsections 145-10(1) and 150-10(1)].
Effects of termination
11.95 Like mining project interests, a pre-mining project interest is
taken to continue to be held after the termination day by the last entity to
hold it. [Section 155-20]
11.96 For the most part, the MRRT continues to operate in respect of
such a pre-mining project interest in the usual way. There are some
exceptions.
11.97 From the termination day for the pre-mining project interest, the
interest:
· has all its allowance components cancelled [section 155-25];
and
· may have a rehabilitation tax offset amount
[paragraph 225-20(1)(a)].
11.98 The termination day for a pre-mining project interest has the
same effect for the pre-mining project interest as a suspension day has for
a mining project interest. That is, from the termination day onwards,
allowance components of the pre-mining project interest cannot be carried
forward and uplifted but the entity may have a rehabilitation tax offset
amount for the interest.
11.99 However, there is an exception. The effects of termination do
not apply if the termination day for the pre-mining project interest occurs
232
Winding down and ending of mining and pre-mining project interests
because a mining project interest originated from the pre-mining project
interest. [Subsection 155-25(2)]
11.100 Where a termination day occurs because a mining project
interest originates from the pre-mining project interest, the allowances that
relate to the pre-mining project interest are not cancelled, rather they are
inherited by the mining project interest. [Subsection 155-25(2) and
sections 145-30 and 150-35]
233
Chapter 12
Pre-mining project interests
Outline of chapter
12.1 This chapter explains how the general rules that apply to mining
project interests also apply to pre-mining project interests. It also explains
the special rules that exist for pre-mining project profits and royalty
credits in Division 140.
12.2 All legislative references throughout this chapter are to the
Minerals Resource Rent Tax Bill 2011 (MRRT Bill) unless otherwise
indicated.
Summary of new law
12.3 Many aspects of the MRRT Bill apply to pre-mining project
interests in the same way they apply to mining project interests. In
particular, the Minerals Resource Rent Tax (MRRT) law taxes the
pre-mining profit of a pre-mining project interest in the same way as it
taxes the mining profit of a mining project interest.
12.4 Other aspects of the MRRT law which apply to pre-mining
project interests in the same way they apply to mining project interests
include:
· low profit offsets;
· rehabilitation tax offsets;
· non-cash benefits, currency translation and substituted
accounting periods;
· valuation principles; and
· anti-profit shifting and the anti-avoidance rules.
12.5 Other rules in the MRRT have been specially adapted to treat
pre-mining project interests in a similar way to mining project interests.
· A liability to pay a mining royalty in relation to a pre-mining
project interest gives rise to a royalty credit for that interest
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Minerals Resource Rent Tax
in the same way it would have if the interest had been a
mining project interest and the exploration right had been a
production right (see below).
· Pre-mining expenditure and revenue arises for a pre-mining
project interest in a similar way to the mining expenditure
and revenue that arises for a mining project interest. A
difference, however, is that special provision is made to
recognise pre-mining expenditures associated with failed
farm-out arrangements.
· Pre-mining losses can arise for pre-mining project interests in
a similar way to the losses that arise for mining project
interests. While mining losses are only transferable if they
satisfy a common ownership test, pre-mining losses are
transferable even if they fail to meet the test (though in some
cases the losses that can be transferred are capped).
· A starting base can arise in relation to pre-mining project
interests that existed on 2 May 2010 in the same way it arises
in relation to mining project interests. However, the starting
base does not begin to produce starting base losses before a
mining project interest originates from the pre-mining project
interest. A further difference is that, when applying the
market value approach to mining project interests, a miner
must work out the base value of its starting base assets by
undertaking a market valuation of those assets. However,
when applying the market value approach to pre-mining
project interests, an entity can instead choose to work out the
base value of its starting base assets by using a `look-back'
approach.
· Pre-mining project interests are taken to end, transfer and
split in a similar way to mining project interests.
12.6 Finally, there are some aspects of the MRRT law for which there
is no equivalent treatment for pre-mining project interests. For instance,
pre-mining project interests cannot combine with other pre-mining project
interests (nor with mining project interests). This is explained in
Chapter 9.
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Pre-mining project interests
Detailed explanation of new law
Treatment of pre-mining profits
12.7 The MRRT law taxes the pre-mining profit of a pre-mining
project interest in the same way as it taxes the mining profit of a mining
project interest.
12.8 An entity works out its total MRRT liability for an MRRT year
by adding together the MRRT liabilities from its pre-mining project
interests and its mining project interests. [Sections 10-1 and 140-10]
12.9 It works out the MRRT liability for a pre-mining project interest
in much the same way as it works it out for a mining project interest. It
deducts the interest's pre-mining expenditure from its pre-mining revenue
to get to its pre-mining profit. It subtracts the MRRT allowances for the
interest from that pre-mining profit and multiplies the result by the MRRT
rate to work out the interest's MRRT liability. [Sections 10-5, 140-5 and
140-10]
12.10 A pre-mining project interest is an interest in an exploration
right (that is, a right to explore for taxable resources, other than a
production right). This is explained in more detail in Chapter 6.
[Section 70-25]
12.11 A pre-mining profit is the amount by which a pre-mining project
interest's pre-mining revenue exceeds its pre-mining expenditure for an
MRRT year. The concepts of pre-mining revenue and pre-mining
expenditure are also explained in more detail in Chapter 6. [Section 140-5]
12.12 To allow an entity to treat pre-mining project interests in the
same way as mining project interests for the purpose of working out its
MRRT liability, the MRRT law applies as if:
· its pre-mining project interests were mining project interests
and its exploration rights, to which the pre-mining project
interest relates, were production rights [paragraphs 140-10(2)(a)
and (f)];
· its pre-mining profits were mining profits
[paragraph 140-10(2)(b)]; and
· it were a miner (that is, as if it had a mining project interest)
for that MRRT year and earlier years [paragraph 140-10(2)(g)].
12.13 The result is that allowances that would arise for a mining
project interest also arise for a pre-mining project interest. Royalty
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Minerals Resource Rent Tax
liabilities for the interest can give rise to royalty allowances; its
pre-mining losses from earlier years can give rise to pre-mining loss
allowances; and the mining losses and pre-mining losses of other interests
can give rise to transferred pre-mining loss allowances and transferred
mining loss allowances, just as they do for a mining project interest.
12.14 However, in working out the MRRT liability of a pre-mining
project interest, some specific differences between the MRRT treatments
of mining project interests and pre-mining project interests are preserved.
The fact that a pre-mining project interest is being treated as a mining
project interest does not mean that:
· it is treated as having originated from itself as a pre-mining
project interest. That is, it does not attract the rules that
apply when a mining project interest originates from a
pre-mining project interest [paragraph 140-10(2)(c)];
· its pre-mining losses from earlier MRRT years are treated as
mining losses, or that it can start to generate starting base
losses for that MRRT year or any earlier MRRT year
[paragraph 140-10(2)(d)]; and
· it is integrated with mining project interests it could not
integrate with as a pre-mining project interest
[paragraph 140-10(2)(e)].
12.15 An allowance applied in working out the MRRT liability of a
pre-mining project interest is not available to be used again for a mining
project interest or another pre-mining project interest. [Section 140-15]
A mining project interest originating from a pre-mining project interest
12.16 In the MRRT year that a mining project interest originates from
a pre-mining project interest, the year's pre-mining profit is still worked
out for the first part of the year but it is added to the mining project
interest's mining revenue. There is no need to work out a separate MRRT
liability for the pre-mining project phase of the year. [Section 140-20]
12.17 If there is a pre-mining profit, this treatment is akin to treating
the pre-mining revenue and pre-mining expenditure as mining revenue
and mining expenditure. However, the slightly more complex approach of
working out the separate amount from the pre-mining phase of the year is
used to ensure that any pre-mining loss for that period is not converted
into a mining loss.
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Pre-mining project interests
Example 12.1: Mining project interest originates from a pre-mining
project interest
Bronmore Exploration Co has a single development licence over an
area from which it has extracted and supplied small quantities of
taxable resources and paid State mining royalties when it supplied
them. Halfway through the year, Bronmore is issued with a production
right over the area. At that point, a mining project interest originates
from its pre-mining project interest.
Bronmore works out its pre-mining profit for the first part of the year
by deducting its pre-mining expenditure from that period from its
pre-mining revenue for that period. Then it includes this pre-mining
profit as mining revenue for the mining project interest. Bronmore
then deducts the royalty credits arising from the entire year (along with
any pre-mining losses the interest has from earlier years) and
multiplies the result by the MRRT rate to work out the interest's
MRRT liability.
Treatment of pre-mining royalty credits
12.18 A liability to pay a mining royalty in relation to a pre-mining
project interest gives rise to a royalty credit for that interest in the same
way it would have if the interest had been a mining project interest and the
exploration right had been a production right. [Section 140-25]
12.19 The amount of a royalty credit for a pre-mining project interest
is worked out in exactly the same way as it is for a mining project interest.
Royalty credits are used up in reducing the pre-mining profit of a
pre-mining project interest in the same way as they are used up in
reducing the mining profit of a mining project interest.
[Subsection 140-25(2)]
Treatment of farm-out arrangements
12.20 Farm-out arrangements are common during the exploration
phase of a project. A farm-out typically involves an agreement between:
· an entity that holds a pre-mining project interest (the farmor)
wanting to explore that project area; and
· another entity (the farmee) who incurs expenses exploring
the project area, in exchange for an interest in the pre-mining
project interest.
12.21 Costs incurred by farmees during the exploration phase will
sometimes be included in the farmor's pre-mining expenditure [Divisions 35
and 195, and subsection 70-35(7)]. This is explained in Chapter 6.
239
Chapter 13
Adjustments
Outline of chapter
13.1 This chapter explains the adjustments that are made to:
· mining revenue, mining expenditure, pre-mining revenue and
pre-mining expenditure when, as a result of a change in
circumstances, the original amount that was accounted for
under the Minerals Resource Rent Tax (MRRT) is no longer
appropriate (Division 160); and
· starting base losses (and, in some cases, to mining revenue)
when a starting base asset ceases to be part of a mining
project interest's starting base (for example, because the
miner disposes of it) (Division 165).
13.2 All legislative references throughout this chapter are to the
Minerals Resource Rent Tax Bill 2011 unless otherwise indicated.
Summary of new law
Mining adjustments for changes in circumstances
13.3 If there is a change in the circumstances affecting the amount of
a previous item of mining revenue, mining expenditure, pre-mining
revenue or pre-mining expenditure, an adjustment is made so that, in net
nominal terms, the correct result is achieved.
13.4 In other words, an adjustment applies to the extent that the
quantum of the original MRRT amount depended on assumptions or
estimates relating to future events or circumstances and those assumptions
or estimates turn out to be incorrect.
13.5 The main case in which the rules apply is ensuring that the cost
of an asset is only recognised in a mining project interest's net mining
expenditure to the extent that the asset is used in the upstream mining
operations of the mining project interest. The rules do this by including
an amount in mining revenue or mining expenditure to reflect any change
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Minerals Resource Rent Tax
in the extent to which the asset is used in the upstream mining operations
of the mining project interest.
Starting base adjustments
13.6 Broadly, a starting base adjustment is made when a miner:
· stops holding a starting base asset; or
· stops (or never started) using a starting base asset in the
upstream mining operations and decides never to so use it in
the future.
13.7 In these cases, the termination value of the asset (usually what
the miner received to stop holding it) is compared with its adjustable value
(which is its base value less its decline in value to that time). If the
termination value exceeds the adjustable value, the difference is applied to
reduce any starting base losses, with any excess being included in mining
revenue. If the termination value is lower than the adjustable value, the
difference is included as a starting base loss.
Detailed explanation of new law
Mining adjustments for changes in circumstances
When does a mining adjustment arise?
13.8 A mining adjustment arises when an original amount of mining
revenue, mining expenditure, pre-mining revenue or pre-mining
expenditure was determined according to some expectation about later
circumstances, and those expectations are revised, or the expected
circumstances do not eventuate, or they turn out differently. An
adjustment is made to reflect any impact that these new circumstances
would have had on the original amount so that, in net nominal terms, the
correct amount is accounted for under the MRRT overall. The adjustment
is made in the MRRT year in which the new circumstances arise.
[Subsection 160-10(1)]
13.9 The most common example of this is where the extent to which
an item of expenditure relates to the upstream mining operations of a
mining project interest changes because a miner so uses an asset to a
greater or lesser extent than it initially anticipated. [Subsections 160-10(1)
and (3)]
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Adjustments
13.10 Under the general mining expenditure rule, both revenue and
capital expenditure is immediately deductible to the extent that it is
necessarily incurred by a miner in carrying on upstream mining operations
for a mining project interest. As discussed in Chapter 5, this is based on
the income tax test of deductibility (though the income tax test excludes
capital expenditure). Under the MRRT, the extent to which an expense
(especially a capital expense) is included in a miner's mining expenditure
can depend on the miner's expectations about future circumstances in
relation to that expense.
Example 13.1: Change in extent to which an asset is used in upstream
mining operations
Shelby Co. is a miner that has one mining project interest. Shelby
purchases an asset on the last day of its 2012-13 MRRT year for
$1 million. The whole purchase price is included in mining
expenditure as it is necessarily incurred in carrying on the upstream
mining operations, since Shelby expects (at the time the expense is
incurred) to use the asset entirely within the upstream mining
operations of its mining project interest. Even though Shelby does not
use the asset in 2012-13, the $1 million is still included in its mining
expenditure.
In 2013-14, Shelby acquires a second mining project interest and
begins to use the asset equally in both project interests. This is a
change in circumstances which leads to adjustments for both of
Shelby's mining project interests since the new circumstances (the
change in the way the asset is used) would have affected the amount
included in mining expenditure for the mining project interests had
those circumstances been anticipated when Shelby purchased the asset.
The first mining project interest has an adjustment in relation to the
$1 million originally included in its mining expenditure. The second
mining project interest has a mining adjustment in relation to the
original non-inclusion of any part of the purchase price in its mining
expenditure.
Example 13.2: Change in extent to which an asset relates to excluded
expenditure
Dheera Co. is a miner. In its 2012-13 MRRT year, Dheera purchases a
building with a view to using it to conduct its administrative and
accounting activities. The building is not adjacent to the project area
of its mining project interest and so the purchase price is excluded
expenditure.
In its 2013-14 MRRT year, Dheera does not use the building for its
administrative and accounting activities and instead uses it solely to
remotely control the upstream mining operations -- expenditure on
this activity is not excluded expenditure. Had it anticipated these new
243
Minerals Resource Rent Tax
circumstances, Dheera would have included an amount in its mining
expenditure for its mining project interest. Therefore, a mining
adjustment arises in relation to the original non-inclusion of any part of
the purchase price in its mining expenditure.
Example 13.3: Debt being written off as bad
Michelle is a miner. In her 2012-13 MRRT year, she sells taxable
resources to Peter who promises to pay her $1 million. Michelle
includes an amount in her mining revenue when the $1 million
becomes receivable. However, Peter absconds without paying
Michelle and, in her 2013-14 MRRT year, Michelle writes off the
$1 million as a bad debt.
This is a change in circumstances that gives rise to a mining
adjustment for Michelle's mining project interest. Had she anticipated
that the debt would be written off as bad, Michelle would not have
included an amount in mining revenue, as she would not have seen the
$1 million as being receivable.
13.11 A mining adjustment only arises where the extent of the original
amount included in revenue or expenditure was dependant on the miner's
expectations of future events or circumstances. An adjustment does not
arise when the original amount was determined by a set of facts that do
not change, even when those facts were themselves were decided or
settled according to some expectation of the future.
Example 13.4: Where the original amount is not subject to a mining
adjustment
Penney Co. is a miner and during the 2014-15 MRRT year enters into a
three year contract with a customer for the supply of coal for a fixed
price of $120 per tonne. The price was determined by Penney Co.
based on estimates regarding the future price of coal which indicated
that coal prices were likely to fall. The company includes an amount
in its mining revenue over the next three MRRT years having regard to
the fixed price in the contract.
During the three year contract period, the market price for coal actually
increases. Even though Penney Co. took into account expected
changes in the price of coal at the time of entering into the contract for
the purposes of determining the contract price, the change in the
market price of coal does not constitute an event or circumstance that
gives rise to an adjustment to mining revenue as it does not change the
contracted price agreed between the parties.
What is the amount of the mining adjustment?
13.12 The amount of the mining adjustment is equal to the difference
between the original amount and the amount that would have been
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Adjustments
included had the changed circumstances been taken into account in
working out that original amount. [Subsection 160-10(2)]
13.13 For example, if the new circumstances would have reduced the
original amount that was included in pre-mining expenditure, then the
adjustment is equal to the amount of that reduction.
Example 13.5: Amount of the mining adjustment
In MRRT year 1, a miner incurs expenditure of $100 million on some
machinery that the miner expects to use to the extent of 40 per cent in
the upstream mining operations of a mining project interest for each of
five years, after which the machinery will be sold. On this basis,
$40 million is included in the miner's mining expenditure for the
mining project interest for MRRT year 1.
In MRRT year 2, the miner's use of the machinery in those operations
increases to 50 per cent, and the miner expects that extent of use to
continue for the rest of the five years. As a result, the extent to which
the expenditure relates to the interest increases to 48 per cent (that
is, (40% + 50% + 50% + 50% + 50%)/5). Had these circumstances
been taken into account in MRRT year 1, the miner would have
included $48 million in its mining expenditure. The difference
between that amount and the $40 million it did include in its mining
expenditure ($8 million) is the amount of its mining adjustment.
What is the effect of the mining adjustment?
13.14 The purpose of the mining adjustment is, to the extent possible
without revisiting earlier MRRT assessments, to place a mining project
interest in the same MRRT position as if the new circumstances had been
taken into account in working out the original amount of mining revenue,
mining expenditure, pre-mining revenue, or pre-mining expenditure.
However, an adjustment does not account for any uplift or for any transfer
of allowance components after the MRRT assessment that included the
original amount. That is because the adjustment is made in the year the
new circumstances exist instead of amending the original assessment.
13.15 The adjustments give effect to this purpose by including
amounts in mining revenue, mining expenditure, pre-mining revenue, or
pre-mining expenditure so that overall the correct net MRRT amount has
been accounted for. Table 13.1 lists the effects of the different mining
adjustments that arise in different cases. [Subsection 160-15(1)]
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Minerals Resource Rent Tax
Table 13.1: Effect of mining adjustments
If the original amount ...and if the changed The mining adjustment
was included (or not circumstance was taken is included in:
included) in: into account in working
out the original amount,
that amount would:
mining revenue increase mining revenue
mining revenue decrease mining expenditure
mining expenditure increase mining expenditure
mining expenditure decrease mining revenue
pre-mining revenue increase pre-mining revenue
pre-mining revenue decrease pre-mining expenditure
pre-mining expenditure increase pre-mining expenditure
pre-mining expenditure decrease pre-mining revenue
Example 13.6: Mining adjustment which increases mining
expenditure
Continuing the previous example, had the new circumstances been
taken into account in MRRT year 1, the miner would have increased its
mining expenditure from $40 million to $48 million for the mining
project interest. The $8 million mining adjustment is included in
mining expenditure for the mining project interest in MRRT year 2, so
that, overall, a total of $48 million has been included in mining
expenditure.
13.16 In practice, a miner may account for these kinds of changes in
another way that gives an equivalent outcome. For instance, a miner may
account for adjustments that reflect a decrease in a previous amount of
mining revenue for its mining project interest by reducing another amount
of its mining revenue for that mining project interest, rather than including
an amount of mining expenditure.
13.17 In some cases, a mining adjustment will arise in relation to a
pre-mining project interest that no longer exists because it has been
replaced by a mining project interest. This idea of a mining project
interest `originating' from a pre-mining project interest is discussed in
detail in Chapters 6 and 10. Broadly speaking, the mining project interest
is taken to be a continuation of the pre-mining project interest, so any
adjustment that would have arisen for the pre-mining project interest
should instead be attributed to the mining project interest. For this reason,
where a mining project interest has originated from a pre-mining project
interest, a mining adjustment will give rise to an amount of mining
revenue or mining expenditure for that mining project interest, rather than
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Adjustments
pre-mining revenue or pre-mining expenditure for the pre-mining project
interest. [Subsection 160-15(2)]
Accounting for previous mining adjustments
13.18 Only one mining adjustment can arise in relation to a particular
expense or receipt in any particular MRRT year, but there may be such
adjustments in more than one MRRT year. In these cases, the original
amount included in mining revenue, mining expenditure, pre-mining
revenue, or pre-mining expenditure is taken to itself be adjusted by the
amount of the mining adjustment. [Subsection 160-15(3)]
13.19 This adjusted original amount is then taken to be the original
amount against which any later adjustment is worked out.
Example 13.7: Accounting for previous mining adjustments
Continuing the previous example, in MRRT year 3, the miner's use of
the machinery on the interest increases to 100 per cent, and the miner
expects that extent of use to continue for the rest of the five years. As
a result, the extent to which the expenditure relates to the interest
increases to 78 per cent (that is, (40% + 50% + 100% + 100% +
100%)/5).
The `original amount' for MRRT year 2 is taken to be the original
amount for MRRT year 1 ($40 million of mining expenditure)
increased by the adjustment that was made in MRRT year 2
($8 million of mining expenditure), which is $48 million of mining
expenditure.
The adjustment in MRRT year 3 is the difference between the
$48 million of mining expenditure and the $78 million of mining
expenditure that would have been recognised in MRRT year 2 if the
new circumstances were known at that time. The mining adjustment is
the $30 million difference and, since this would have increased the
MRRT year 2 amount of mining expenditure, it is included in mining
expenditure for MRRT year 3.
Starting base adjustments
13.20 A starting base adjustment is made when a starting base
adjustment event happens. The amount of the adjustment reflects the
difference between the adjustable value of the asset and its termination
value.
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Minerals Resource Rent Tax
Starting base adjustment events
13.21 A starting base adjustment event occurs for a starting base asset
when the miner stops holding the asset. This includes the disposal, sale,
loss or theft of the asset. [Paragraph 165-5(1)(a)]
13.22 A starting base adjustment event also occurs when a miner
stops using a starting base asset in carrying on upstream mining
operations relating to the mining project interest and expects never to use
it again in this way. [Paragraph 165-5(1)(b)]
13.23 A starting base adjustment event also occurs when a miner has
been using a starting base asset for upstream mining operations and stops:
· having it installed ready for such use; or
· stops constructing it for such use,
and the miner expects to never again have the asset installed ready for
such use, or never to restart constructing it for such use.
[Paragraph 165-5(1)(b)]
13.24 A starting base adjustment event also happens where a miner
has never used a starting base asset for upstream mining operations and
stops:
· having it installed ready for such use; or
· stops constructing it for such use,
and the miner decides never to so use it. [Paragraph 165-5(1)(c)]
13.25 However, there is no starting base adjustment in relation to a
starting base asset that:
· is, or includes, a right or an interest that constitutes a mining
project interest (for example, the single starting base asset);
or
· is transferred with such a right or interest.
[Subsection 165-5(2)]
13.26 This exception recognises that, when a mining project interest is
transferred from one miner to another, the tax history of the interest will
be inherited by the other miner. One consequence of this is that, where
starting base assets are transferred as part of the transfer of a mining
248
Adjustments
project interest, those assets will retain their character as starting base
assets in relation to the mining project interest.
13.27 Chapter 7 discusses how -- under the market value approach --
mining information, improvements to land, and goodwill are taken to be
part of the same starting base asset as the rights and interests that
comprise the mining project interest. As a consequence, there will be no
starting base adjustment in relation to any of these things. However,
where a miner receives an amount that has the effect of recouping the base
value of a part of the single starting base asset (such as on the sale of
mining information), this will reduce the base value of the asset. This is
also discussed in Chapter 7.
Starting base adjustment amounts
13.28 If a starting base adjustment event occurs for a starting base
asset, then:
· if the asset's adjustable value exceeds its termination value
-- that excess is included in a starting base loss
[subsection 165-10(2), section 165-20 and subsections 165-25(1)
and (2)]; or
· if asset's termination value exceeds its adjustable value --
that excess is applied to reduce any available starting base
loss (with any remaining excess being included in mining
revenue) [subsection 165-10(1), section 165-20 and
subsections 165-25(3) and (4) and section 165-30].
Adjustable value
13.29 The adjustable value of a starting base asset is the difference
between:
· the base value of the asset for the MRRT year in which the
event occurred; and
· the decline in value of the asset for the part of the year before
the starting base adjustment event occurred.
[Subsection 165-10(7)]
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Minerals Resource Rent Tax
Termination value
13.30 The termination value of a starting base asset (usually what was
received under a starting base adjustment event) is:
· if the miner has received or is taken to have received an
amount -- that amount; or
· if the miner has not received an amount, or has received an
amount under a non-arm's length arrangement -- the market
value of the asset.
[Subsection 165-10(3)]
Amounts a miner has received or is taken to have received
13.31 Generally, termination value includes the amounts that a miner
received (or is taken to have received) in relation to the asset because of
the starting base adjustment event, including money or non-cash benefits.
13.32 The main case is simply receiving money under a starting base
adjustment event, in which case the termination value is that amount.
This covers the most common case, where money is received on the sale
of an asset.
13.33 Where a miner receives non-cash benefits under a starting base
adjustment event, the market value of those benefits at that time will be
included in the termination value under the general non-cash benefit rules.
Those rules are explained in detail in Chapter 15.
13.34 When a miner's liability to pay an amount to another entity is
reduced (or terminated) because of a starting base adjustment event, this
economic benefit is included in the asset's termination value for the
miner. [Subsection 165-10(5)]
13.35 If a miner receives an amount for several things that include a
starting base asset, only a reasonable part of the amount is to be treated as
being for the starting base asset. In other words, the amount will be
apportioned between the termination value of the asset and those other
things. [Subsection 165-10(6)]
Example 13.8: Apportioning the amount received for several starting
base assets
Belluk Resources receives $1 million for the sale of two starting base
assets. The $1 million will be apportioned between the termination
values of each starting base asset, based on their relative market
values.
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Adjustments
Where no amount is received or an amount is received under a non-arm's
length arrangement
13.36 In some circumstances a miner will continue to hold a starting
base asset after a starting base adjustment event. For instance, an
adjustment event occurs where a miner stops using an asset in the
upstream mining operations of its mining project interest and the miner
expects that they will never again use the asset for that purpose. In these
cases, the miner will often not receive an amount because of the event and
so the termination value will be the market value of the asset at the time of
the event.
Example 13.9: No amount received under a starting base adjustment
event
Toni Co. operates a coal mine. Due to falling prices for coal, it stops
using a conveyor belt it holds (a starting base asset). It expects that
coal prices will never recover sufficiently for it to ever use this asset
again. This is a starting base adjustment event. The termination value
of the conveyor belt is its market value just before the moment
Toni Co. formed the expectation that it would never use the asset
again.
13.37 In addition, where a miner receives an amount under an
arrangement in which it did not deal at arm's length with one or more of
the other parties to that arrangement, the termination value is the market
value of the asset at the time of the starting base adjustment event. This is
an integrity rule to cover non-arm's-length dealings.
[Paragraph 165-10(3)(b)]
13.38 Whether parties are dealing at arm's length is a question of fact.
It is necessary to look at the nature of the dealing between them to assess
whether the outcome of their dealing is the result of real bargaining.
Where the starting base adjustment event gives rise to mining expenditure
that exceeds the amounts received
13.39 Alternatively, the termination value will instead be the total of:
· an amount included in mining expenditure because of the
event; and
· any amount by which that mining expenditure is reduced
because of an amount received by the miner,
where this total exceeds the amount the miner received or is taken to have
been received. [Subsection 165-10(4)]
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Minerals Resource Rent Tax
13.40 This rule deals with the case where a miner is entitled to an
amount of mining expenditure as a consequence of the starting base
adjustment event.
Example 13.10: Mining expenditure arising because of a starting
base adjustment event
Bridie Co. gives a starting base asset to one of its customers. Under
the non-cash benefit rules (explained in Chapter 15), the market value
of the asset will be included in mining expenditure for Bridie's mining
project interest. So, the termination value for the asset will include that
amount.
13.41 The second limb of the rule deals with the case where the
mining expenditure is reduced because the miner received something of
value as a consequence of the starting base adjustment event.
Example 13.11: Reduced mining expenditure arising because of a
starting base adjustment
Continuing the previous example, if Bridie received some cash from its
customer for the asset, Bridie's mining expenditure would be reduced
by that amount (assuming it was not mining revenue), so the
termination value for the asset should include the full value that Bridie
received for the asset, being the amount included in mining
expenditure as well as the amount by which mining expenditure was
reduced.
Reduction for non-mining operations
13.42 The amount of a starting base adjustment is reduced to the extent
that the decline in value of the asset has been ignored in working out a
starting base loss for the mining project interest for that MRRT year or an
earlier year. The reduction is:
[(Sum of reductions) / (Total decline)] × Starting base adjustment amount
[Section 165-15]
13.43 The `total decline' refers to the sum of all declines in value for
the asset up until the time of the starting base adjustment event.
13.44 The `sum of reductions' is the total of all amounts by which the
decline in value of the starting base asset has been ignored in working out
a starting base loss. These reductions are explained in Chapter 7.
Broadly, the reductions are made to ensure that the starting base loss does
not include any part of the asset's decline in value that:
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Adjustments
· is attributable to the miner's use of the asset, or having it
installed ready for use, or constructing it for use, for a
purpose other than upstream mining operations in relation to
the mining project interest [subsection 80-40(3)]; or
· would be excluded expenditure if it was an amount that the
miner was taken to have incurred on or after 1 July 2012
[subsection 80-40(4)].
Partial disposals of starting base assets (other than the single starting
base asset)
13.45 Further rules deal with partial disposals of starting base assets
after the start time. Where a miner stops holding a part of a starting base
asset, the general starting base adjustment rules apply to that part in the
same way they would apply if that part was a starting base. For this
purpose, the adjustable value of the disposed part is taken to be a
reasonable proportion of that of the entire starting base asset at the time.
[Subsections 165-35(1) and (2)]
Example 13.12: Partial disposal of a starting base asset
Maher and Paher Co. (MPC) uses a starting base asset to the extent of
10 per cent in the upstream mining operations of its mining project
interest. The base value of the asset at the beginning of the MRRT
year is $10 million and its remaining effective life is 10 years.
Halfway through the year, MPC sells a 75 per cent interest in the
underlying asset for $6 million.
The adjustable value of the asset at the time of the sale is $9.5 million.
The adjustable value of the 75 per cent interest is $7.125 million
($9.5m × 75%). The termination value of the 75 per cent interest is
$6 million (being the sale price). So, there is a starting base
adjustment of $1.125 million that is included in a starting base loss.
The base value for the remaining 25 per cent interest is $2.375 million
($9.5m × 25%).
Assuming MPC used its 25 per cent interest in the asset for the second
half of the year to the same extent (10 per cent in the upstream mining
operations of its mining project interest), then it would have a starting
base loss equal to $62,500, being the sum of the following:
· For the use of the asset in the first half of the year:
10% × ½ × $1m = $50,000
· For the use of the 25 per cent interest in the second half of the year:
10% × ½ × $250,000 = $12,500.
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Minerals Resource Rent Tax
13.46 After a partial disposal occurs, the general rules for starting base
assets apply in relation to the remainder of the asset. For the MRRT year
in which the part disposal occurs, the decline in value for the remainder of
the asset takes into account both:
· the decline in value for the entire asset (including the
disposed part) for the period in the MRRT year before the
part disposal; and
· the decline in value for the remainder of the asset (not
including the disposed part) for the period in the MRRT year
after the disposal.
[Section 165-40]
13.47 The decline in value for the entire asset (including the disposed
part) for the period in the MRRT year before the part disposal, is worked
out as if that period was a MRRT year. [Paragraph 165-40(1)(a)]
13.48 Similarly, the decline in value for the remainder of the asset (not
including the disposed part) for the period in the MRRT year after the
disposal, is worked out as if that period was the next MRRT year.
Although the periods are treated as separate MRRT years to work out the
decline in value, there is no uplift of the base value at the end of the
earlier period (regardless of whether the book value method is used).
[Paragraphs 165-40(1)(b) and (2)(a)]
13.49 Also, if the book value method is used, the same write-off rate
applies to each period in the MRRT year as would normally apply to the
entire MRRT year (and not the next MRRT year). [Subsection 165-40(4)]
13.50 Where more than one partial disposal occurs in relation to the
same starting base asset in the same MRRT year, the periods between
those disposals are treated as separate MRRT years in working out the
declines in value for the remainder of the starting base asset. For
example, where a second partial disposal occurs in relation to the same
starting base asset in the same MRRT year, then the period in the entire
MRRT year before the first disposal is treated as an MRRT year. The
period after the first disposal and before the second disposal is treated as
another MRRT year. Finally, the period after the second disposal and
before the end of the entire MRRT year is treated as another MRRT year.
[Subsection 165-40(3)]
13.51 Following a partial disposal of a starting base asset, the amount
of a starting base loss for the remainder of the asset is worked out taking
into account the use of the remaining asset, but not taking into account
any use of the disposed part. [Section 165-45]
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Adjustments
Partial disposal rules do not apply where the entire asset is disposed of
13.52 The partial disposal rules do not apply to a partial disposal that
occurs at the same time the miner stops holding all other parts of the
starting base asset. For example, if a miner sells a 50 per cent interest in
its starting base asset to one entity and another 50 per cent interest to
another entity at the same time, then the miner will apply the general
starting base adjustment rules to the entire asset it stops holding (rather
than applying the partial disposal rules separately to each part it stops
holding). [Subsection 165-35(3)]
Partial disposal rules do not apply to the single starting base asset
13.53 As discussed above, a starting base adjustment event does not
apply in relation to the single starting base asset under the market value
approach. So, a `partial disposal' of that asset (such as through the sale of
mining information that is included in that asset) is not subject to the rule
about partial disposals of starting base assets. However, as discussed
above, this may represent a recoupment of the base value of the single
starting base asset, which will result in the base value of the asset being
reduced accordingly. [Paragraph 165-5(2)(a)]
Using a starting base asset in other project interests
13.54 As discussed in Chapter 7, a starting base loss is reduced to the
extent that a starting base asset is used, installed ready for use, or being
constructed for use, for a purpose other than upstream mining operations
of the mining project interest. Where that other purpose includes a use in
the upstream mining operations of another mining project interest of the
same miner, then the miner can include an amount in mining expenditure
for that other interest. The amount included in mining expenditure is so
much of the reduction in the decline in value for the first mining project
interest as is attributable to that use in the other interest, and as would be
included in mining expenditure for the other interest had the miner
actually incurred the amount. This ensures that the base value of the
starting base asset is realised by the miner to the extent it is used in the
miner's upstream mining operations, regardless of whether the asset is
used in another mining project interest of the miner in relation to which
the asset is not a starting base asset. [Subsection 165-55(1),
paragraph 165-55(2)(a), subparagraph 165-55(2)(b)(i) and subsection 165-55(5)]
Example 13.13: Using a starting base asset in a miner's other mining
project interest
Crag Co. has two mining project interests, A and B. Crag holds a
starting base asset in relation to mining project interest A. In an
MRRT year, it uses the asset 50 per cent in the upstream mining
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Minerals Resource Rent Tax
operations of mining project interest A and 50 per cent in the upstream
mining operations of its other mining project interest B.
The starting base loss for mining project interest A does not include
half of the decline in value for the asset for the year, reflecting the use
of the asset outside of the upstream mining operations of that interest.
Crag Co. can include that half of the decline in value for the MRRT
year in the mining expenditure of mining project interest B for that
year.
13.55 Similarly, a miner can include an amount in the pre-mining
expenditure of its pre-mining project interest where it uses a starting base
asset in the pre-mining operations of that interest. [Subsection 165-55(1),
paragraph 165-55(2)(a), subparagraph 165-55(2)(b)(ii) and subsection 165-55(5)]
Using a starting base asset after a starting base adjustment event
13.56 As discussed above, a miner may continue to hold a starting
base asset after a starting base adjustment event. This will occur when the
starting base adjustment happens because the miner decides never to use
an asset in the upstream mining operations of the mining project interest
in the future.
13.57 If, after this time, the miner starts to use the asset in the
upstream mining operations of another mining project interest (for which
the asset is not a starting base asset), then an amount may be included in
the mining expenditure of its other mining project interest. The amount
included in mining expenditure will be so much of the asset's termination
value from the earlier starting base adjustment event as would be included
in mining expenditure if the miner had actually incurred that termination
value when it starts to use the asset in the other mining project interest.
[Subsections 165-55(3) to (5)]
13.58 If, after a starting base adjustment event (other than ceasing to
hold the asset), the miner starts to use the asset in the upstream mining
operations of the same mining project interest (for which the asset is a
starting base asset), then the starting base asset is taken to have a base
value equal to its termination value under the earlier starting base
adjustment event. This means that the decline in value for the asset will
restart from a value that reflects the basis of the earlier starting base
adjustment. This ensures that the entire base value of the starting base
asset will be recognised by the miner to the extent it is used in the
upstream mining operations of the mining project interest, regardless of
whether an earlier starting base adjustment event (other than ceasing to
hold the asset) has happened. [Section 165-60]
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Chapter 14
Valuations
Outline of chapter
14.1 This chapter describes:
· the valuation principles in Division 170 that are applied in
working out the value of assets, rights and other things for
the purposes of the Minerals Resource Rent Tax (MRRT);
and
· the alternative valuation method in Division 175 that is
available for working out the MRRT revenue of some
smaller miners and miners with vertically integrated
transformative operations.
14.2 All legislative references throughout this chapter are to the
Minerals Resource Rent Tax Bill 2011 unless otherwise indicated.
Summary of new law
Valuation principles
14.3 MRRT taxpayers may need to value certain assets and rights in
order to determine their MRRT liability.
14.4 For example, the value of an asset may be used in determining
the starting base of a mining project interest, and as an input in calculating
the amount of mining revenue that arises from a particular sale of taxable
resources. Valuations are also used when project interests are split or
transferred between taxpayers, and when certain non-cash benefits are
received.
14.5 Because of their role in determining MRRT outcomes, it is
important that these valuations be reasonable, both in isolation and when
considered alongside other valuations done in relation to a project interest.
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Minerals Resource Rent Tax
14.6 To this end, valuations must comply with a set of principles,
which recognise that reasonable valuations depend on:
· the consistent application of appropriate assumptions;
· each thing that is to be valued being counted exactly once;
and
· avoiding hindsight when estimating the value of something at
an earlier point in time.
Alternative valuation method
14.7 Miners producing less than 10 million saleable tonnes of taxable
resources in a year can choose to use an alternative valuation method to
work out the mining revenue attributable to taxable resources from their
mining project interests for that year.
14.8 Miners with a vertically integrated transformative operation (that
is, an operation that both extracts resources and turns them into a different
product) that existed just before 2 May 2010 can always use the
alternative valuation method for that operation. If their group production
is under 10 million saleable tonnes, they can also use it for the rest of their
mining project interests.
14.9 The alternative valuation method is a variant of the netback
method. It starts with the consideration for supplies of taxable resources
and deducts the project interest's post-valuation point (downstream)
operating costs, depreciation on its downstream assets and a return on its
downstream capital. The rate of return is the same long term bond rate
plus 7 per cent (LTBR + 7 per cent) used to uplift carried forward mining
losses and royalty credits.
Detailed explanation of new law
Valuation principles
When the valuation principles apply
14.10 The valuation principles apply broadly, wherever the value of
something is used in working out an amount under the MRRT law.
[Subsection 170-5(1)]
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Valuations
14.11 An obvious example is the way the value of certain starting base
assets is used to determine the starting base losses of project interests that
existed on 1 May 2010.
14.12 The starting base is an example where values are used directly in
working out an MRRT amount. In other cases, the relationship between
the value of an asset and an MRRT amount may be less direct.
14.13 The valuation principles apply whether or not a provision of the
MRRT law expressly requires the amount to be worked out by making a
valuation. [Paragraph 170-5(3)(b)]
14.14 The valuation principles do not prescribe or prevent the use of
any specific valuation method, nor does their operation depend on a
certain method being used. They apply in relation to starting base assets,
for example, whether the market value or book value approach is chosen
by the taxpayer. [Paragraph 170-5(3)(a)]
14.15 However, the valuation principles do not operate to exclude the
operation of any specific rules elsewhere in the MRRT law.
[Subsection 170-5(2)]
14.16 For example, the alternative valuation method (described below)
allows certain taxpayers to calculate MRRT revenue in a specific way,
using a version of the `retail price' or `netback' method. Under this
method taxpayers use a concept of `total adjustable values' when
calculating a return on their capital costs. The specific rule setting out
how `total adjustable values' are to be calculated under this method takes
precedence over the valuation principles, in the event of any conflict
between them. Similarly, the rule setting out how a mining revenue
amount is determined prevails over these principles if there is any
inconsistency between the two.
What the valuation principles are
Basic principle
14.17 The valuation principles consist of one basic principle and five
supporting sub-principles.
14.18 The basic principle requires each valuation relating to a mining
project interest (or pre-mining project interest) to be reasonable, having
regard to the objects of the MRRT law. [Subsection 170-10(1)]
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Minerals Resource Rent Tax
14.19 This requirement of reasonableness means that each valuation is
to be governed by logic and reflect the application of common sense and
sound thinking. Reasonable valuations are also free from contradiction
and extreme argument.
Sub-principles
14.20 Each of the five valuation sub-principles is designed to support
the basic principle, by explaining in further detail some of the things
which must be recognised and criteria which must be satisfied in order for
a valuation to be reasonable.
14.21 However, to the extent that there is any conflict between the
basic principle and any of the sub-principles, the basic principle applies.
[Subsection 170-10(7)]
14.22 The sub-principles require that a valuation done for the purposes
of working out an amount under the MRRT law:
· avoids using hindsight when valuing something as at an
earlier point in time;
· counts each thing that is being valued exactly once;
· treats identical assets equally;
· applies appropriate assumptions consistently; and
· takes into account relevant previous valuations.
Sub-principle 1: The use of hindsight is to be avoided when valuing
something as at an earlier point in time
14.23 A taxpayer may use the value of something at a particular point
in time for the purpose of working out an amount under the MRRT law.
For example, a taxpayer choosing to use the market value method to
determine the starting base amount for a project interest uses the market
value of certain things as at 1 May 2010.
14.24 Such valuations are generally conducted after the time to which
they relate. This is unavoidable and in itself poses no great difficulty
provided that the valuation takes into account only those facts, estimates,
and predictions which prevailed at the time to which the valuation relates.
A valuation of something at a point in time is not valid to the extent it
draws on observations made since that time.
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Valuations
14.25 This concept is captured by the first sub-principle, which
clarifies that a valuation made as at a particular time may only take into
account:
· things that have actually happened before that time; and
· things that, as at that time, are reasonably expected to happen
after that time.
[Subsection 170-10(2)]
14.26 That is, things only known with the benefit of hindsight cannot
be taken into account.
Example 14.1: Valuations cannot reflect the application of hindsight
Block Ore Co has an iron ore mining project interest as at 1 May 2010.
As at that time, the market value of the rights and interests which
constitute the mining project interest is $1 billion. This figure takes
into account all relevant factors, such as the current and anticipated
production of the mine and expected iron ore prices and capital and
operating costs.
In December 2011, the iron ore price received by Block Ore
unexpectedly decreases sharply. This reduces the value of its mining
rights and interests to $300 million.
In February 2012, Block Ore (intending to use the market value
method) seeks to determine its starting base amount. In doing so, it
has no regard to the unexpected fall in the iron ore price because to do
so would be to apply hindsight to the determination of a value at a
particular point in time (1 May 2010). The amount to be included in
the starting base is $1 billion.
14.27 The avoidance of hindsight in no way means that estimates and
assumptions about future events and circumstances are prevented from
being taken into account. It only means that their likelihood must be
evaluated by reference to information available at the time to which the
valuation relates.
Example 14.2: Assumptions about the future are to be taken into
account
On 1 May 2010, Seagull Resources has a small pre-mining project
interest in remote Queensland. The viability of turning this interest
into an operating coal mine depends on whether a railroad is built to
service nearby major deposits. The railroad has been talked about as a
possibility for some time, but it is generally accepted that it will be
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Minerals Resource Rent Tax
built by 2012, or not at all in the foreseeable future. As at 1 May 2010,
the chances of the railroad being built are 50 per cent.
Without the railroad, Seagull Resources' pre-mining project interest
has little value, $5,000. However, if it were known with certainty that
the railroad would be built, the value of the interest as at 1 May 2010
would be $20 million.
Based on this information, if in 2012 Seagull Resources were to use
the market value method to determine its starting base amount, then it
would be appropriate to include slightly over $10 million for the
pre-mining project interest (being 50 per cent of $20 million plus
50 per cent of $5,000). Although the railroad was not built by the
valuation date, the likelihood of it being built in the future should be
taken into account, along with the effect that building it would have on
the value of the project interest.
It would not be valid for Seagull Resources to cite an announcement in
early 2012 that the railroad would be built as a justification for
increasing its starting base amount towards $20 million, because this
fact was not known on 1 May 2010.
Sub-principle 2: Each thing being valued is to be counted exactly once
14.28 The second sub-principle states that the sum of the values of all
things in a set must equal the value of the set. This ensures that each thing
being valued is counted exactly once. [Subsection 170-10(3)]
14.29 A common situation where this principle is relevant is the use of
a residual method to determine the value of the rights and interests of a
mining project interest. A valuer might first determine the value of an
integrated mining operation (the set, using the language of the principle)
and then subtract the value of the physical assets. The residual amount is
then attributed, on a collective basis, to those remaining assets which were
not valued separately.
14.30 In some situations, the value of an asset within a mining
operation may depend not only on its intrinsic qualities, but also on how it
functions within the context of the overall operation. The valuation
principles do not prevent any synergy value from being recognised, but
they do insist that it only be counted once.
Example 14.3: Valuations must not count the same thing more than
once
Blob Energy uses a crusher and a railway in its downstream mining
operations. The value of the crusher is $100 million. The value of the
railway, which is used exclusively in transporting coal from Blob
Energy's mine to the port, is $500 million.
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Valuations
The value of the crusher and the railway, taken together, is the sum of
their respective values, $600 million. It would be invalid to seek to
ascribe any additional value to any synergy arising from the use of the
crusher and railway in close proximity.
Sub-principle 3: Identical assets are to be valued equally
14.31 The third sub-principle requires identical assets to be treated
equally in valuations. It states that identical things in identical
circumstances have the same value. [Subsection 170-10(4)]
14.32 In practice, it will be rare to find two assets which are identical
in all respects, including the circumstances in which they are used. The
conditions of the sub-principle may never strictly be satisfied.
14.33 However, the corollary of the principle is that a difference in
two assets' values must be explainable by differences in their nature or
circumstances.
14.34 This is essentially another expression of the requirement for
valuations to be reasonable when considered alongside other related
valuations. Things not relevant to the value of a particular asset, such as
whether it operated upstream or downstream of the valuation point in a
particular period, should not influence any estimate of the asset's value.
Example 14.4: Identical assets in identical circumstances have the
same value
Pod Power Co purchases a fleet of 10 identical new trucks in 2013-14
for use in its coal mining operations. Each truck performs the same
tasks as the others: picking up coal, transporting it from one place to
another, and unloading it. While five of the trucks operate mostly
upstream of the valuation point and the other five mostly downstream,
the conditions are equivalent and the trucks operate interchangeably.
The total value of the 10 trucks at the end of 2014 is $20 million. The
trucks are the same make, model and age. In the absence of any
reasonable argument to the contrary, each truck has the same value,
$2 million.
It would not be valid to suggest the value of the trucks used mostly
downstream of the valuation point was greater than the others, because
the location of the valuation point is not relevant in determining the
value of an asset.
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Minerals Resource Rent Tax
Sub-principle 4: Valuations are to consistently apply appropriate
assumptions
14.35 The fourth sub-principle goes to the consistent application of
reasonable assumptions and estimates, when valuing a thing to work out
an amount under the MRRT law.
14.36 An assumption or estimate relating to a mining project interest
or pre-mining project interest:
· is to be reasonable when considered in isolation;
· is to be reasonable when considered together with all other
assumptions or estimates made in relation to the interest; and
· is to be made consistently for all things relating to the
interest.
[Subsection 170-10(5)]
14.37 The task of valuing an asset usually involves making
assumptions and estimates, which are used as inputs in the application of a
particular valuation method.
14.38 The basic principle requires the product of this process (that is,
the value ascribed to the asset, or other thing) to be reasonable. The
sub-principles discussed so far cover matters relating to the
reasonableness of the valuation method.
14.39 This sub-principle focuses on the reasonableness of the
assumptions and estimates used as inputs to a process of valuation. Its
inclusion recognises that even the soundest valuation method will seldom
be able to overcome the use of unreasonable inputs to produce a
reasonable valuation outcome.
14.40 The first of the three parts of the sub-principle requires each
assumption and estimate used in a valuation to be reasonable when
considered in isolation. [Paragraph 170-10(5)(a)]
14.41 In practice, there is likely to be a range of views on the most
appropriate assumptions to make when valuing something for the
purposes of the MRRT. For instance, there is no single universally
accepted `correct' value of expected future exchange rates or commodity
prices that a valuer can draw on, or could be compelled to employ.
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Valuations
14.42 It is wholly to be expected, and perfectly legitimate, for views to
differ as to the most appropriate assumptions and estimates to use in a
given circumstance. However, this does not mean that a taxpayer is free
to choose any assumption, no matter how unrealistic or remote the
likelihood of it being borne out.
Example 14.5: Assumptions used in valuations must be reasonable in
isolation
Iron Grid Co is an exploration company with a pre-mining project
interest on 1 May 2010. At that time, the interest had an indicated
resource of 1 million tonnes of iron ore.
As an input into the determination of its market value starting base for
the MRRT, Iron Grid makes an assumption about the proportion of this
indicated resource that will ultimately be converted into a measured
reserve able to be economically extracted and sold.
This assumption must be reasonable, a standard permitting some
discretion but not so wide as to include any conceivable possibility. If
the demonstrated success of conversion for comparable tenements in
recent years had ranged between zero and 15 per cent, it might be
considered reasonable for Iron Grid to adopt an assumption lying
somewhere between those limits. It would not be reasonable to assume
that, say, 90 per cent of the indicated resource would prove
economically recoverable.
14.43 The second part of the sub-principle requires each assumption
and estimate to also be reasonable when considered together with other
assumptions and estimates made in relation to the interest.
[Paragraph 170-10(5)(b)]
14.44 This recognises that, as is the case for the values themselves, it
is possible for two assumptions or estimates to be reasonable when
considered separately but inconsistent (such as being mutually exclusive),
and so not reasonable, when taken together.
Example 14.6: The relationship between assumptions must be taken
into account
In determining as at 1 May 2010 the market value of its starting base
assets, Geordie Minerals Co makes assumptions about future
movements in several exchange rates, including those between:
· the United States dollar and the Australian dollar;
· the Japanese yen and the Australian dollar; and
· the United States dollar and the Japanese yen.
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Minerals Resource Rent Tax
Having had appropriate regard to market forecasts and other relevant
information, Geordie Minerals considers anything between
-20 per cent and +20 per cent would represent a reasonable forecast of
the change in the strength of the Australian dollar (A$) relative to the
United States dollar (US$) over the period relevant to its valuation.
Geordie Minerals considers the same range also captures all reasonable
forecasts of the change in the A$ relative to the Japanese yen (¥), and
of the change in the US$ relative to the ¥.
Geordie Minerals decides to assume that the A$ will remain unchanged
against both the US$ and the ¥ over the relevant period. These
assumptions are reasonable in the circumstances, both when
considered separately and when considered together.
It would not be reasonable though, for Geordie Minerals to
concurrently assume that the US$ would markedly increase (or
decrease) against the ¥. While such an assumption could be reasonable
in isolation, it is not reasonable when considered alongside the other
assumptions made in relation to the project interest. This is because it
would not reflect the very strong correlation observed in practice
between the exchange rate movements of highly liquid currencies such
as the A$, US$ and ¥.
14.45 The third part of the sub-principle requires each assumption and
estimate to be made consistently for all things relating to the interest.
[Paragraph 170-10(5)(c)]
14.46 For example, if a forecast increase in the coal price is used to
estimate the overall value of an integrated mining operation at a particular
time, then this forecast must be applied consistently when valuing the
separate assets used within that operation.
14.47 It would not be valid, for example, to assume that interest rates
will increase for the purposes of valuing a crusher, while at the same time
assuming that interest rates will decrease when valuing a digger used in
relation to the same project interest.
Example 14.7: Assumptions and estimates can reasonably vary over
time
Boro Coal Co is a miner subject to the MRRT. It takes the value of its
mining rights as at 1 May 2010 into account when determining its
market value starting base. For the purpose of that valuation, Boro
Coal uses its assumption as of 1 May 2010 that the average coal price
it will receive over the following five years would be $250 per tonne.
It is required to use this assumption (or one consistent with it) when
valuing other assets relating to this project interest at that time.
In 2013-14, Boro Coal again values its mining rights for the purpose of
splitting a mining project interest. It is not required to use the same
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Valuations
assumption for future coal prices it used previously. Boro Coal should
make an assumption which is reasonable in the circumstances (and
then apply that assumption consistently for all its valuations done at
that time).
Sub-principle 5: Valuations are to be reconcilable with relevant previous
valuations
14.48 The fifth (and final) sub-principle recognises that, just as the
estimates and assumptions used in a valuation should be reasonable when
considered together, so too should the set of valuations be reasonable.
14.49 The sub-principle states that each valuation done for the MRRT
after 1 May 2010 should be reconcilable with certain other valuations
relating to the interest (including, if relevant, a valuation relating to a
pre-mining project interest from which a mining project interest
originated). [Subsection 170-10(6)]
14.50 Only valuations made after 1 May 2010 and for the purposes of
working out an amount under the MRRT law are required to be taken into
account. [Paragraphs 170-10(6)(a) and (b)]
14.51 In some cases an asset or other thing will have been valued
multiple times for the purposes of working out an MRRT amount. The
sub-principle requires a new valuation of that thing to be reconcilable only
with the most recent relevant valuation, rather than every previous
valuation. [Paragraph 170-10(6)(c)]
14.52 Requiring valuations relating to the same project interest to be
reconcilable, or broadly consistent, is designed to avoid, over time, a set
of valuations which is not reasonable, perhaps because some of its
elements are mutually contradictory, despite each individual valuation
being reasonable considered in isolation.
14.53 The requirement for valuations done in relation to a project
interest to be reconcilable does not mean that they must be the same. It is
sufficient that they accord with each other, are compatible, and are free
from contradiction.
14.54 In practice, there will be many valid reasons for the value of an
asset within a mining project interest to change over time. It is entirely
appropriate for a valuation to take into account any changes in
circumstances since any previous valuation.
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Example 14.8: Two valuations can be reconcilable without being the
same
In 2012-13, Buzz Coal Co values a digger at $20 million and a crusher
at $10 million.
By 2015-16, the collective value of the digger and crusher decreases to
$15 million, owing to a change in the configuration of Buzz Coal's
operations and the wear and tear placed on the assets due to their
continual use. Buzz Coal ascribes this decrease in value between the
two assets proportionately, so the digger is now worth $10 million and
the crusher $5 million. This is reconcilable with the previous
valuation, even though it produces different results.
14.55 In practice, there will nearly always be some change in
circumstances and available information from one valuation to the next,
even if this change is nothing more than the passage of time.
14.56 This sub-principle does not prevent such changes from being
taken into account when an asset is valued. However, it does require a
miner performing a valuation of something to have due regard to the value
previously ascribed to the thing.
Example 14.9: A valuation must be reconcilable with previous
valuations done in relation to the project interest
In 2012, Buzz Coal Co estimates the value as of 1 May 2010 of a
digger and a crusher for the purpose of working out the starting base
amount for its interest in the Basic Coal project. The digger is used
upstream of the valuation point (so its value is used directly in
calculating the starting base) and the crusher forms part of its
downstream mining operations.
Buzz Coal estimates that, collectively, the digger and the crusher were
worth $30 million on 1 May 2010. Because the digger and crusher
play an interdependent role in an integrated operation, Buzz Coal finds
it could split this $30 million in any one of a number of ways, with any
valuation of the digger between $10 million and $20 million being
reasonable in the circumstances. For the purpose of determining its
starting base amount, Buzz Coal values the digger at $20 million, and
the crusher (which is not a starting base asset) at $10 million.
In 2013, Buzz Coal seeks to use the value of the crusher during the
2012-13 MRRT year for the purpose of splitting a mining project
interest. Assume that the circumstances of the Basic Coal project are
such that the combined value of the digger and the crusher in 2012-13
remains $30 million. In splitting this value between the two items,
Buzz Coal must do so having regard to its earlier valuation. In the
absence of any specific factor suggesting otherwise, Buzz Coal would
value the crusher at $10 million.
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Valuations
If the task of estimating the value of the crusher in 2012-13 were to be
looked at in isolation, any value between $10 million and $20 million
might be considered reasonable. However, this task is not to be
performed in isolation, but in the context of previous valuations done
in relation to the project interest. It would be unlikely to be reasonable
for Buzz Coal to suggest the value of the crusher was twice as much,
say, as the value of the digger, for the purpose of the mining project
split, having previously suggested the opposite for the purpose of
determining its starting base amount.
Alternative valuation method
14.57 It can sometimes be difficult to apply the normal methodologies
for working out what part of the consideration for selling resources is
attributable to the condition and location of the resources at their valuation
point. The difficulties may be greater for smaller miners who have less
access to the specialist advice necessary to apply those methodologies
properly. They can also be greater for miners who transform resources
they mine in an integrated operation, such as steel manufacturing or
electricity generation.
14.58 Accordingly, an alternative, and simpler, valuation method is
provided for those miners to work out the mining revenue attributable to
their resources. [Section 175-5]
The alternative valuation method is a choice
14.59 The alternative valuation method is a choice, available to a
miner who satisfies the conditions, in relation to each of its mining project
interests. A miner can choose to use the method for some interests but not
for others. [Paragraph 175-10(2)(a)]
14.60 The election is also available on an annual basis. A
miner can choose to use the method for some years but not others
[paragraph 175-10(2)(b)]. However, choosing to use the method for a mining
project interest in one year could affect the future transferability of
allowance amounts arising in that year and whether the interest can
combine with other interests in later years (see Chapters 6 and 9).
14.61 A miner must make the choice by the time it lodges its MRRT
return for that year, or by the time it was due to provide its MRRT return
if it does not lodge it within time. The Commissioner of Taxation
(Commissioner) can allow for further time. This is a standard approach to
choices under tax laws, so the Commissioner's usual processes for
deciding whether to extend time can be expected to apply. [Schedule 1 to the
Minerals Resource Rent Tax (Consequential Amendments and Transitional Provisions)
Bill 2011 (MRRT (CA&TP) Bill), item 8, subsection 119-5(3) of Schedule 1 to the
Taxation Administration Act 1953 (TAA 1953)]
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Minerals Resource Rent Tax
14.62 A choice to use the alternative valuation method for a mining
project interest for a year, once made, is irrevocable. This ensures that
miners consider carefully whether to make the choice, rather than later
seeking to undo it if circumstances change. [Schedule 1 to the MRRT (CA&TP)
Bill, item 8, section 119-10 of Schedule 1 to the TAA 1953]
Effect of making the choice
14.63 If a miner makes the choice to use the alternative valuation
method for a mining project interest for a year, the revenue relating to the
interest's resources is worked out using the alternative valuation method
rather than the other methods that might be used. The resources would
still have to be supplied, exported or used before any amount would be
included for them in mining revenue. [Section 175-20]
Conditions for making the choice
14.64 Before it can choose to use the alternative valuation method, a
miner must:
· have group production of taxable resources of less than
10 million saleable tonnes in the year; and/or
· carry on an operation, which existed before 2 May 2010, that
supplies things made using the resources extracted from the
mining project interest's project area.
[Subsection 175-10(1)]
14.65 If a miner's group production is 10 million saleable tonnes or
more in the year, it cannot make the choice generally but it could still
make it for each mining project interest that is part of an operation that
existed before 2 May 2010 that uses the resources to produce something
else.
Group production
14.66 A miner's group production includes the production of taxable
resources across all its mining project interests and pre-mining project
interests and those of all the entities connected to, or affiliated with, it.
[Subsection 175-15(1)]
14.67 Broadly, entities are connected to or affiliated with one another
if either controls the other (or both are controlled by a third entity) or if it
is reasonable to expect that one would act in accordance with the wishes
of the other. These concepts are dealt with by sections 328-125 and
328-130 of the ITAA 1997.
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Valuations
14.68 A project area for a miner's mining project interest could also be
the project area for another miner's interest (for example, in a joint
venture). In such cases, only the miner's share of the resources extracted
from that project area would be counted towards the 10 million tonnes
(unless, of course, the miners in question were connected to or affiliated
with each other). [Subsection 175-15(1)]
14.69 Resources only count towards the 10 million tonnes if the miner
has the interest from which the resources were extracted at the end of the
MRRT year. It may not have extracted those resources itself. For
example, if a mining project interest is transferred from one miner to
another during the year, the resources extracted from it would count
towards the threshold for the transferee and not towards that for the
transferor. [Subsection 175-15(1)]
14.70 The weight of taxable resources is measured when they reach
the form in which they are to be supplied or exported. In many
mining processes, the weight of the taxable resource extracted
declines during processing as waste material is separated and discarded.
The 10 million tonnes is determined, not by reference to the weight of the
resource at extraction, but by reference to its weight after it has reached
the relevant point in the operation. This is commonly referred to as
`saleable tonnes' in the mining industry. [Paragraph 175-15(1)(b) and
subsection 175-15(2)]
14.71 The 10 million tonnes is also measured regardless of the type of
taxable resource. It includes the cumulative weight of all the taxable
resources produced: the tonnes of gas extracted as an incident of coal
mining as well as the tonnes of coal and iron ore. [Subsection 175-15(1)]
14.72 However, for gas subject to the MRRT because it is converted
from coal in situ, the tonnes of coal consumed in the gas production are
measured (rather than the weight of the gas) and they are measured when
they are consumed. [Subsection 175-15(3)]
14.73 Obviously, coal in the ground cannot actually be weighed but
there are accepted methods for estimating the weight of the coal
consumed based on relevant factors, such as the amount of gas produced.
Using such a method is sufficient for this purpose.
Vertically integrated transformative operations
14.74 Some miners supply something they produce using the coal or
iron ore they mine, rather than supplying the coal or iron ore itself (they
may, of course, supply both). The most common cases are operations that
convert iron ore into steel and operations that burn coal to produce
electricity.
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Minerals Resource Rent Tax
14.75 It can be more difficult than usual to work out the value of the
taxable resources at their valuation point in such operations, because of
the extent of capital investment after the valuation point and the less direct
relationship between the value of the resources and that of the product
sold.
14.76 The legislation recognises this by allowing miners with such
operations to access the alternative valuation methodology even if their
group production exceeds 10 million tonnes. This only applies to miners
whose vertically integrated transformative operation produces something
other than a taxable resource. It would not apply, for example, to a miner
who simply refines iron ore or produces coal briquettes.
[Subparagraph 175-10(1)(b)(i)]
14.77 The operation in question must have existed before 2 May 2010,
so the method is not available to newly created vertically integrated
transformative operations (which would have the opportunity to establish
an advance pricing agreement with the Australian Taxation Office (ATO).
However, it is not necessary that the miner with the operation is the same
miner who had it just before 2 May 2010. This ensures that the legislation
does not affect commercial decisions about selling an operation that
qualifies for the alternative valuation method. [Subparagraph 175-10(1)(b)(ii)]
14.78 Whether an operation is one that existed just before 2 May 2010
is a question of fact. This can involve difficult judgments. Obviously, it
would not be an existing operation if the miner acquired either the mine or
the transformative operation after that date.
14.79 But it is not always obvious even if the same miner did own
both of those elements before that date. The question in that case would
be whether those two elements were part of a vertically integrated
operation at that time.
14.80 Changing components of each of the two elements can also raise
difficult problems. Using a different power plant or steelworks would
probably change the operation so that it was no longer one that existed at
2 May 2010. But replacing buildings, plant and staff would probably not
change the operation, even if upgrades were involved.
14.81 Similarly, using a new mining project interest to supply the
transformative operation would probably change the operation. However,
combining further interests with an existing mining project interest that
was supplying the transformative operation at 2 May 2010 would
probably not change the operation because the effect of the combination
rules is that it would still be the same mining project interest.
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Valuations
Example 14.10: Steel making operation
As at 2 May 2010, Freiheit Resources owns two adjacent mining
leases. Mining lease 1 is being mined and produces ore to
supply Freiheit's steelworks. The other lease is inactive. Freiheit has
two mining project interests.
In 2015, the mining leases are renewed. The renewals do not change
Freiheit's vertically integrated operation. The 2 May 2010 elements of
the operation are still intact.
In 2017, Freiheit extends its mine into the second mining lease.
Because both of the mining project interests satisfy the upstream
integration tests and were owned by Freiheit on 2 May 2010, the
interests are combined into a single mining project interest.
Some of the ore from an area covered by the second mining lease is put
into the steelworks. Again, the 2010 elements of the operation are
intact because the combination of the two mining project interests
means that the same mining project interest is still supplying the
steelworks (even though the combined interest did not exist at
2 May 2010). The whole of that combined interest can use the
alternative valuation method even if Freiheit exceeds the 10 million
tonnes limit.
In 2018, Freiheit also starts supplying the steelworks with ore from a
second, unrelated, mine. The new mine is not part of a vertically
integrated operation that existed at 2 May 2010. If Freiheit exceeds the
10 million tonnes limit, it would not be able to use the alternative
valuation method for the new mine but it could continue to use it for
the old mine (as extended).
Relationship between different mining project interests
14.82 Special quarantining rules prevent the mining losses and royalty
credits from vertically integrated projects being transferred to other
projects. [Paragraphs 65-20(1)(b) and 100-20(1)(b)]
14.83 Lower than normal resource values could be generated by the
alternative valuation method (because the required valuation methodology
might inflate the value of the downstream capital or because the
prescribed rate of return on downstream capital is too high for a particular
operation). Quarantining the mining losses and royalty credits from an
interest using the alternative valuation method ensures that mining losses
and royalty credits available because of those low values cannot be used
to shield the mining profits of other interests, limiting the effects of any
inappropriately low resource values.
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What is the alternative valuation method?
14.84 The alternative valuation method is a version of the `netback'
method, which starts with a verifiable price and deducts costs to `net
back' to the value at an earlier point. Miners who have not elected to use
the alternative valuation method may use the netback method to value
their taxable resources, but they will have to work out the inputs using the
most appropriate method instead of using those prescribed for the
alternative valuation method.
14.85 The alternative valuation method starts by working out the
amounts for supplying the miner's resources (or something produced
using the resources) for the year. These are the same amounts used as the
basis for working out mining revenue:
· the consideration received or receivable for a supply;
· what would be the arm's length consideration for a supply at
the time and place the resources are (or something produced
using the resources is) exported from Australia; or
· what would be the arm's length consideration for a supply of
something produced using the resources at the time and place
the thing is used by the miner.
How those amounts are worked out is discussed in Chapter 4.
[Section 175-25, steps 1 and 2, and section 175-30]
14.86 The miner then reduces that amount by its post-valuation point
(or `downstream') costs, leaving it with the mining revenue from the
taxable resources. The downstream costs are:
· the miner's downstream operating costs;
· depreciation on the miner's downstream assets; and
· a return on the miner's downstream capital costs.
[Section 175-25, steps 3 and 4]
14.87 It is important to note that the legislation only `reduces' the
amount by those costs; it is not a mathematical subtraction. The
difference is that a reduction cannot produce a figure below zero, while a
subtraction could produce a negative result. That means the value of the
taxable resources worked out under the alternative valuation method can
never be less than zero.
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Valuations
Downstream operating costs
14.88 The miner's downstream operating costs for a mining project
interest are the expenditures the miner necessarily incurs in carrying on
the activities related to the taxable resources from the interest that occur
after the resources have passed the valuation point [paragraph 175-35(1)(a)].
They do not include any expenditure of capital or of a capital nature
[paragraph 175-35(1)(b)].
14.89 Expenditure cannot be deducted as a downstream operating cost
if it would be excluded expenditure in working out the upstream expenses.
This ensures there is a symmetrical treatment of upstream and
downstream expenditure. [Subsection 175-35(2)]
Depreciation of assets
14.90 The alternative valuation method allows a reduction for the
depreciation of assets held by the miner that are used, installed ready for
use, or being constructed for use, in relation to a mining project interest's
activities after the valuation point and before the resources are supplied,
used or exported [subsection 175-40(1)]. The assets themselves might not be
depreciating assets but the calculation will provide a depreciation
deduction as if they were [paragraph 175-40(3)(a)]. Assets that are eligible
for depreciation include improvements to, and fixtures on, land as if they
were separate assets in the same way they are for income tax purposes
[subsection 175-40(7)].
14.91 Depreciation is worked out using the broad approach described
in the uniform capital allowance provisions in Division 40 of the Income
Tax Assessment Act 1997 (ITAA 1997) but is not limited to the prime cost
and diminishing value methods that can be chosen under that Division.
The alternative valuation method allows any method of depreciation that
is accepted for the particular asset in accordance with accounting
principles (for example, the units of production method could also be
available). [Subsections 175-40(2), (3) and (5)]
14.92 However, a miner must use a consistent depreciation method for
a particular asset; it cannot use one method in one year and a different
method in the next. [Subsection 175-40(4)]
14.93 If a miner chooses to use the alternative valuation method in the
MRRT year starting on 1 July 2012, the depreciation of assets the miner
held immediately before 1 July 2012 starts from a value at that date
worked out using the depreciated optimised replacement cost method. In
effect, that value becomes the asset's opening adjustable value for the year
and it would be written-off over the remainder of the asset's effective life.
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Minerals Resource Rent Tax
Assets the miner did not hold at that time would be depreciated from the
time they are acquired, and from their cost. [Paragraph 175-40(3)(d)]
14.94 If a miner does not choose to use the alternative valuation
method in the first MRRT year but chooses to use it in a later year, the
method would depreciate the miner's downstream assets from their
opening adjustable value for that later year. [Subsections 175-40(2) and (3)]
14.95 The legislation does not define `depreciated optimised
replacement cost' but relies on its meaning within the valuation industry.
Broadly, an asset's depreciated optimised replacement cost is the amount
it would cost to buy a new asset of identical or similar utility,
written-down to reflect the shorter remaining life of the actual asset. The
reference to the cost being `optimised' means that it is adjusted to account
for the existing asset having excess capacity or being redundant. In other
words, the depreciated optimised replacement cost of an operation's assets
reflects the cost of replicating the whole operation in the most efficient
way possible, written-down to reflect the age and extent of use of the
existing assets.
14.96 A proportion of the asset's opening adjustable value will be
depreciated in each year, worked out according to the asset's remaining
effective life, as is done under Division 40 of the ITAA 1997. The year's
depreciation will then be apportioned in accordance with the extent of use
of the asset (or its installation for use) in relation to the mining project
interest's downstream activities. [Subsection 175-40(6)]
14.97 Therefore, if an asset is used in both a mining project interest's
upstream and downstream activities, its depreciation will be apportioned
to reflect only the downstream use. If an asset is used in relation to
several mining project interests, its depreciation will be apportioned
between them.
Return on capital costs
14.98 The final amount that reduces the revenue amount to produce
the value of the resource under the alternative valuation method is the
return on capital costs.
14.99 The return is equal to the adjustable value of the assets for which
depreciation was allowed under the previous step, multiplied by the
LTBR + 7 per cent:
Total adjustable values × LTBR + 0.07
[Subsection 175-45(1)]
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Valuations
14.100 This is the same rate of return used to uplift those mining losses
and royalty credits that cannot be applied as allowances in an MRRT year.
However, if the miner is using a transitional accounting period for a
particular MRRT year that is longer or shorter than 12 months, it will
adjust the return by multiplying it by:
Days in the MRRT year
365
so that the miner gets a return that properly reflects the actual number of
days in its MRRT year. [Subsection 175-45(1)]
14.101 If the depreciation allowed for an asset is reduced because it was
not fully used, installed ready for use, or being constructed for use on the
mining project interest's downstream activities for the year, the return on
capital for the asset is reduced by the same proportion.
[Subsection 175-45(2)]
Example 14.11: Applying the alternative valuation method -- under
10 million tonnes
Wind Sun Energy Pty Ltd operates two coal mines, one that supplies
coal to Wind Sun's power station and another that supplies coal for
export. Each is a separate mining venture and therefore each
represents a separate mining project interest.
The operations are unchanged since 2005. In the MRRT year starting
on 1 July 2012, it produces 9 million tonnes of coal, 8 million tonnes
of which it uses in its own power station and 1 million tonnes of which
is exported.
Its downstream operating costs for the year are $100 million. The
opening adjustable value of its downstream assets (namely, the plant at
its power station), worked out using the depreciated optimised
replacement cost, comes to $1.5 billion and their remaining effective
lives are each 20 years.
Wind Sun sells the 1 million tonnes for $120 million. It sells the
electricity it generates using the rest of the coal for $600 million.
Because its production in the year is less than 10 million tonnes, it can
choose to use the alternative valuation method for that year for both of
its mining project interests. To work out the MRRT revenue for the
coal it extracts, it would start by adding together the amounts it derives
from selling the coal and the electricity ($720 million). From that, it
would deduct its $100 million downstream operating costs, its
$75 million downstream depreciation ($1.5b/20 years -- it chooses to
use the prime cost depreciation method), and its $180 million return on
downstream capital ($1.5b × 0.12, assuming a long term bond rate of
5%). That gives Wind Sun a total mining revenue of $365 million
attributable to the taxable resources it produces from the two interests
in that year.
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Minerals Resource Rent Tax
Example 14.12: Applying the alternative valuation method --
10 million tonnes or more
Continuing the previous example, in the next year, Wind Sun is
acquired by another mining company that produces 20 million tonnes
of coal a year. Wind Sun cannot use the alternative valuation method
for its whole operation because its group production is now 29 million
tonnes (that is, its own 9 million tonnes + its affiliate's 20 million
tonnes). However, it could use the method to work out the value of its
resources from the mine supplying its integrated electricity generation
operation.
Wind Sun chooses to use the alternative valuation method for its mine
supplying its vertically integrated transformative operation. It would
have to separate its downstream assets into those used for each
operation (some might have to be apportioned between the two).
Assume that, of the $1.425 billion opening adjustable value of its
downstream assets ($1.5b -- $75m for last year's depreciation),
$1.2 billion relates to the integrated electricity generation operation.
Of its downstream operating costs, $75 million relate to that operation.
For that operation, Wind Sun would start with $600 million for its
electricity sales and deduct its $75 million downstream operating costs,
its $63.16 million depreciation ($1.2b/19) and its $144 million return
on capital ($1.2b × 0.12). That gives it mining revenue for the
resources used in its electricity generation operation of
$317.84 million. It would also work out the MRRT revenue for the
coal it exported but would have to use the normal methods to do that.
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Chapter 15
Accounting for the MRRT
Outline of chapter
15.1 This chapter explains the Minerals Resource Rent Tax (MRRT)
rules for uncommon accounting situations. It covers the rules in Division
195 about the treatment of non-cash benefits, the Division 185 rules about
the treatment of entities that account in a currency other than Australian
dollars, and the rules in Division 190 about how the MRRT law applies to
an entity using an accounting period other than a financial year.
15.2 All legislative references throughout this chapter are to the
Minerals Resource Rent Tax Bill 2011 unless otherwise indicated.
Summary of new law
Non-cash benefits
Barter transactions
15.3 A barter transaction, where an entity provides one non-cash
benefit in return for another, is treated as:
· selling the benefit the entity provides for money equal to the
market value of the benefit it receives in return; and
· using that money to buy the benefit it receives.
Gift transactions
15.4 An entity that gifts a non-cash benefit is treated as:
· selling the benefit for money equal to its market value; and
· gifting that money.
15.5 An entity that receives a non-cash benefit as a gift is treated as:
· receiving money equal to the market value of the benefit it
receives; and
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Minerals Resource Rent Tax
· using that money to buy the benefit.
Currency translation
15.6 A miner's MRRT liability is calculated by measuring amounts
in Australian dollars, even where those amounts are denominated in a
foreign currency. This is similar to how amounts are measured to
determine an income tax liability for the purposes of the income tax law.
15.7 The translation rules for the MRRT are adapted from the
translation rules in Subdivision 960-C of the Income Tax Assessment
Act 1997 (ITAA 1997), apart from several special MRRT translation
rules.
15.8 If an entity has a valid choice in place to use an applicable
functional currency for income tax purposes it will be required to work
out its instalment income, mining profit, pre-mining profit, allowances
and rehabilitation tax offset by reference to that currency rather than
Australian currency. It will also use that functional currency to work out
its accounting profit for the purposes of choosing whether to use the
simplified MRRT.
15.9 If a valid choice to use an applicable functional currency is in
place, an entity will use a two-step translation process to calculate these
amounts. This is the same process a taxpayer with an applicable
functional currency uses to calculate its taxable income for income tax
purposes.
Accounting periods
15.10 An entity that uses an accounting period for income tax other
than the standard 1 July to 30 June financial year, treats that substituted
accounting period as its MRRT year.
15.11 If an entity changes from one accounting period to another, any
overlap between the old and new periods is counted as part of the old
accounting period, which will therefore be a long MRRT year (greater
than 12 months). Any gap between the old and new accounting periods is
treated as a separate, short MRRT year (under 12 months). This ensures
that every financial year is matched by one, and only one, MRRT year.
15.12 Such `transitional' MRRT years can be longer or shorter than
12 months. MRRT amounts that are based on a 12 month period (such as
the low-profit offset) are proportionately adjusted to reflect the length of a
transitional year.
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Accounting for the MRRT
15.13 All entities start their first MRRT year on 1 July 2012, the date
from which the MRRT first applies. Entities using a substituted
accounting period in their first year will therefore have a short first MRRT
year.
Detailed explanation of new law
Non-cash benefits
15.14 The MRRT includes provisions about how to treat transactions
that do not involve money. These provisions are necessary because the
MRRT law is generally written on the assumption that a quantifiable
monetary consideration is involved in a transaction.
15.15 In broad terms, the MRRT non-cash benefit rules convert
non-cash transactions into equivalent transactions denominated in money
to ensure that an exchange of non-cash benefits gets the same treatment as
purchasing those benefits for money (and that a gift of non-cash benefits
is treated in the same way as a gift of money that is then put to acquiring
those benefits). That ensures that there is neither an advantage nor a
disadvantage to using a non-cash transaction. [Section 195-5]
15.16 The non-cash benefit rules deal with two broad types of
non-cash transaction:
· barter transactions, where non-cash benefits are exchanged;
and
· gift transactions, where an entity provides or receives a
non-cash benefit for no consideration.
Barter transactions
15.17 A barter transaction involves an entity providing a non-cash
benefit under an arrangement in which it also receives a non-cash benefit.
In most cases, this would simply be an exchange of non-cash benefits
between two entities but it also covers exchanges of non-cash benefits
involving more entities. [Subsection 195-10(1)]
Non-cash benefits
15.18 A non-cash benefit is property or services in any form except
money [section 300-1, definition of `non-cash benefit']. It covers tangible and
intangible property, including the property embodied by an enforceable
promise (although in practice a promise to provide something that is
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proximately satisfied would be treated in the same way as the thing
actually provided). It also covers any service, including the service of
forgiving some or all of a debt or other enforceable obligation.
Promises to pay money
15.19 The barter transaction rules extend to cover promises to pay
money more than 12 months in the future. That extension is not necessary
in the non-cash benefit rules for income tax, which has separate
mechanisms to deal with the tax treatment of delayed monetary payments.
It is necessary in the MRRT context, which has no similar mechanism but
nonetheless needs to take into account the time value of money (at least
when the timing difference is sufficient to make the difference in values
significant). 6 [Subparagraph 195-10(1)(a)(ii)]
15.20 The provision does not provide a formula to convert the promise
to pay money into a present value, although something of that sort would
usually be involved in determining the market value of the promise. To
avoid the sort of complexity that can be involved in such calculations, the
non-cash benefit rules provide an arbitrary 12 months exception similar to
that provided in the income tax law for `qualifying securities' (see
subsection 159GP(1) of the Income Tax Assessment Act 1936
(ITAA 1936)). The result is that promises to pay money within the next
12 months are treated in the same way as immediate payments of the
promised amount of money. [Subparagraph 195-10(1)(a)(ii) and
subsection 195-10(4)]
Treatment of barter transactions
15.21 The barter rules act to treat an entity as exchanging the non-cash
benefits it provides for an amount of money equal to the market value of
the benefits it receives. It is then treated as spending that money to buy
the benefits it receives. [Subsections 195-10(2) and (3)]
Example 15.1: Barter transaction
Great Southern Mining agrees with Chamarette Excavations to provide
Chamarette with five million tonnes of iron ore to allow it to meet its
supply contracts, in return for Chamarette's agreement to provide
Great Southern with an equivalent amount of ore on demand in the
following year. This is a barter transaction: Great Southern is
exchanging five million tonnes of iron ore for a right to obtain
five million tonnes in the following MRRT year.
6
The `time value of money' is the principle that a given amount of money has more value
today than the same amount promised to be paid in the future (for example, you would
rather have $100 now than a right to get $100 next year).
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Accounting for the MRRT
Great Southern is taken to receive an amount for providing its iron ore
equal to the market value of Chamarette's promise to provide ore in the
following year. Great Southern is also taken to have used that money
to purchase the promise from Chamarette. The purchase of the
promise will have no MRRT consequences for Great Southern but
some part of the sale price it is taken to have received for its ore will be
included in its mining revenue.
Similarly, Chamarette will be taken to have sold its promise to provide
ore to Great Southern, for an amount equal to the market value of the
ore it receives from Great Southern, and to have used the money to buy
that ore. The purchase of the ore will have no MRRT implications for
Chamarette but the consideration for the promise to supply future ore
will give rise to an amount of mining revenue when it makes those
future supplies to Great Southern.
15.22 The money value for both sides of the transaction is determined
by reference to the value of what is received, not what is provided. This
deals with the unusual case where entities exchange things that are not of
equal value. If the money value could differ between the two sides, one of
the entities would be exposed to double taxation and the other might be
able to claim a double deduction.
15.23 If more than one benefit is provided or received as part of the
transaction, a money value would be put on the combined benefits. That
money value would be apportioned between the individual benefits in
proportion to their market values.
Example 15.2: Multiple non-cash benefits
Great Southern Mining enters into a barter transaction with Dickinson
Mining Equipment under which it gives Dickinson five of its old
mining trucks in return for two new trucks. Great Southern is taken to
have sold its five trucks for an amount equal to the market value of the
two new trucks. It would apportion that amount between the five old
trucks to see how much (if anything) to bring to account as mining
revenue by way of a recoupment. That would matter if the trucks had
different values for MRRT purposes (for example, if some of them had
not yet been fully deducted because they were starting base assets), or
if they had different percentages of upstream use, or if they were used
in different projects.
Great Southern would also be taken to have spent that money on
acquiring the new trucks and would apportion that amount between the
two according to their market values for the purposes of working out
its mining expenditure.
15.24 The provisions also handle the possibility of money forming part
of the transaction. For example, one entity might provide one non-cash
benefit in return for another non-cash benefit plus cash. In such cases, the
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money value the rules provide for would be apportioned dollar for dollar
to the cash and the remainder would be divided between the non-cash
benefits.
Example 15.3: Barter transaction involving cash
Suppose that, in the previous example, Great Southern gave five old
trucks plus an amount of money for the two new trucks. The market
value of the two new trucks would be apportioned first to the cash on a
dollar for dollar basis. The remainder would be divided amongst the
five old trucks in proportion to their market values to work out their
sale prices.
15.25 If a non-cash benefit is a promise to provide something later, the
promise is what is being valued, not the thing that is promised. The value
of the promise will be affected by things other than the value of the thing
promised. For instance, it would take into account how far into the future
the promise will be satisfied and the risk of the promisor defaulting.
15.26 The actual delivery of the thing promised does not have a further
MRRT effect (such as an amount of mining revenue or expenditure in the
year the thing promised is provided and received). All MRRT effects will
have been fully accounted for when the non-cash rules converted the
benefits into money, in the same way as if money had actually been paid.
Gift transactions
15.27 The MRRT law includes provisions for non-cash gift
transactions largely for the sake of completeness. Although it is possible
that there could be some non-cash gifts that are relevant to MRRT
activities, they would be fairly rare things.
15.28 The gift provisions work in a similar way to the barter
provisions after, of course, taking into account the one-sided nature of a
gift.
Receiving a non-cash gift
15.29 If an entity receives a non-cash benefit as a gift, it is taken to
have received money equal to the benefit's market value at the time it
receives the benefit. It is also taken to have spent that money to acquire
that benefit. [Subsection 195-15(1)]
15.30 The money would be treated under the MRRT as if it had been
paid and received in the same circumstances in which the benefit was
actually given and received. The receipt would seldom result in an
MRRT effect for the recipient, although it is conceivable that the
particular circumstances of some gifts could produce an effect. For
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Accounting for the MRRT
example, if a State government were to gift land to a miner instead of
refunding mining royalties, the receipt could produce a reduction of
royalty credits or an increase in mining revenue in the same way as a cash
refund would.
Example 15.4: Miner receives free carbon emission units
Lonergan Coal receives 20,000 free emission units for its upstream
operations from the Commonwealth as part of an industry assistance
package under a Clean Energy Package. The units can be used to
offset the company's emission liabilities. Lonergan has to acquire
5,000 further emission units on the market to meet its liability for
emissions related to its upstream operations.
The cost of the 5,000 emission units Lonergan purchases is mining
expenditure. It is taken to have received cash equal to the value of the
20,000 emission units it received from the Commonwealth and to have
used that cash to acquire the 20,000 units. That `cost' is also
Lonergan's mining expenditure. The gift of the notional cash is an
advance recoupment of the notional expenditure, so is mining revenue
for Lonergan. The net result in this case is that Lonergan reduces its
mining profit by the amount of its actual expenditure on the 5,000
emission units.
15.31 The treatment of the consequent notional payment of money to
acquire the non-cash benefit could produce an MRRT effect if an actual
purchase of the benefit would have done so. For example, if a farmer gifts
a miner some surplus blasting caps for use in its mining activities, the
miner's deemed purchase could be mining expenditure in the same way as
could an actual purchase.
Giving a non-cash gift
15.32 If an entity provides a non-cash benefit as a gift, it is taken to
have sold the non-cash benefit at the time it provides it for money equal to
the benefit's market value. It is also taken to have gifted that money in
the same circumstances as it gifted the non-cash benefit.
[Subsection 195-15(2)]
15.33 There could be an MRRT effect arising from the notional sale of
the benefit that is taken to have occurred.
Example 15.5: Miner gifts a mining vehicle
Friendly Mining gifts an old 4-wheel drive vehicle to the local wildlife
refuge. It would be taken to have sold the vehicle for money equal to
its market value and to have gifted the money to the refuge. If the
vehicle had been used 50 per cent in Friendly's upstream mining
operation, it would include half the notional amount in its mining
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Minerals Resource Rent Tax
revenue as a recoupment, in the same way as if it had actually sold the
vehicle. If a real gift of money to the refuge in the same circumstances
would have produced an MRRT effect (for instance, as mining
expenditure), the notional gift of money produces the same effect.
15.34 The notional gift of the money would seldom produce an MRRT
effect. However, in some cases the circumstances of a gift by a miner
would be sufficiently related to upstream mining activities to qualify as
mining expenditure. That would be determined by reference to the
circumstances in which the miner made the non-cash gift.
Currency translation
Translation of foreign currency amounts to Australian dollars
15.35 A miner's MRRT liability is calculated in Australian dollars.
Translation rules are required so amounts in foreign currency are
appropriately taken into account in calculating this liability.
15.36 The core translation rule provides that, for MRRT purposes, an
amount of foreign currency is translated into, or expressed in, Australian
dollars. This is similar to the core translation rules for income tax
purposes. [Subsection 185-10(1)]
15.37 Foreign currency is defined as a currency other than Australian
currency. This is the same definition used for income tax purposes.
[Section 300-1, definition of `foreign currency']
15.38 The translation rule applies to amounts generally and is intended
to be interpreted broadly. An amount can include, but is not limited to:
· an amount of an expense;
· an amount of an obligation;
· an amount of a liability;
· an amount of a receipt;
· an amount of a payment;
· an amount of consideration; or
· a value.
[Subsection 185-10(2)]
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Accounting for the MRRT
15.39 Foreign currency amounts need to be translated into Australian
dollars at the applicable exchange rate. The exchange rate that is to be
used is the exchange rate that would be applicable if the translation were
being done for the purposes of Subdivision 960-C of the ITAA 1997.
[Subsection 185-10(3)]
15.40 In some cases, an amount taken into account for MRRT
purposes is the sum or the result of two or more other amounts. Any
amounts in foreign currency that are elements in the calculation of another
amount are translated before calculating the other amount. This is similar
to the approach taken for income tax purposes. [Subsections 185-10(4) and
185-15(6)]
15.41 The only exception is calculating an entity's profit for the
purposes of the simplified MRRT method. The reason for this exception
is to not require the translation of the components of a miner's accounting
profit. The accounting rules should determine that profit (which may
involve translating amounts according to accounting principles), with the
MRRT translation rules only applying to convert the final outcome into
Australian dollars (if necessary) on the last day of the MRRT year.
[Subsections 185-10(5), 185-15(6) and 185-25(1) (table item 7)]
Functional currency rules
15.42 The functional currency rules in MRRT automatically apply to
an entity that has a valid choice in effect to use an applicable functional
currency for income tax purposes. The functional currency rules apply to
all of the entity's mining project interests and pre-mining project interests
while it is required to use an applicable functional currency for income tax
purposes. [Subsection 185-15(1)]
15.43 The MRRT functional currency rules allow miners that have
made a valid choice under item 1 or item 2 in the table in
subsection 960-60(1) of the ITAA 1997 to account for individual MRRT
related transactions using a unit of account (being the applicable
functional currency) other than Australian dollars. However, the net
amount from those transactions is translated into Australian dollars for the
purposes of accounting for MRRT.
How are amounts translated using an applicable functional currency?
15.44 Broadly, when an entity is required to use an applicable
functional currency for MRRT:
· all amounts that are not in the applicable functional currency
are translated to that currency rather than to Australian
dollars; and
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Minerals Resource Rent Tax
· the instalment income, mining profit, pre-mining profit,
mining allowances, accounting profit for the simplified
MRRT and rehabilitation tax offsets of the entity are
translated from the applicable functional currency to
Australian dollars at the end of the MRRT year.
15.45 This follows the approach used for income tax purposes and
potentially involves two translations. This is explained below.
First translation rule
15.46 There are situations where an entity undertakes transactions in a
currency other than its applicable functional currency. For the purposes of
working out:
· the instalment income of the entity for an instalment quarter
in the MRRT year;
· the mining profit for each mining project interest the entity
has in the MRRT year;
· the pre-mining profit for each pre-mining project interest the
entity has in the MRRT year;
· the amount of an allowance component relating to each
mining project interest and pre-mining project interest the
entity has in the MRRT year;
· whether the entity may elect to use the simplified MRRT
method for the MRRT year; and
· the amount of a rehabilitation tax offset for the entity,
an amount that is not in the miner's applicable functional currency must
first be translated into that currency, so that a consistent unit of
measurement is used to calculate the items. [Subsections 185-15(2) and (3)]
15.47 The amounts that are subject to the first translation rule
(translation into the miner's functional currency) include, but are not
limited to:
· an amount of an expense;
· an amount of an obligation;
· an amount of a liability;
· an amount of a receipt;
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Accounting for the MRRT
· an amount of a payment;
· an amount of consideration;
· a value; or
· a monetary limit or other amount set out in any
Commonwealth law.
[Subsection 185-15(4)]
15.48 The exchange rate for translating these amounts is the same
exchange rate that would be used if the translation was done for income
tax purposes [subsection 185-15(5)]. For income tax purposes, the functional
currency translation rules, including the applicable exchange rates, follow
the principles set out in the rules for translating foreign currency amounts
to Australian dollars (section 960-80 of the ITAA 1997).
Second translation rule
15.49 For income tax purposes, a taxpayer's taxable income is
calculated in the applicable functional currency and then translated into
Australian dollars. The same methodology has been adopted for the
MRRT to calculate:
· mining profit;
· pre-mining profit;
· the amount of an allowance component that is applied to
work out an MRRT allowance for the MRRT year; and
· the amount of a rehabilitation tax offset for the entity.
[Subsection 185-15(7)]
15.50 These amounts are calculated in the applicable functional
currency and then translated into Australian dollars at the end of the
MRRT year. The exchange rate for this translation is the exchange rate
that would be used if the translation was done for income tax purposes.
[Subsections 185-15(7) and (8)]
15.51 Only so much of the allowance component that is necessary to
reduce the mining profit to nil can be an MRRT allowance in a particular
MRRT year. It is only that amount of the allowance component that is
applied to form the MRRT allowance for that MRRT year that is
translated to Australian dollars. Since the unused portions of any royalty
credits, pre-mining losses, mining losses and starting base losses are
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Minerals Resource Rent Tax
simply an `amount' in the calculation of the MRRT allowance, they will
stay in the applicable functional currency and are uplifted in that currency.
Example 15.6: Translating units from functional currency into
Australia dollars
Langstraat Mining Co (Langstraat) has chosen to use the Euro as its
functional currency for the purposes of Subdivision 960-D of the
ITAA 1997.
All amounts are translated into the Euro in order to calculate
Langstraat's mining profit. After translating these amounts, they are:
· mining revenue of 600 million; and
· mining expenditure of 120 million.
Langstraat also applies these allowance components to work out its
MRRT allowance for the year.
· royalty credits of 150 million;
· unused mining losses of 60 million (after uplift);
· starting base losses of 120 million.
For the purposes of the example, assume the applicable exchange rate
is 1A$ = 0.75.
In accordance with the second translation rule, the mining profit of
480 million (mining revenue minus mining expenditure) is translated
into A$640 million.
The allowance components that are applied to calculate the MRRT
allowances are translated into Australian dollars in accordance with the
second translation rule:
· Royalty allowance A$200 million (150m/0.75)
· Mining loss allowance A$80 million (60m/0.75)
· Starting base allowance A$160 million (120m/0.75)
· Total allowances = A$440 million
MRRT Profit: A$200 million (mining profit minus allowances)
MRRT Liability: A$45 million (MRRT profit × 0.225)
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Accounting for the MRRT
Foreign resident operating through a permanent establishment
15.52 In some circumstances, a miner may be a foreign resident that is
carrying on the operations of its mining project interest or pre-mining
interest through a permanent establishment for which the miner has
chosen to use a functional currency. The MRRT functional currency rules
apply to that permanent establishment. [Section 185-20]
Special translation rules
Translating the amount of instalment income
15.53 The amount of instalment income for a quarter is subject to the
second translation rule and is translated from the entity's applicable
functional currency into Australian dollars at the exchange rate applicable
on the last day of the instalment quarter. [Subsection 185-25(1), item 1 in the
table]
Translating the mining profit or pre-mining profit
15.54 The amount of mining profit or pre-mining profit is translated
from the entity's applicable functional currency into Australian dollars at
the exchange rate applicable on the last day of the MRRT year.
[Subsection 185-25(1), item 2 in the table]
Translating the allowance component used for an MRRT allowance
15.55 Any allowance component applied in working out an MRRT
allowance in an MRRT year is translated from the entity's applicable
functional currency into Australian dollars. Where this happens, these
amount(s) are translated into Australian dollars at the exchange rate
applicable on the last day of the MRRT year to which the allowance
component relates. [Subsection 185-25(1), item 3 in the table]
Translating amounts already recognised for MRRT purposes in a different
currency
15.56 There may be instances where an entity is required to take into
account an amount that has already been recognised in a previous MRRT
year (such as the decline in value of starting base assets). In these cases,
an entity will have to translate the amount if it is now accounting for its
MRRT obligations in a different currency. The amount is translated at the
applicable exchange rate on the first day of the current MRRT year.
[Subsection 185-25(1), item 4 in the table, and subsection 185-25(2)]
15.57 For example, where an entity switches from using Australian
dollars to an applicable functional currency, amounts that have been taken
into account in an earlier MRRT year will need to be translated into the
functional currency if they need to be taken into account in the current
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MRRT year. This may also arise if an entity changes its applicable
functional currency to another applicable functional currency, or stops
using a functional currency.
Example 15.7: Starting to use a functional currency
At the end of the 2014-15 MRRT year, Black Coal Mining Co has
unused mining losses of $100 million. This amount had been recorded
and accounted for in Australian dollars as Black Coal has not made a
functional currency choice under section 960-60 of the ITAA 1997 that
applies in that MRRT year.
As a result of a major corporate reorganisation in the 2015-16 MRRT
year, Black Coal has a new parent company, Salem Mining. Salem is a
foreign resident company based in the United States. Black Coal
makes a valid choice to use US dollars as its applicable functional
currency under section 960-60 of the ITAA 1997 for the 2015-16
income tax year.
As Black Coal has made a functional currency choice for income tax
purposes, it is required to use that applicable functional currency for its
corresponding MRRT year.
Black Coal will need to translate the amount of unused mining losses
carried forward from the 2014-15 year, that were previously
denominated in Australian dollars, into its applicable functional
currency (US dollars). It will need to make that translation using the
exchange rate that applied on the first day of the 2015-16 MRRT year.
Transfer or split of a mining project interest or pre-mining project interest
15.58 Special translation rules apply if:
· there is a transfer or split of a mining project interest;
· the new miner recognises amounts for MRRT purposes in a
currency that is different to that being used by the original
miner; and
· as a result of the transfer or split, the new miner is required to
translate an amount.
15.59 Where this happens, the amounts are translated by the new
miner at the exchange rate applicable on the day the transfer or split
happens. [Subsection 185-25(1), item 5 in the table]
15.60 An equivalent rule applies to the transfer or split of a pre-mining
project interest. [Subsection 185-25(1), item 6 in the table]
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Accounting for the MRRT
Events that happened before the current choice took effect
15.61 The need for a constant unit of account, combined with the
ability to choose an applicable functional currency, raises the question of
how to address an event that precedes the choice but is taken into account
after that choice takes effect. For income tax purposes, a special
translation rule deals with these cases (subsection 960-85 of the
ITAA 1997). A similar rule applies for the MRRT where an entity is
required to translate an amount to the applicable functional currency and:
· the amount is attributable to an event that happened, or a
state of affairs that arose, before the current choice took
effect; and
· the amount has not previously been taken into account under
the MRRT in relation to a project interest or a pre-mining
project interest.
[Subsection 185-25(3)]
15.62 The following two-stage translation process applies if there is no
previous choice in effect at the time of the event:
· First, the amount is translated into Australian dollars at the
rate prevailing at the event time.
· Second, the Australian dollar amount is translated into the
functional currency (if necessary) at the exchange rate
prevailing at the start of the current MRRT year.
[Subsection 185-25(3), item 1 in the table]
15.63 Where a previous functional currency choice has been made, the
same process applies, except the previous applicable functional currency
is substituted for Australian currency. [Subsection 185-25(3), item 2 in the table]
Example 15.8: Events before a functional currency is used
Trojan Co has a starting base asset with a base value of A$1 million at
the beginning of its 2013-14 MRRT year. It makes a valid choice to
use the US dollar as its applicable functional currency from the start of
the 2014-15 income tax year. Since the base value of the asset is an
amount that is attributable to an event that happened before the
functional currency rules for MRRT applied, it is translated into
US dollars at the applicable exchange rate at the start of the 2014-15
MRRT year.
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Minerals Resource Rent Tax
Accounting periods
15.64 The standard MRRT year follows a financial year, running from
1 July in a calendar year to 30 June in the following calendar year. This is
the same as the standard income year used for income tax purposes.
15.65 However, the income tax law allows taxpayers to use accounting
periods that vary from the standard year under section 18 of the
ITAA 1936. Historically, these `substituted accounting periods' were
provided for taxpayers in agricultural businesses because the seasonal
nature of their activities could conflict with the timing of income tax
obligations arising under a standard year. Nowadays, substituted
accounting periods are more commonly used to allow a company
operating in Australia to align its accounting period with those of its
foreign parents and associates, to simplify the tasks involved in group
accounting.
15.66 The MRRT law also provides for entities to use substituted
accounting periods. However, unlike the income tax model, substituted
accounting periods are not optional under the MRRT. Entities that have a
substituted accounting period for income tax purposes must use the same
substituted accounting period for MRRT purposes. Ensuring that entities
use the same accounting period for MRRT and for income tax simplifies
the interaction between MRRT and income tax. It is not necessary for
entities to track separately their expenses and revenue that are relevant to
both taxes if the accounting for both uses the same period. [Sections 190-5
and 190-10]
15.67 Entities use a substituted accounting period once they have
applied for, and been granted leave by, the Commissioner of Taxation
(Commissioner) to use that period. The Commissioner publishes
information outlining the circumstances in which leave is likely to be
given.
15.68 A number of exotic entities, such as venture capital limited
partnerships, have different accounting periods for income tax purposes
under section 18A of the ITAA 1936. These periods stop and start when
one of those entities changes its status, ensuring that an entity is of only
one type within each accounting period. The MRRT does not use those
special accounting periods because the MRRT taxes all entities in the
same way. Accordingly, the MRRT annual accounting period is not
divided into sub-periods for MRRT purposes, which avoids the additional
compliance costs associated with such an approach.
15.69 An entity that uses a substituted accounting period for MRRT
purposes still accounts for its MRRT liability on an annual basis but does
so over the substituted accounting period rather than the standard MRRT
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Accounting for the MRRT
year. It still lodges its MRRT return and pays its MRRT liability by the
first day of the sixth month after the end of its MRRT year. It still pays
quarterly MRRT instalments by the 21st day after the end of each quarter
but its payment dates vary from those of an entity using a standard
financial year.
Changing accounting periods
15.70 Substituted accounting periods work just like standard MRRT
years as long as the period does not change. The accounting is still done
for a 12 month period; but a different 12 month period. Complications
occur only when an entity changes from one accounting period to another.
This could be when an entity changes from a standard accounting period
to a substituted accounting period, or vice versa, or when it changes from
one substituted accounting period to a different substituted accounting
period.
15.71 The complications arise because an accounting period has to be
12 months long (see section 18 of the ITAA 1936). That means that,
when there is a change from one 12 month period to another, there will be
a period that either falls into both the old and the new accounting periods
or into neither of them.
15.72 There are no income tax provisions that provide an explicit
treatment for these situations. The Commissioner administers them by
using special assessments under section 168 to ensure that, for income tax
purposes, all amounts are properly accounted for and are not accounted
for more than once. That treatment is supported by the decision of the
Administrative Appeals Tribunal in Norwich Superannuation Services Pty
Ltd v FC of T (99 ATC 2015; (1998) 40 ATR 1091).
15.73 In contrast to the income tax law, the MRRT law provides
explicit rules to deal with entities changing their accounting periods. It
does so either by adjusting the length of the old or new accounting
periods, or by creating an interim accounting period [subsection 190-15(1)].
It also proportionately adjusts amounts that require a 12 month accounting
period to reflect the adjusted period being longer or shorter than
12 months [sections 190-20 and 190-25].
Both periods end in the same 1 December to 30 November period
15.74 If the old accounting period and the new accounting period both
end within the same 12 months from 1 December of one calendar year to
30 November of the following calendar year, there will be an overlap
between the accounting periods. In that case, the old accounting period is
extended to the end of the first of the new accounting periods. That
means the old accounting period comprises what would have been the old
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Minerals Resource Rent Tax
and the new accounting periods and so will be longer than 12 months.
Accounting periods after that transitional year are 12 months long (unless
the entity changes its accounting period again). This approach ensures
that every financial year is matched by one, and only one, MRRT year.
[Subsection 190-15(2)]
Example 15.9: Overlap between old and new accounting periods
A miner changes from a standard accounting period ending on
30 June 2014 to an accounting period ending on 30 September 2014.
The new accounting period, which replaces the 2013-14 financial year,
is called a `late balance period' because it ends after the end of the
financial year.
The period from 1 October 2013 to 30 June 2014 falls into both the old
and the new accounting periods. Therefore, the old accounting period
is extended to the end of the new accounting period. That means the
accounting period that matches the 2013-14 financial year will be
15 months long (running from 1 July 2013 to 30 September 2014).
Accounting periods after that will run for 12 months, from
1 October to 30 September.
Each period ends in a different 1 December to 30 November period
15.75 If the new accounting period ends in a different 1 December to
30 November period than the old accounting period, there can be either an
overlap between the periods or a gap between them. The approach taken
to determine the length of the transitional year depends on whether there
is an overlap or a gap between the old and new accounting periods.
Again, the approach ensures there is one MRRT year to match each
financial year.
An overlap between the old and new periods
15.76 If there is an overlap, it is allocated to the old accounting period
and taken away from the new accounting period. That means the old
accounting period will be 12 months long and the first of the new
accounting periods will be shorter than 12 months. [Subsection 190-15(3)]
Example 15.10: Overlap between old and new accounting periods
A miner changes from an accounting period ending on 31 August 2014
to one ending on 31 March 2015. The new accounting period, which
replaces the 2014-15 financial year, is called an `early balance period'
because it ends before the end of the financial year.
These accounting periods end in different 12 month periods (because
1 December occurs between their end dates) but the periods do overlap
(the period from 1 April 2014 to 31 August 2014 falls into both of
them).
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Therefore, the old accounting period ends on 31 August 2014, as usual,
but the new accounting period is shortened to the seven months from
1 September 2014 to 31 March 2015. Later accounting periods will be
12 month periods, from 1 April to 31 March.
A gap between the old and new periods
15.77 If there is a gap, the old and new accounting periods each run for
12 months as normal and the gap is treated as a separate MRRT year.
[Subsection 190-15(4)]
Example 15.11: Gap between old and new accounting periods
Solldt Mines Pty Ltd changes from an accounting period ending on
30 November 2014 to one ending on 31 January 2016.
These accounting periods end in different 12 month periods (because
1 December occurs (twice) between their end dates) but this time the
periods do not overlap. Instead, there is a gap between them:
December 2014 and January 2015 occur in neither period.
Therefore, Solldt's old and new accounting periods run for 12 months
as normal and the two months between them are a separate MRRT
year. The old accounting period is a late balance period for the
2013-14 financial year. The new accounting period is an early balance
period for the 2015-16 financial year. The two months between is the
accounting period for Solldt that matches the 2014-15 financial year.
Adjusting amounts for long and short accounting periods
15.78 Many amounts under the MRRT law are designed to work on an
annual (12 months) basis. For example, a miner with a mining profit of
$50 million or less in a year has a low-profit offset that reduces its MRRT
liability to nil for that year. Such amounts would not be calculated
correctly if they were based on an accounting period longer or shorter than
12 months. With the low-profit offset, for example, a miner with a
transitional accounting period of 18 months would be more likely to be
over the $50 million profit than if the period had been 12 months long and
so could lose the benefit of the offset. For a short transitional period, it
would be easier to come under the $50 million profit threshold.
15.79 To deal with such cases, amounts that count towards thresholds
like the $50 million profit are adjusted proportionately to reflect the length
of the accounting period. This is done by multiplying them by:
365
Days in the transitional accounting period
[Subsection 190-20(1)]
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Minerals Resource Rent Tax
15.80 The result is that the amounts are increased for the purposes of
working out whether a threshold is crossed in a short transitional
accounting period and decreased for such purposes in a long transitional
accounting period. This ensures the miner is neither advantaged nor
disadvantaged when it changes its accounting period.
15.81 The amounts that are adjusted are those that count towards
working out:
· a miner's `group mining profit', `share of group mining
profit' and `group MRRT allowances' for the purposes of
working out what low-profit offset the miner is eligible for;
· whether a miner's `group production of taxable resources' is
under 10 million tonnes for working out its eligibility to use
the alternative valuation method; and
· a miner's profit for the purposes of determining its eligibility
to use the simplified MRRT method.
[Subsection 190-20(1)]
Example 15.12: Low-profit offset in a transitional accounting period
New Valley Mining has a transitional accounting period of 15 months
for the 2013-14 financial year, ending on 30 September 2014. In that
period, it makes a mining profit of $75 million and has MRRT
allowances of $10 million. The MRRT year of its affiliate, Old Ridge
Mining, is the standard 2013-14 financial year. Old Ridge makes a
mining profit of $23 million and has MRRT allowances of $3 million
for that year.
New Valley would multiply its mining profit and its MRRT allowances
by 365/457 for the purposes of working out its eligibility for the
low-profit offset. Old Ridge's figures would not be adjusted because it
is using a 12 month accounting period. New Valley's adjusted mining
profit would be $60 million ($75m × 365/457) and its adjusted MRRT
allowances would be $8 million ($10m × 365/457). The group's
mining profit would be $83 million ($60m + $23m) and the group's
MRRT allowances would be $11 million ($8m + $3m).
Applying the low-profit offset formula, would produce an offset for
New Valley of $976,500 ($4.34m × .225) and an offset for Old Ridge
of $373,500 ($1.66m × .225).
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Accounting for the MRRT
Further adjustment for the low-profit offset
15.82 In the case of the low-profit offset, it is necessary to adjust the
amount of the offset before applying it. This addresses the fact that, in
calculating the offset, the mining profit is increased for a short accounting
period, or decreased for a long accounting period, and therefore results in
an annualised offset amount that is not proportionate to the mining profit
of the miner for the actual transitional period.
15.83 The further adjustment multiplies the unadjusted offset by:
Days in the transitional accounting period
365
to proportionately adjust the offset to the right amount for the length of
the actual accounting period being used. [Subsection 190-20(2)]
Example 15.13: Further adjustment for the low-profit offset
Continuing the previous example, New Valley would multiply its
$976,500 offset figure by 457/365 to get a final offset of $1.22 million.
Old Ridge would not adjust its $373,500 offset figure because Old
Ridge is using a 12 month accounting period, so its offset and its
mining profit are already worked out for a 12 month period.
Special adjustment for the simplified MRRT method
15.84 One of the eligibility tests for using the simplified MRRT
method is that:
· the miner's group profit (that is, the profits of the miner and
its related entities) is under $250 million for the year; and
· neither the miner nor any of those related entities has a
mining project interest whose profits for the year are not at
least four times its liability for mining royalties for the year
(after adjusting for any recoupment of royalties).
15.85 If the miner is in a transitional accounting period, its group
profit would be adjusted by the normal rule for annualising transitional
accounting period figures. A special adjustment ensures that the same
thing is done for the mining royalties (after adjusting for any recoupment)
by multiplying them by:
365
Days in the transitional accounting period
[Subsection 190-20(3)]
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Uplifts for transitional accounting periods
15.86 The MRRT law uplifts the values of a number of things from
one year to the next. For example, an unused mining loss from one year is
uplifted by the long term bond rate plus 7 per cent (LTBR + 7 per cent)
for use in the next year.
15.87 In all such cases, the uplift factor for the year following a
transitional accounting period is indexed by:
Days in the transitional accounting period
365
That produces the same result as uplifting the amount on a daily basis,
thus properly reflecting the number of days in the transitional period.
[Section 190-25]
Example 15.14: Uplifting a loss from a transitional accounting period
Exoform Tunnelling makes a mining loss of $4 million for its
2016-17 MRRT year, which was a nine month transitional accounting
period ending on 30 March 2017. Exoform would normally uplift that
loss for use in 2017-18 by multiplying it by the 2016-17
LTBR + 7 per cent. Instead, it has to index that uplift figure by
274/365. Assuming the long term bond rate in 2016-17 was 5.5 per
cent, it would get an adjusted uplift factor of:
(0.055+1.07) 274/365
which comes to 1.09. Multiplying 2016-17's $4 million loss by 1.09,
would produce an uplifted loss of $4.37 million for Exoform to use in
2017-18.
Application and transitional provisions
Accounting periods
15.88 The MRRT only applies from 1 July 2012. That means that all
entities using a substituted accounting period when the MRRT
commences on 1 July 2012 have a short first MRRT year covering the
period from 1 July 2012 until the end of their accounting period.
[Schedule 4 to the Minerals Resource Rent Tax (Consequential Amendments and
Transitional Provisions) Bill 2011, item 10]
15.89 The adjustments applicable for transitional accounting periods
apply to entities where their first MRRT year is not a 12 month
accounting period.
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Chapter 16
Entities
Outline of chapter
16.1 This chapter explains:
· how Division 215 of the Minerals Resource Rent Tax
Bill 2011 (MRRT Bill) provides for groups of entities that
have formed a consolidated group for income tax purposes to
also choose to consolidate for Minerals Resource Rent Tax
(MRRT) purposes. An MRRT consolidated group has lower
compliance costs because it is treated as a single entity for
MRRT purposes; and
· how the MRRT treats partnerships, trusts and unincorporated
associations.
16.2 All legislative references throughout this chapter are to the
MRRT Bill unless otherwise indicated.
Summary of new law
Consolidated groups
16.3 A group of entities that is a consolidated group or a multiple
entry consolidated (MEC) group for income tax purposes can choose to
consolidate for MRRT purposes. It must notify the Commissioner of
Taxation (Commissioner) of its decision to do so.
16.4 An MRRT consolidated group is treated as a single entity, so
that the group's mining project interests are treated as being those of the
head company of the group and the group's internal transactions are
usually ignored for MRRT purposes. However, the members of the group
will be jointly and severally liable for paying the head company's MRRT
liabilities if the head company does not pay them.
16.5 An entity that joins an MRRT group (when the group forms or
because it is acquired by the group) transfers its mining project interests
and pre-mining project interests to the head company of the group. For
MRRT purposes, when an entity leaves a consolidated group, the head
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Minerals Resource Rent Tax
company transfers to it the interests (and parts of interests) the entity takes
with it.
16.6 Changes in a group's head company, and certain conversions
from a MEC group to a consolidated group (and vice versa), lead to
rollovers under which the MRRT treatment that applied to the old head
company is inherited by the new head company, ensuring a continuity of
treatment for the group.
Partnerships, trusts and unincorporated associations
16.7 The MRRT taxes partnerships, trusts and unincorporated
associations as entities. Because they are not legal persons, the liability
for paying amounts owed by a partnership, trust or unincorporated
association, and for satisfying their other MRRT obligations, is imposed
on the partners, the trustees, and the members of the association's
committee of management respectively.
Detailed explanation of new law
Consolidated groups
16.8 Company groups have been able to consolidate for income tax
purposes since 2002. The broad effect of consolidating is that the group is
treated as a single entity, with all the assets and activities of the group
treated as belonging to the head company for income tax purposes, rather
than to the various group entities that actually own those assets or conduct
those activities. The effect is that intra-group transactions are ignored for
income tax purposes, reducing the group's tax compliance costs.
16.9 The MRRT consolidation rules achieve the same thing, reducing
a group's compliance costs by treating the group as a single entity for
MRRT purposes. [Section 215-5]
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Entities
Effects of consolidating for MRRT purposes
16.10 Subsidiary members of a consolidated group, or a MEC group, 7
that has chosen to consolidate for MRRT purposes, are treated as being
parts of the group's head company (rather than separate entities) for these
MRRT purposes:
· working out the mining project interests and pre-mining
project interests the entities have;
· working out the MRRT payable in relation to those interests;
· working out the allowance components that arise for those
interests for an MRRT year; and
· working out the entities' instalment income for an MRRT
instalment quarter.
[Section 215-15]
16.11 This means that all the mining project interests and pre-mining
project interests of the group are treated as being the interests of the head
company. If an interest is transferred between two entities in the group,
the transfer is ignored for MRRT purposes in the same way it would be if
any single entity reorganised the management of its interests.
16.12 Any other transactions conducted within the group are also
ignored. For example, if one group entity provides another with services
on one of its mine sites, the MRRT will apply in the same way it would if
the head company had provided those services to itself from within its
organisation. No mining expenditure will be incurred in relation to that
transaction.
16.13 Of course, there could be mining expenditure from the provision
of those services. The salaries the service provider pays its employees
would be mining expenditure of the head company, as would the costs of
the assets the service company acquires from outside the group to use in
the group's upstream mining activities.
16.14 Similarly, if taxable resources are supplied by one entity in the
group to another, the supply will be ignored in the same way it would if
the head company had moved its resources from its mining division to its
7
MEC groups are, in very broad terms, groups of Australian entities whose real head
company would be a foreign resident. Instead of that company being the group's head
company, the group chooses one of the first tier Australian entities to be its head company.
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Minerals Resource Rent Tax
transport or processing division. No mining revenue will arise from such
a supply.
16.15 This does not mean that there can be no consequences from
internal group activities. An export of resources to an overseas site owned
by a group member would be an export rather than a supply, just as it
would be if a single entity exported resources to its own overseas
facilities.
16.16 Similarly, transferring a mining asset from a mining project
interest of one group member to a mining project interest of another
member would still result in adjusting the mining revenue and mining
expenditure of each of those interests, just as it would if those interests
were actually held by the same entity.
16.17 A group that chooses to consolidate for MRRT purposes will be
able to do some things that a group that does not consolidate would not be
able to do. For example, the group would combine project interests held
by different members of the group if those interests satisfy the upstream
integration test or the downstream integration test. Those things could
otherwise only happen to interests held by the same entity.
Example 16.1: The `single entity' rule
King Resources Co and Wills Steelworks Co are subsidiaries of
RO Burke Enterprises Pty Ltd. They have formed a consolidated
group for income tax purposes and choose to form one for MRRT
purposes.
King has a mining project interest that provides iron ore to Wills,
which transforms it into steel. The steel is supplied to a customer in
Australia. Due to the effect of the single entity rule, the mining project
interest and the steelworks operation are both treated as being those of
RO Burke. Therefore, a mining revenue event happens for the mining
project interest when the steel is supplied to the customer, not when the
ore is supplied to the steelworks. RO Burke has the MRRT liability for
the mining project interest, not King.
Example 16.2: The `single entity' rule
Lewis Coal Co and Clark Mining Co are subsidiaries of Sacagawea
Discoveries Pty Ltd. They have formed a consolidated group for
income tax purposes and choose to form one for MRRT purposes.
Lewis and Clark each has a mine. The coal from those mines is
blended to form the final product supplied to their Australian customer.
Sacagawea has made the downstream integration choice for the group,
so the two mines are treated as a single mining project interest
Sacagawea has. When the blended coal is supplied, there will be a
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Entities
mining revenue event that will work out mining revenue for
Sacagawea based on the proportion of the consideration that is
reasonably attributable to the form and location of the coal when it was
at its valuation point. The single entity rule means that Sacagawea will
have the MRRT liability for one mining project interest rather than
Lewis and Clark having separate liabilities for separate interests.
16.18 When a group consolidates for MRRT purposes, all the mining
project interests and pre-mining project interests of the group's subsidiary
members are treated as having been transferred to the head company of
the group. This is discussed further below. [Section 215-20]
Choosing to consolidate for MRRT purposes
16.19 A group can choose to consolidate for MRRT purposes if it is an
income tax consolidated group or MEC group. [Subsection 215-10(1)]
16.20 It must also have previously notified the Commissioner that it
has consolidated for income tax purposes. This allows the Commissioner
to verify that the group is eligible to consolidate for MRRT purposes.
[Subsection 215-10(2)]
16.21 After it chooses to consolidate for MRRT purposes, the group's
head company (or provisional head company in the case of a MEC group)
must give the Commissioner notice of the choice in the approved form
within 21 days (or within such further time as the Commissioner allows).
This is different from the position for income tax law (where the choice is
notified with the year's income tax return) because of the interaction of
the MRRT instalments system and the MRRT consolidation rules.
[Subsection 215-10(3)]
16.22 The choice has effect on the day it was made and continues to
have effect for as long as the group exists. [Subsection 215-10(4)]
16.23 There are some cases where a group technically ceases to exist
because it is converted into a different sort of group. This is the situation
with a MEC group that becomes a consolidated group (see section 703-55
of the Income Tax Assessment Act 1997 (ITAA 1997) and with a
consolidated group that becomes a MEC group (see section 719-40 of the
ITAA 1997). A choice to consolidate for MRRT purposes, made before
such a conversion, continues to have effect, despite the group technically
ceasing to exist in those cases, because the head company of the group
after the conversion inherits the history of things done by the head
company before the conversion. [Section 215-55]
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Minerals Resource Rent Tax
16.24 A choice to consolidate for MRRT purposes, once made, cannot
be unmade and cannot be altered. [Schedule 1 to the Minerals Resource Rent Tax
(Consequential Amendments and Transitional Provisions) Bill 2011 (MRRT (CA&TP)
Bill), item 8, section 119-10 of Schedule 1 to the Taxation Administration Act 1953
(TAA 1953)]
Joining and leaving a consolidated group
Joining a group
16.25 Entities can join a consolidated group or MEC group in two
broad ways. They can join when the group forms or they can join when
the group acquires the entity some time after the group is formed.
Complex allocable cost amount calculations can be involved for income
tax purposes when an entity joins a consolidated group because the cost
bases of the assets the entity brings with it are reset to reflect the joining
entity's economic cost to the group. Those calculations do not apply for
MRRT purposes when an entity joins a group.
16.26 Instead, the assets the joining entity brings with it will become
the assets of the head company because of the single entity rule. The
transfer of the assets will not give rise to mining revenue or expenditure
for either the head company or the joining entity so that, in effect, the
head company will inherit the joining entity's MRRT treatment of the
assets. [Sections 120-15 and 215-15]
16.27 When an entity joins a group (whether because the group is
formed or because the group acquires the entity), it is treated as
transferring its mining project interests and pre-mining project interests to
the group's head company. [Section 215-20]
16.28 This attracts the operation of the mining project transfer
provisions, thus treating the interests in the head company's hands as a
continuation of the interests in the hands of the joining entity. The effect
of this treatment is to allow the head company to access the allowance
components that come with the interests. Those provisions also transfer
the mining revenue and mining expenditure for the transfer year and all
earlier years to the head company, so that it acquires the MRRT liability
for the interest for the transfer year. The joining entity remains liable for
MRRT liabilities that arose in relation to the transferred interest before the
transfer year. [Division 120]
16.29 A special rule applies to the transfer of pre-mining losses. Such
transfers are subject to a cap, based on the consideration paid for the
interest, to prevent entities acquiring interests just to access their
pre-mining losses. When a consolidated group forms for MRRT
purposes, there is a notional transfer from each joining entity to the head
company. If that notional transfer were subject to that cap, no pre-mining
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Entities
losses would be transferred because no consideration is paid for the
notional transfer. Therefore, the cap does not apply to the notional
transfer. [Subparagraph 95-30(1)(a)(ii)]
16.30 However, the cap does apply if an entity joins a group by being
acquired. In that case, a real transfer, occurring on the acquisition of the
entity, precedes the notional transfer of the interests from the entity to the
head company. The cap would apply to the real transfer and would be
adjudged by reference to the consideration the group paid for the joining
entity. The cap would not apply to the notional transfer of the interests to
the group's head company. [Sections 95-25 and 95-30]
Leaving a group
16.31 When an entity leaves an MRRT consolidated group, the head
company is treated as transferring to the leaving entity the interests (and
part interests) it takes with it. This attracts the operation of the mining
project transfer rules (or the mining project split rules in the case of part
interests). [Sections 215-25 and 215-30]
16.32 Those rules treat the transferred interests in the leaving entity's
hands as a continuation of the interests in the hands of the head company.
The effect of that treatment is to allow the leaving entity to access the
allowance components that come with the transferred interests. Those
rules also transfer the mining revenue and mining expenditure for the
transfer year and earlier years to the leaving entity, so that it acquires the
MRRT liability for the transferred interests for the transfer year. The head
company remains liable for MRRT liabilities that arose in relation to the
transferred interests before the transfer year. [Sections 120-10 and 125-10]
16.33 The assets the leaving entity takes with it become its assets
because the single entity rule stops applying when it leaves the group.
The transfer of the assets does not give rise to mining revenue or
expenditure for either the head company or the leaving entity so that, in
effect, the leaving entity inherits the head company's MRRT treatment of
the assets. [Sections 120-15, 125-20 and 215-15]
16.34 As with the joining case, there is an exemption from the normal
rule that would cap the amount of pre-mining losses that are transferred
with an interest by reference to the amount of consideration paid for the
interest. The exemption deals with the fact that the leaving entity will
have paid no consideration for the interest. [Subparagraph 95-30(1)(a)(ii)]
16.35 The cap should still apply in some form if an entity leaves the
group because another entity has acquired it. In that case, a real transfer,
occurring on the acquisition of the leaving entity follows the notional
transfer of the interests from the head company to the leaving entity. The
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Minerals Resource Rent Tax
cap would apply to the real transfer and would be judged by reference to
the consideration paid for the leaving entity. The cap would not apply to
the earlier notional transfer of the interests from the head company to the
leaving entity. [Sections 95-25 and 95-30]
16.36 When an entity leaves a consolidated group, it inherits the most
recent MRRT instalment rate the Commissioner gave the group's head
company. It would, of course, be free to choose a different instalment rate
in the normal way. [Section 215-40]
Transferring from one group to another
16.37 When an entity leaves one consolidated group and joins another
at the same time (that is, when one group acquires an entity from another
group), the entity is treated as leaving its old group first and then joining
its new group. This means that the mining project transfer rules (or the
mining project split rules in the case of part interests) transfer the old
group's interests to the leaving entity before transferring them from that
entity to the head company of the group it has joined. [Section 215-35]
Roll-over rules
16.38 A number of `roll-over' rules apply under the income tax
consolidation provisions to deal with certain changes to a group. Their
broad effect is to ensure that the treatment the group had before the
change applies to the group after the change, so that there is a continuity
of treatment for the group. A number of rules achieve the same result for
the purposes of the MRRT.
Changing the head company of a consolidated group
16.39 When the head company of a consolidated group changes, the
new head company can choose to treat the consolidated group as
continuing in existence (see subsection 124-380(5) of the ITAA 1997).
The income tax consequence is that the group is taken not to have ceased
to exist and everything that happened in relation to the old head company
is taken to have happened instead to the new head company (see
sections 703-70 and 703-75 of the ITAA 1997).
16.40 If a group makes the choice under subsection 124-380(5) of the
ITAA 1997, identical results apply to the group for relevant MRRT
purposes as apply for income tax purposes. The group is taken to
continue to exist and the new head company inherits the relevant history
from the old head company, just as if the new head company had been the
old head company at all relevant times (for example, the new head
company would be treated as having been given the instalment rate that
the Commissioner gave to the old head company). The old head company
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Entities
becomes a subsidiary member of the group from the time of the
changeover. [Section 215-45]
Changing the head company of a MEC group
16.41 Whenever there is a change in the head company or provisional
head company of a MEC group, the income tax consequence is that
everything that happened in relation to the old head company is taken to
have happened to the new head company. This ensures the continuity of
the group's treatment despite the change in its head company (see
sections 719-75 and 719-90 of the ITAA 1997).
16.42 The same result applies under the MRRT law when there is a
change in the head company or provisional head company of a
MEC group. For the relevant MRRT purposes , the new head company
(or provisional head company) inherits the history from the old head
company (or provisional head company) just as if the new head company
had been the old head company at all relevant times. The old head
company (or provisional head company) becomes a subsidiary member of
the group from the time of the changeover. [Section 215-50]
Group conversions
16.43 When a MEC group converts into a consolidated group under
section 703-55 of the ITAA 1997, and vice versa under section 719-40 of
the ITAA 1997, the income tax consequence is that everything that
happened to the head company of the old group is taken to have happened
to the head company of the new group (whether it is the same company or
a different company). This ensures the continuity of the group's treatment
despite the change in the type of group (see sections 719-120 and 719-125
of the ITAA 1997).
16.44 The same result applies for MRRT purposes when a MEC group
converts to a consolidated group, and vice versa. For the relevant MRRT
purposes, the head company of the new group inherits the history from the
head company of the old group just as if it had been the head company at
all the relevant times. [Section 215-55]
Partnerships, trusts and unincorporated associations
16.45 The MRRT law applies to partnerships, trusts and
unincorporated associations in the same way as it applies to any other
entity.
16.46 `Entity' is a defined term in the income tax law (see
section 960-100 of the ITAA 1997) and the MRRT law uses that meaning.
[Section 300-1, definition of `entity']
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Minerals Resource Rent Tax
16.47 The income tax law taxes unincorporated associations as
entities. In broad terms, they are treated for income tax purposes in the
same way as companies.
16.48 Although the income tax law treats partnerships and trusts as
entities, it does not tax them as entities. A partnership's taxable income or
tax loss is broadly worked out in the same way as that of any other entity
but the result (income or loss) is divided amongst the partners, who
include their share in working out their own taxable income or loss.
Similarly, the net income of a trust is divided amongst those beneficiaries
who are entitled to the trust income, and included in their own taxable
income calculation; with any remaining part of the net income being taxed
to the trustee.
16.49 The MRRT law works out an MRRT liability for each mining
project interest and pre-mining project interest. The liability is payable by
the entity that has the interest at the end of the MRRT year. Unlike the
income tax law, it is not divided amongst the partners of a partnership or
the beneficiaries of a trust. Instead, it is payable by the partnership or
trust in the same way as any other partnership or trust expense (including
liabilities for indirect taxes such as the goods and services tax). That
MRRT liability is then taken into account by the partnership or trust in
working out its net income or loss for income tax purposes.
Entity status
Partnerships
16.50 Although the MRRT law treats partnerships as entities, they are
not legal persons (unlike individuals and companies). Some people may
therefore doubt that MRRT liabilities are imposed on a partnership. To
put the issue beyond doubt, the MRRT law makes clear that the acts or
omissions of partners, when acting in their capacity as partners, are the
acts or omissions of the partnership. [Section 220-5]
Example 16.3: The acts of the partners are the acts of the partnership
Shelby and Victoria are operating a coal mine as partners. Shelby
enters into a contract with an overseas customer to supply it with
3 million tonnes of coal. Entering into the contract on behalf of herself
and Victoria is an act Shelby takes as a partner and it is therefore taken
to be an act of the partnership. Payment to Shelby and Victoria for the
supply is taken to be payment to the partnership.
Victoria pays the state $15 million in royalties for coal supplied by the
partnership. The payment is made in her capacity as a partner, so is
taken to be a payment by the partnership, and generates a royalty credit
for the partnership.
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Entities
Unincorporated associations
16.51 Any doubt about the entity status of unincorporated associations
is dealt with by attributing to the association the acts and omissions of the
members of the committee of management of the association when they
act in that capacity. [Subsection 220-10(1)]
Joint ventures are not unincorporated associations
16.52 Some have argued that a joint venture could be an
unincorporated association, a term which is not defined in the income tax
law. A `joint venture' is an arrangement under which two or more parties
conduct a single enterprise but do not share in its profits. Instead, they
share in the output of the enterprise. In the context of mining, a joint
venture would involve the joint venturers dividing the resources they
jointly extract before each of them sells its own share.
16.53 The MRRT law does not treat joint ventures as entities; it treats
each joint venturer as having its own mining project interest or pre-mining
project interest, giving rise to a separate MRRT liability.
[Subsection 220-10(2)]
Trusts
16.54 Like partnerships and unincorporated associations, trusts are
also not legal persons. A trust is a relationship between a trustee and the
objects of the trust in respect of particular property. But, unlike
partnerships and trusts, the income tax law makes clear that the legal
person who is acting as the trustee is an entity in its capacity as a trustee
that is separate from its status as an entity in its own capacity (see
subsections 960-100(2) and (3) of the ITAA 1997). In other words, the
trust and the trustee are equated as an entity for income tax purposes and
there is no room for doubt about the status of the trust. Accordingly, there
is no doubt that trusts are entities for the purposes of the MRRT law and
so no need for additional provisions to remove any doubt.
Responsibility for partnerships, trusts and unincorporated associations
16.55 Although the MRRT law works by imposing obligations on
partnerships, trusts and unincorporated associations as entities, these
obligations cannot be enforced against those entities because they have no
legal personality. That is, because they are not legal persons, they cannot
be sued and cannot be penalised.
16.56 To overcome this, taxation laws usually attach the liability for
not satisfying the obligations of these entities to someone who is a legal
person and is broadly responsible for the actions of the entity.
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Minerals Resource Rent Tax
16.57 For a partnership, those legal persons are the partners. For a
trust, it is the trustee (or the trustees if there is more than one), and for an
unincorporated association, it is the members of the association's
committee of management.
16.58 Provisions having that effect already exist for the purposes of
attaching liability for satisfying the obligations of partnerships and
unincorporated associations under indirect tax laws (such as the GST) and
under Schedule 1 to the TAA 1953 (see Division 444 of Schedule 1 to that
Act).
16.59 Those provisions are extended so that they also apply for the
purposes of the MRRT law. [Schedule 1 to the MRRT (CA&TP) Bill, items 34 to
43, subsections 444-5(1), (1A), (1B) and (2), 444-10(1) to (3) and (5), 444-15(1),
444-30(1) to (3), and 444-70(1) and (2), and section 444-1 of Schedule 1 to the
TAA 1953]
16.60 In the case of unincorporated associations, the existing
provisions are amended to make explicit that, for the purposes of the
MRRT law, the members of the committee of management are jointly and
severally responsible for paying the MRRT liabilities of the association.
This is implicitly already the position for unincorporated associations but
it is not explicit as it is for, say, partnerships. The amendments put the
point beyond doubt. [Schedule 1 to the MRRT (CA&TP) Bill, item 36,
subsections 444-5(1A) and (1B) of Schedule 1 to the TAA 1953]
Trustees are responsible for MRRT obligations of trusts
16.61 Consistent with this approach, the law is also amended to attach
the liability for satisfying the MRRT obligations of a trust to the trustees
of the trust. The amendment reproduces, in modern language, a provision
that has a similar effect for the purposes of the MRRT law as section 254
of the Income Tax Assessment Act 1936 has for income tax purposes.
[Schedule 1 to the MRRT (CA&TP) Bill, item 44, section 444-120 of Schedule 1 to the
TAA 1953]
16.62 Any obligation imposed by the MRRT law on a trust is imposed
on the trustees of the trust. This covers obligations such as lodging
MRRT returns, answering requests for information from the
Commissioner and providing information to entities to which the trust
transfers a mining project interest. [Schedule 1 to the MRRT (CA&TP) Bill,
item 44, subsection 444-120(1) of Schedule 1 to the TAA 1953]
16.63 The obligation attaches to any trustees from the time the
obligation arose until the time it is satisfied. This timing rule means that
responsibility for satisfying the obligation attaches to any new trustee
appointed before the obligation is satisfied. The obligation would also
remain with any previous trustee back to the time the obligation arose.
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Entities
This ensures that there is always someone responsible for satisfying the
obligations of the trust and that a trustee cannot avoid responsibility by the
simple expedient of resigning. [Schedule 1 to the MRRT (CA&TP) Bill, item 44,
subsection 444-120(1) of Schedule 1 to the TAA 1953]
16.64 The trustees are also responsible for paying amounts that are
required to be paid under the MRRT law, such as the MRRT itself,
instalments of MRRT, and any penalty and interest charges that arise in
relation to the MRRT. [Schedule 1 to the MRRT (CA&TP) Bill, item 44,
subsection 444-120(2) of Schedule 1 to the TAA 1953]
16.65 If more than one trustee is liable for paying those amounts, they
are jointly and severally liable for paying them. That means that the
Commissioner could sue any of them for payment of the amount or could
sue them as a group. [Schedule 1 to the MRRT (CA&TP) Bill, item 44,
subsection 444-120(3) of Schedule 1 to the TAA 1953]
16.66 In suing for amounts owed by a trust, the Commissioner is not
limited to recovering against the personal assets of the trustees. He or she
can also take action directly against the trust assets. [Schedule 1 to the
MRRT (CA&TP) Bill, item 44, subsection 444-120(4) of Schedule 1 to the TAA 1953]
16.67 Trustees who use their own assets to pay amounts in relation to
an obligation of the trust that they are required to satisfy are entitled to be
indemnified from the assets of the trust. This reflects the fact that the
liability arises in the proper performance of the trustee's obligations as
trustee. [Schedule 1 to the MRRT (CA&TP) Bill, item 44, subsection 444-120(5) of
Schedule 1 to the TAA 1953]
16.68 Offences against the MRRT law that are `committed' by the
trust are taken to have been committed by the trustee. This reflects the
fact that the trustee is responsible for satisfying the trust's obligations, so
that the failure to satisfy those obligations is the trustee's failing.
[Schedule 1 to the MRRT (CA&TP) Bill, item 44, subsection 444-120(6) of Schedule 1 to
the TAA 1953]
16.69 Trustees who can prove that they were not knowingly concerned
in, or party to, an act or omission of the trust that gave rise to an offence,
and did not aid, abet, counsel or procure the act or omission, have not
committed an offence. However, they could, of course, still be
responsible for satisfying the obligation. [Schedule 1 to the MRRT (CA&TP)
Bill, item 44, subsection 444-120(7) of Schedule 1 to the TAA 1953]
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Minerals Resource Rent Tax
Application and transitional provisions
Consolidation
16.70 A group can make a decision to consolidate for MRRT purposes
at any time after it satisfies the pre-conditions (including the requirement
that it already be consolidated for income tax purposes). Normally, the
decision applies for the date on which the group makes that choice.
16.71 However, as a transitional rule, a group can choose to apply its
consolidation decision back to the earlier of:
· when it first satisfied the pre-conditions; and
· 2 May 2010.
That allows the group to be consolidated for MRRT purposes during the
period before 1 July 2012 when it undertook activities that affect the
operation of the MRRT from 1 July 2012. That can have substantial
compliance benefits for the group in accounting for its activities during
that pre-MRRT period. [Schedule 4 to the MRRT (CA&TP) Bill, item 13]
16.72 The choice has to be made on 1 July 2012 (or within such
further time as the Commissioner allows) and notified to the
Commissioner within 21 days of being made. This ensures that, from the
start of the MRRT on 1 July 2012, the Commissioner is in a position to
take the pre-MRRT period into account in applying the MRRT law to the
group. [Schedule 4 to the MRRT (CA&TP) Bill, item 13]
Consequential amendments
Consolidation
Notes about the link between income tax and MRRT consolidation
16.73 Some notes are added to the consolidation provisions in the
income tax law to alert readers to that fact that a choice to consolidate a
group for income tax purposes is a prerequisite for it to consolidate for
MRRT purposes. [Schedule 3 to the MRRT (CA&TP) Bill, items 40 to 43,
subsections 703-50(1) and 719-50(1) of the ITAA 1997]
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Entities
Joint and several liability
16.74 Under the income tax law, income tax liabilities are imposed on
the head company of a consolidated group or MEC group. However, the
members of the group are jointly and severally liable for paying those
liabilities if the head company does not pay them on time (see
Division 721 of the ITAA 1997).
16.75 The tax-related liabilities for which the members can be jointly
and severally liable are listed in the table in subsection 721-10(2) of the
ITAA 1997.
16.76 That table is amended so that the tax-related liabilities include
liabilities arising under the MRRT law. The relevant MRRT liabilities
are:
· the liability to pay MRRT itself;
· the liability for shortfall interest charge on unpaid MRRT;
· the liability for paying MRRT instalments; and
· the general interest charge that applies when a head company
chooses too low an instalment rate.
[Schedule 3 to the MRRT (CA&TP) Bill, item 44, subsection 721-10(2) of the
ITAA 1997]
16.77 The members of a consolidated group or a MEC group only
become jointly and severally liable for those MRRT liabilities if the group
has chosen to consolidate for MRRT purposes. [Schedule 3 to the MRRT
(CA&TP) Bill, item 45, subsection 721-10(4) of the ITAA 1997]
16.78 The result is that Division 721 applies to impose joint and
several liability in relation to MRRT liabilities on the members of a group
that has consolidated for MRRT purposes in the same way as it does for
the other liabilities listed in that table.
16.79 The provisions allocating group liabilities among the members
of a group when the head company fails to pay them allow for tax sharing
agreements to limit each member's share of the group liability (see
sections 721-25 to 721-40 of the ITAA 1997). Those provisions also
apply for group liabilities under the MRRT law.
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Minerals Resource Rent Tax
16.80 A pre-condition for those provisions applying to a particular
group liability is that the shares under the agreement represent a
reasonable allocation of the liability. In deciding whether the shares are
a reasonable allocation for income tax purposes, the amount of the
liability is reduced by any credit the head company is entitled to for its
income tax assessment for payments of income tax instalments (see
subsection 721-25(1A)). When working out whether there is a reasonable
allocation of liability for MRRT, a similar provision also reduces the
liability by the amount of any credits the head company is entitled to for
paying MRRT instalments. [Schedule 3 to the MRRT (CA&TP) Bill, items 46 and
47, subsections 721-25(1AA), (1B), (2) and (3) of the ITAA 1997]
316
Chapter 17
Integrity measures
Outline of chapter
17.1 The Minerals Resource Rent Tax (MRRT) contains two general
integrity measures:
· a general anti-profit shifting rule; and
· a general anti-avoidance rule.
17.2 Division 205 ensures that a miner's liability to pay MRRT is not
reduced because things are done in relation to the miner's mining project
interest or pre-mining project interest that would not have been done or
would have been done differently had the miner been dealing wholly
independently with other entities.
17.3 Division 210 operates to deter avoidance schemes that are
designed to obtain MRRT benefits by taking advantage of the MRRT law
in circumstances other than that intended by the MRRT law. This ensures
that schemes that are artificial or contrived and undertaken with an
objective of reducing an entity's MRRT liability, or increasing its MRRT
offsets, can be appropriately dealt with.
17.4 All legislative references throughout this chapter are to the
Minerals Resource Rent Tax Bill 2011 unless otherwise indicated.
Summary of new law
Anti-profit shifting
17.5 The mining profit, allowance components and offset amounts for
a mining project interest are worked out as if the things which are done in
relation to the interest are the things which would have been done (or not
done) if the miner had been dealing wholly independently with the entities
with which it has commercial or financial relations.
17.6 If adjustments are made to amounts because of the
profit-shifting rules, the Commissioner of Taxation (Commissioner) can
make any compensating adjustments that are fair and reasonable.
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Minerals Resource Rent Tax
General anti-avoidance
17.7 The general anti-avoidance rule applies to schemes that seek to
reduce the MRRT liability of an entity for a mining project interest for an
MRRT year or to increase a low profit offset or rehabilitation tax offset.
17.8 The Commissioner can make any such scheme ineffective if the
scheme was entered into, or carried out, with a sole or dominant purpose
of getting an MRRT benefit, or of getting an MRRT benefit and a
reduction in a liability to pay any other Australian or foreign tax or mining
royalty.
17.9 The Commissioner can also make compensating adjustments to
reduce MRRT liabilities that are higher, or to increase offsets that are
lower, than they would be apart from the scheme.
Detailed explanation of new law
General profit-shifting rule
When the profit-shifting rule applies
17.10 A miner's liability to pay MRRT must not be smaller than what
that liability would be if its commercial and financial relations with other
entities were on the same footing as they would have been had the miner
been dealing with those entities on a wholly independent basis.
17.11 When entities deal with each other on a wholly independent
basis, the conditions of their commercial and financial relations are
determined by market forces. When they do not deal with each other in
that manner, the MRRT liability of one or more of the parties may be
distorted.
17.12 Whether two or more entities have dealt with each other on a
wholly independent basis is essentially a factual question which is to be
determined by assessing whether the conditions operating between them
are the conditions which would operate between independent entities in
comparable circumstances that were dealing wholly independently with
one another. [Section 205-10]
17.13 This comparison of the conditions that apply in the entities'
commercial and financial relations with those which operate in
comparable circumstances between independent entities who deal with
one another wholly independently is commonly referred to as a
`comparability analysis'. [Subsection 205-10(1)]
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Integrity measures
17.14 The comparability analysis employed in Division 205 borrows
from the arm's length principle used by member countries of the
Organisation for Economic Co-operation and Development (OECD) in
relation to cross border transactions between resident and non-resident
taxpayers.
Commercial or financial relations
17.15 The comparability analysis focuses on the conditions which
operate in the commercial or financial relations between the miner and
one or more other entities. [Subsection 205-10(1)]
17.16 For these purposes, the `commercial or financial relations' that
must be examined encompasses all aspects of the commercial and
financial relationships existing between the miner and the other entities,
express or implied.
17.17 The concept is extremely broad and would take in any
connections or dealings between the entities that relate to or could
otherwise affect the commercial or financial activities of one or all of the
entities. It could include a single transaction, a series of transactions, an
understanding, an arrangement, things to be done or things not to be done,
and practices, whether express or implied and whether or not legally
enforceable. It may involve unilateral actions or mutual dealings. It may
comprise a strategy.
Example 17.1: Commercial or financial relations
A miner acquires services from Service Co in carrying on the upstream
mining operations for its mining project interest. It also sells coal from
its mining project interest to Consumer Co. Service Co and
ConsumerCo are associates of each other.
In ascertaining whether the miner has dealt with each of Service Co
and Consumer Co on a wholly independent basis it would be relevant
to consider the connection that exists between Service Co and
Consumer Co and the impact that connection may have had on the
dealings between each of those entities and the miner.
Conditions
17.18 The `conditions' that operate in the commercial or financial
relations between the miner and other entities include, but would not be
limited to, the price of any dealings between them, the margins or profits
earned by one or all of them, and the division of profits between them.
[Paragraph 205-10(1)(a)]
17.19 For example, in simple cases it would include the price at which
resources are sold or acquired by the miner, the cost of plant and
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Minerals Resource Rent Tax
equipment sold or acquired by the miner, and the fees charged by the
miner or another entity to provide services to the other entity or the miner.
17.20 In more complex cases, it may extend to include factors that
affect an entity's relative financial strength, such as decisions as to
whether dividends should be paid and in what amounts, whether shares
should be issued and at what prices, whether loans should be advanced
and at what interest rates, and whether royalties should be paid and in
what amounts. It would also include decisions that could affect an
entity's liquidity, such as the time at which an amount should be paid.
17.21 For the avoidance of doubt, the absence of a condition, in either
the miner's financial or commercial relations or in the situation being
compared, is a difference in conditions with which the Division is
concerned. [Paragraph 205-10(2)(b)]
Dealing wholly independently
17.22 The question of whether parties are dealing with each other on a
wholly independent basis is essentially a question of fact.
[Paragraph 205-10(1)(b)]
17.23 The question is whether the parties have dealt with each other as
independent parties would normally do, so that the outcome of their
dealing is a matter of real bargaining: Trustee for the Estate of the late
AW Furse No 5 Will Trust v Federal Commissioner of Taxation (1991)
21 ATR 1123 at 1132.
17.24 The relationship between the parties is relevant but not
determinative. Thus, parties that are related to each other may deal
independently with one another and parties that are not related to each
other might not deal independently with one another: Barnsdall v FCT
(1988) 81 ALR 173; Furse 21 ATR 1123 at 1132; RAL and FCT (2002)
50 ATR 1076 at [45]-[51].
17.25 Circumstances in which parties that are unrelated to each other
are not dealing independently with one another includes where:
· one of the parties submits the exercise of its will to the
discretion of the other, perhaps to promote the interests of the
other: Granby 129 ALR 503 at 507;
· one party is indifferent to an outcome sought by the other
party on a particular aspect of their dealings: Collis v FCT
(1996) 33 ATR 438 at 443; or
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Integrity measures
· the parties collude, or act in concert, to achieve an ulterior
purpose or result.
Example 17.2: Parties not dealing independently with one another
Continuing the previous example, if the overall result of the miner's
dealings with Service Co and Consumer Co is the product of real
bargaining but the price for the upstream services is higher than would
ordinarily be charged and the price for the resource is lower than
would ordinarily be charged, then the miner could not be said to be
dealing wholly independently with either Service Co or Consumer Co.
In this case, Service Co and Consumer Co, as related parties, are only
concerned with the overall outcome from their combined dealings with
the miner. They are indifferent to the allocation of that amount
between the services and the resources.
Comparable circumstances
17.26 For the relations existing between independent entities dealing
wholly independently with one another to be considered comparable with
the commercial and financial relations between the miner and one or more
other entities, the economically relevant characteristics of the situations
being compared must be sufficiently comparable.
17.27 To be comparable means that none of the differences (if any)
between the situations being compared could materially affect the
condition or conditions being examined (for example, the price or the
margin). [Paragraph 205-10(2)(a)]
17.28 This requires, amongst other things, a comparison of the
functions undertaken, the assets employed and the risks assumed by the
entities in the situations that are being compared. It also requires a
comparison of the characteristics and terms of the dealings (if any) that
are being compared, of the relevant markets being compared and of the
business strategies being pursued by the entities the subject of the
comparison. [Subsection 205-10(1)]
17.29 Where differences exist, a situation may be considered
comparable if reasonably accurate adjustments can be made to eliminate
the effects of such differences on the comparison.
17.30 In determining the degree of comparability, including what
adjustments are necessary to establish it, consideration must be given to
the range of options that would realistically be available to an independent
enterprise in comparable circumstances. That is because an independent
enterprise would consider the options available to it and, in comparing one
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Minerals Resource Rent Tax
option to another, would consider any differences between the options that
would significantly affect the value of one option over the other.
Example 17.3: Price comparability
Before purchasing a truck for $100,000 from Associate Co, an
independent enterprise carrying on comparable mining activities to
Miner Co in a nearby location would be expected to take into account
the fact that it could buy the same truck, on the same delivery and
payment terms, for $90,000 from Trucking Co.
If, however, Trucking Co offers substantively different terms for
delivery and payment to those offered by Associate Co, for example if
delivery would be delayed by three months but payment would be on
order rather than delivery, then there would exist material differences
between the circumstances being compared and an adjustment would
be required before the price offered by Trucking Co could be
compared to the price charged by Associate Co.
17.31 Although ordinarily, the comparison will be between the
commercial or financial relations as they actually exist between the miner
and other entities and those which would reasonably be expected between
entities dealing wholly independently with one another, they may be some
cases in which it will be appropriate to disregard the miner's
characterisation of those relations and re-characterise them in accordance
with their substance.
Example 17.4: Reconstructing the actual transaction
Uraba Co grants Miner Co a call option that confers a right on
Miner Co (or its assignees) to require Uraba Co to sell it a loading unit.
Miner Co also grants Uraba Co a put option that confers on Uraba Co a
right to require Miner Co (or its assignees) to purchase the asset from
it. Subsequently, Miner Co exercises its call option and Uraba Co sells
it the loading unit.
For the purpose of finding a comparable dealing involving independent
entities it might be appropriate to characterise the sale of the loading
unit as being a sale under an agreement for sale that was entered into
when the options were issued (that is, rather than when the options
were exercised).
Methodologies
17.32 Once a comparability analysis has been undertaken, it will
inform the choice of methods for working out what the miner's mining
profit, allowance components and offsets for the mining project interest
would have been (or could reasonably be expected to have been) if the
independent conditions had operated instead. [Subsection 205-15(1)]
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Integrity measures
17.33 For these purposes, the miner must use the method that produces
the most appropriate and reliable measure of that amount having regard
to:
· the functions performed, assets used and risks performed by
the miner and each other entity in their commercial or
financial relations [paragraph 205-15(1)(a)];
· whether the method can reliably adjust for differences
between the actual circumstances and those that would apply
between entities dealing wholly independently with each
other [paragraph 205-15(1)(b)];
· the availability of reliable information required to apply the
particular method [paragraph 205-15(1)(c)]; and
· the OECD's 18 August 2010 transfer pricing guidelines, or
such other document published by the OECD as the
Commissioner determines to be a replacement for those
guidelines or otherwise to be a transfer pricing guideline
[paragraph 205-15(1)(d) and subsection 205-15(2)].
17.34 The OECD transfer pricing guidelines provide a framework for
the application of the arm's length principle. The OECD guidelines are
entitled OECD Transfer Pricing Guidelines for Multinational Enterprises
and Tax Administrations (Guidelines).
17.35 Miners may have regard to the Guidelines, adapted as
appropriate in the context of the MRRT, in working out their mining
profits, allowance components and offset amounts.
17.36 The various methods outlined in the Guidelines are set out
below. However, these are not necessarily the only methods that could be
used. Other methods may be applied provided they accord with the arm's
length principle (as explained in the Guidelines), are capable of
practicable application, and produce an arm's length outcome that is a
reasonable estimate of what would have been the result if the dealings had
been undertaken between independent entities dealing wholly
independently with one another.
Comparable uncontrolled price method
17.37 The comparable uncontrolled price method compares the price
actually charged for property or services that have been transferred with
the price that would be charged for materially the same property or
services by the same supplier in a comparable dealing with an
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Minerals Resource Rent Tax
independent party or by independent entities dealing wholly
independently with each other in materially comparable circumstances.
Example 17.5: Resource comparable uncontrolled price method
An independent enterprise sells iron ore of a similar type, quality and
quantity at the same time and the same stage in the production chain as
those produced by the miner. Assuming no other material difference,
the price received by the independent iron ore producer would be
considered a comparable uncontrolled price
Cost plus method
17.38 The cost plus method provides an estimate of an independent
price for property or services by adding an appropriate profit mark-up to
the supplier's direct and indirect costs. The profit mark-up is ideally
determined by reference to the profit mark-up earned by the same supplier
in comparable dealings with independent parties or by independent
entities dealing wholly independently with each other in materially
comparable circumstances.
Example 17.6: Cost plus for services
Crusher Co has contracted to provide crushing, processing and
blending services for the miner. An independent price for the services
provided by Crusher Co could be worked out by applying the same
mark up on Crusher Co's costs as would reasonably be expected to be
applied by an independent service provider providing materially
similar services in a materially comparable market.
Resale price method
17.39 The resale price method estimates an independent price for
property or services by taking the price at which the product is sold to or
by independent entities and reducing it by an independent margin. The
margin would be determined by reference to the resale price margins
earned by the same supplier in comparable dealings with independent
parties or by independent entities dealing wholly independently with each
other in materially comparable circumstances.
Example 17.7: Resale price margin
The miner sells its coal to an associated entity which then on-sells the
coal to unrelated purchasers. The associated entity does not undertake
any further processing of the resource. Rather, it takes on the risks
involved in transporting and distributing the resource into offshore
markets.
324
Integrity measures
An independent price for the coal sold to the marketing entity could be
worked out by subtracting an independent resale price margin from the
price at which the marketing entity on-sells the coal. The independent
resale price margin would be the margin which an independent reseller
would seek in order to cover its operating expenses and allow it an
appropriate profit (taking into account the functions it performed, the
assets it used and the risks it assumed).
Transactional net margin method
17.40 The transactional net margin method is a transfer pricing
methodology based on comparisons at the net profit level between what
the taxpayer has achieved with that which independent parties dealing
wholly independently in relation to a comparable transaction or dealings
would have achieved.
17.41 Comparisons at the net profit level can be made on a single
transaction or in relation to an aggregation of dealings between the
taxpayer and one or more other entities.
17.42 The transactional net margin method examines the net profit
relative to an appropriate base (for example, costs, sales, assets) that a
taxpayer realises from an activity or transaction. The transactional net
margin method can be applied on a cost plus or a resale margin basis.
`Profit plus appropriate costs' can represent an arm's length sales price for
the original transaction or value of the activity, while `revenue less a net
resale margin', adjusted for other costs associated with the purchase of the
product, can be regarded as an arm's length purchase price for the original
transaction.
Profit split method
17.43 Profit split methods are transfer pricing methods that identify the
combined profit of two or more enterprises and then split those profits
between the enterprises on an economically valid basis that approximates
the division of profits that would have been anticipated and reflected in an
agreement between two enterprises dealing wholly independently with
one another.
17.44 The profit split method may be appropriate where different
activities make unique and valuable contributions. The profit split method
would not be used where one activity is relatively simple and does not
make a significant and unique contribution to outcomes as a whole.
Amounts that must be returned
17.45 Having worked out what an amount would have been if the
independent conditions had operated between the miner and the other
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Minerals Resource Rent Tax
entity or entities, the miner is required to use that amount for the purpose
of working out its mining profits, its allowance components, its offsets,
and the elements that make up those things. [Subsection 205-10(3)]
17.46 The miner may have to adjust any amount that directly or
indirectly affects the calculation of its mining profit, its allowance
components or its offsets. For example, it may have to adjust the
following amounts:
· an amount of expenditure that is included in a miner's mining
expenditure for a mining project interest;
· the consideration received or receivable by the miner for a
supply of taxable resources, or a thing produced using
taxable resources;
· a downstream cost taken into account in attributing part of
the consideration for a supply of resources to the resources'
condition and place when they were at their valuation point;
and/or
· an amount that is taken into account in calculating the
miner's group profit for simplified MRRT purposes.
Compensating adjustments
17.47 If an amount is adjusted because of the application of the
transfer pricing rules, the Commissioner can determine that it would be
fair and reasonable to make other adjustments. These adjustments may be
to the same miner but for a different MRRT year or to a different miner
for that year or another year. [Section 205-20]
Example 17.8: Adjustment to the same miner for a different year
Assume the miner enters into an operating lease for upstream rolling
stock, for two years, from a related party. Under the lease agreement,
the rental payments are $15 million for the first year and $5 million for
the second year. A comparability analysis shows the arm's length
amounts are $10 million for each year. Division 205 would apply in
the first year to increase the miner's mining profit by $5 million by
limiting its deduction for rent to $10 million.
In the circumstances, it would be fair and reasonable for the
Commissioner to reduce the miner's mining profit for the second year
by $5 million by increasing its deduction for rent to $10 million.
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Integrity measures
Example 17.9: Adjustment to a different miner
Miner A pays $10 million to acquire upstream mine equipment from
Miner B. Assume Miner B purchased the equipment for $6 million
and, at the date of the sale to Miner A, the arm's length price for the
equipment is $8 million. Division 205 would increase Miner A's
mining profit by $2 million by limiting its deduction for the equipment
to $8 million.
In the circumstances, it would be fair and reasonable for the
Commissioner to reduce Miner B's mining profit by $2 million by
reducing the amount recouped by Miner B on the sale of the equipment
to Miner A from $4 million to $2 million.
17.48 The adjustments can reduce mining profits or increase an
allowance component or an offset. [Paragraphs 205-20(1)(b) and (2)(b)]
17.49 The adjustments would restore those profits, components and
offsets to what they would have been if the conditions had been those that
would have operated between entities dealing wholly independently with
each other. [Paragraphs 205-20(1)(c) and (2)(c)]
The Commissioner's determination
17.50 The adjustments only arise if the Commissioner has determined
that they should. The determination must state what the relevant profit,
allowance component or offset should be, and what should be the
elements of the calculations of those amounts. [Subsection 205-25(1)]
17.51 A determination is not limited to a single MRRT year or to a
single profit, allowance component or offset (although it could be in a
given case). It is possible for one determination to cover multiple profits,
allowance components and offsets, to cover more than one of those things,
to cover those things for more than one year, and to cover those things for
more than one mining project interest. [Subsections 205-25(1) and (6)]
17.52 The Commissioner gives effect to a determination by taking
such action as he or she considers necessary. In most cases, such action
would be to amend one or more MRRT assessments. [Subsection 205-25(3)]
17.53 The Commissioner must provide an entity affected by a
compensating adjustment with a copy of the determination but a failure to
provide it does not mean that the determination is invalid.
[Subsections 205-25(4) and (5)]
17.54 An entity can ask the Commissioner to make a compensating
adjustment determination if it relates to that entity or to an interest it has.
The Commissioner must provide the entity with notice of his or her
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Minerals Resource Rent Tax
decision on each such request. If the Commissioner decides not to grant
the request, the entity can object against it in the normal way for objecting
to matters arising under taxation laws. [Subsections 205-25(2) and (7)]
Pre-mining project interest
17.55 The profit shifting rules apply to pre-mining project interests in
the same way that they apply to mining project interests. [Divisions 140
and 205]
General anti-avoidance rule
17.56 The general anti-avoidance rule is designed to protect the
revenue against what is commonly considered to be tax avoidance and
arrangements that are not bona fide. When it applies, it negates the
MRRT benefit an entity obtains from a scheme.
When the general anti-avoidance rule applies
17.57 The general anti-avoidance rule applies where an entity has
obtained an MRRT benefit from a scheme (an avoidance scheme) and it is
concluded that the scheme was entered into, or carried out, with a purpose
of getting an MRRT benefit from the scheme. [Division 210]
17.58 Three requirements must be satisfied for the general
anti-avoidance rule to apply:
· there must be a scheme;
· an entity must obtain an MRRT benefit from the scheme.
That is, there must be:
- a reduction in MRRT liability for a mining project interest
for an MRRT year; or
- an increase in a low profit offset or rehabilitation tax
offset;
and that benefit must not be attributable to making a choice
expressly provided for by a taxation law; and
· it must be reasonable to conclude that, taking into account a
list of relevant factors, the scheme was entered into or carried
out with the sole or dominant purpose either of obtaining the
MRRT benefit, or of obtaining that benefit along with a
reduction in any other liability to pay an Australian or foreign
tax or a mining royalty.
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Integrity measures
Requirement 1: There must be a scheme
17.59 Scheme has the same meaning as it does in the income tax law:
· any arrangement; or
· any scheme, plan, proposal, action, course of action or course
of conduct, whether unilateral or otherwise.
[Section 300-1, definition of `scheme']
Requirement 2: An entity must get an MRRT benefit from a scheme
17.60 An entity must get an MRRT benefit from a scheme. An entity
gets an MRRT benefit when:
· an MRRT liability of the entity for a mining project interest
for an MRRT year is (or could be expected to be) smaller
than it would be apart from the application of the scheme
[paragraph 210-15(1)(a)]; or
· the entity has either a low profit offset or a rehabilitation tax
offset where the entity would not have had, or could not
reasonably be expected to have had, that offset apart from the
application of the scheme [paragraph 210-15(1)(b)].
17.61 A smaller MRRT liability includes a case where the MRRT
liability is zero or there is no MRRT liability for the year.
[Subsection 210-15(2)]
17.62 However the general anti-avoidance rule does not apply to
MRRT benefits to which the exception applies. The exception is where
the MRRT benefit that is obtained is attributable to making a choice that
is expressly provided for by a taxation law, other than a choice relating to
functional currency under Subdivision 960-D of the Income Tax
Assessment Act 1997. [Paragraph 210-10(1)(b)]
17.63 The exception for choices does not extend to choices relating to
functional currency because an entity can choose to use functional
currency for income tax and MRRT purposes notwithstanding that it uses
a different currency for accounting purposes.
17.64 The exception for choices also does not extend to schemes
entered into or carried out for the purpose of creating the circumstances
necessary for the choice to be made. That is, for the exception to apply,
the choice must be one genuinely available to the entity, not one that is
only available because the scheme entered into or carried out was
designed to make the choice available. [Subsection 210-10(3)]
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Minerals Resource Rent Tax
The connection between the MRRT benefit and the scheme
17.65 An entity gets an MRRT benefit from a scheme if an MRRT
benefit would not have arisen, or could not reasonably be expected to
have arisen, apart from the scheme or part of the scheme.
[Subsection 210-15(1)]
17.66 This involves an enquiry into what would have occurred if the
scheme or part of the scheme had not been entered into or carried out.
Requirement 3: The purpose test is met
17.67 The scheme, or part of the scheme, must have been entered into
or carried out with a particular sole or dominant purpose. That purpose
must be either:
· to get the MRRT benefit the scheme provides; or
· to get the MRRT benefit and to reduce a liability to pay any
other Australian or foreign tax or a mining royalty.
[Paragraph 210-10(1)(c) and subsection 210-10(5)]
17.68 It is not enough that the purpose is an incidental purpose; it must
be the only purpose or the dominant purpose (that is, a purpose that is
more significant than any other purpose).
17.69 However, it is not necessary that getting the MRRT benefit was
the dominant purpose. It is enough that there was a purpose of getting the
MRRT benefit and that, taken together with all other purposes of reducing
liability to taxes (or to a mining royalty), there was a dominant purpose of
getting all those benefits.
17.70 This broad purpose test is unusual in taxation law but is
necessary because of the nature of the MRRT as a tax on profits. A
scheme might be entered into to reduce profits for the dominant purpose
of saving, say, income tax but have the collateral result of also reducing
MRRT because it is also dependent on the size of the profits. If a miner
could argue that its dominant purpose was to avoid income tax, there
would be no way to cancel the collateral MRRT benefit. In an extreme
case, it might be possible to argue that there was no dominant purpose
because reducing profits had the purpose of avoiding a wide range of
profit-based taxes. That risk is not limited to Australian profit-based
taxes; it could also include such foreign taxes. For that reason, the
purpose test looks to whether there was a dominant purpose of reducing
taxes (or mining royalties, which are charges rather than taxes) and at
least a purpose of obtaining an MRRT benefit.
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Integrity measures
17.71 The purpose test is one of objective purpose. The actual purpose
of the entity that got the MRRT benefit, and the purpose of any different
entity that entered into or carried out the scheme, or part of the scheme, is
not relevant. What is relevant is what a reasonable observer would
conclude was the purpose of any entity that entered into or carried out the
scheme, or part of the scheme. [Paragraph 210-10(1)(c)]
17.72 In reaching that conclusion, eight factors must be taken into
account. [Section 210-20]
The eight factors
17.73 The following matters are taken into account in coming to a
reasonable conclusion about the purpose or effect of the scheme or part of
a scheme:
· the manner in which the scheme or part of the scheme was
entered into or carried out. The terms manner, entered into,
and carried out are terms that allow various matters to be
taken into account. The terms are not given any restricted
meaning. Manner would include consideration of the way in
which, and method or procedure by which, the particular
scheme or part of the scheme in question was established.
The scheme or part of the scheme for these purposes would
be the particular means adopted by an entity to obtain the
MRRT benefit [paragraph 210-20(a)];
· the form and substance of the scheme or part of the scheme
[paragraph 210-20(b)];
· the time at which the scheme was entered into and the length
of the period during which the scheme was carried out
[paragraph 210-20(c)];
· the effect that the MRRT would otherwise have in relation to
the scheme or part of the scheme [paragraph 210-20(d)];
· any change in the entity's financial position that results, or
may reasonably be expected to result, from the scheme or
part of the scheme [paragraph 210-20(e)];
· any change that has resulted, or may reasonably be expected
to result, from the scheme in the financial position of an
entity that has or had a connection or dealing with the entity,
whether the connection or dealing is or was of a family,
business or other nature [paragraph 210-20(f)];
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Minerals Resource Rent Tax
· any other consequence for the entity, or an entity of a kind
mentioned in the previous paragraph, of the scheme having
been entered into or carried out [paragraph 210-20(g)]; and
· the nature of the connection (whether business, family or
other nature) between the entity and such an entity
[paragraph 210-20(h)].
Limits that are discounted
17.74 The fact that a scheme, or any part of the scheme, is entered into
or carried out outside of Australia does not limit the application of the
general anti-avoidance rule. [Subsection 210-10(2)]
17.75 Nor is the operation of the general anti-avoidance rule limited by
anything in other parts of the MRRT law or in the International Tax
Agreements Act 1953. [Subsection 210-10(4)]
17.76 In particular, it is not limited by the operation of subsection 4(2)
of the International Tax Agreements Act 1953, which would otherwise
ensure that the MRRT law was to be read subject to that Act.
[Paragraph 210-10(4)(b)]
Negating the effect of a scheme
17.77 If the general anti-avoidance rule applies, the Commissioner can
make the scheme ineffective for MRRT purposes. The Commissioner
does that by making a determination that negates the MRRT benefit
obtained by the entity under the scheme. [Section 210-25]
17.78 There are two ways a Commissioner's determination can negate
an MRRT benefit:
· It can state that the entity's MRRT liability for a mining
project interest for an MRRT year is, and at all times has
been, a particular amount [paragraph 210-25(1)(a)].
· It can state that the entity's low profit offset and/or its
rehabilitation tax offset is, and at all times has been, a
particular amount [paragraph 210-25(1)(b)].
17.79 The Commissioner gives effect to a determination by taking
such action as he or she considers necessary. In most cases, such action
would be to amend one or more MRRT assessments. [Subsection 210-25(2)]
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Integrity measures
Determinations compensating an entity or another entity
17.80 If a determination has been made against the entity that got the
MRRT benefit in relation to a scheme or part of a scheme, the
Commissioner can also make a determination that has the effect of
compensating an entity that is disadvantaged by the scheme or part of a
scheme if he or she considers it fair and reasonable that the disadvantage
be negated or reduced. [Section 210-30]
17.81 Three conditions must be satisfied before the Commissioner can
make such a determination that a particular entity should get a
compensating adjustment:
· the Commissioner must have made a determination in
relation to an entity's MRRT benefit [paragraph 210-30(1)(a)];
· the Commissioner must consider that entity or another entity
gets an MRRT disadvantage from the scheme
[paragraph 210-30(1)(b)]; and
· the Commissioner must consider it fair and reasonable
to negate or reduce that MRRT disadvantage
[paragraph 210-30(1)(c)].
17.82 An MRRT disadvantage is an MRRT liability being higher, or a
low-tax or rehabilitation offset being lower, than it would be (or would
reasonably be expected to be) apart from the scheme. [Subsection 210-30(2)]
17.83 There are two ways a Commissioner's determination can
compensate for an MRRT disadvantage:
· it can state that an entity's MRRT liability for a mining
project interest for an MRRT year is, and at all times has
been, a particular amount [paragraph 210-30(3)(a)]; or
· it can state that an entity's low profit offset and/or
rehabilitation tax offset is, and at all times has been, a
particular amount [paragraph 210-30(3)(b)].
17.84 Statements relating to different compensating adjustments,
including for different MRRT years can be included in a single
determination. That can also be the same determination that cancels
MRRT benefits. [Section 210-35]
17.85 The Commissioner must provide a copy of a determination to
each entity that is provided with a compensating adjustment under the
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Minerals Resource Rent Tax
determination. Not satisfying this requirement does not affect the validity
of the determination. [Section 210-40]
17.86 As with determinations to negate an MRRT benefit, the
Commissioner gives effect to a determination to compensate for an
MRRT disadvantage by taking such action as he or she considers
necessary. Once more, in most cases such action would be to amend one
or more MRRT assessments. [Subsection 210-30(6)]
17.87 An entity can ask the Commissioner in writing to make a
compensating adjustment determination if it relates to that entity or to an
interest it has. The Commissioner must provide the entity with notice of
his or her decision on each such request. If the Commissioner decides not
to grant the request, the entity can object against it in the normal way for
objecting to matters arising under taxation laws. [Subsections 210-30(4) and
(5)]
Pre-mining project interests
17.88 The general anti-avoidance rule applies to pre-mining project
interests in the same way that it applies to mining project interests.
[Division 140]
Application and transitional provisions
Application
17.89 The general anti-avoidance rule (see Division 210) applies to
schemes entered into on or after 2 May 2010, the MRRT announcement
date. This ensures that it covers all aspects of the MRRT, including those
arising before 1 July 2012. Examples include matters concerning the
determination of the base value of starting base assets and whether a
vertically integrated transformative operation existed at 2 May 2010.
[Schedule 4 to the Minerals Resource Rent Tax (Consequential Amendments and
Transitional Provisions) Bill 2011 (MRRT (CA&TP) Bill), item 1]
17.90 The general anti-avoidance rule (see Division 210) also applies
to a scheme entered into before 2 May 2010 if, had the MRRT law been in
force at the time it was entered into, it would be reasonable to conclude
that the entity did so with a sole or dominant purpose of obtaining an
MRRT benefit, or of obtaining an MRRT benefit together with a reduction
in a liability to pay any other tax or mining royalty. [Schedule 4 to the
MRRT (CA&TP) Bill, item 11]
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Integrity measures
17.91 This ensures that Division 210 can apply to avoidance schemes
entered into prior to 2 May 2010 that also result in an entity obtaining on
MRRT benefit.
Starting base schemes
17.92 The general anti-avoidance rule also applies to schemes that
increase the value of a starting base asset beyond what it would be (or
would reasonably be expected to be) apart from the scheme. In such
cases, it applies as if that result were an MRRT benefit. This is discussed
in more detail in Chapter 7. [Schedule 4 to the MRRT (CA&TP) Bill, item 12]
335
Chapter 18
Administration of the MRRT
Outline of chapter
18.1 This chapter deals with the Minerals Resource Rent Tax
(MRRT) administrative provisions and the amendments to existing
taxation laws that are necessary to provide the administrative framework
for the MRRT.
18.2 All legislative references in this chapter are to the Minerals
Resource Rent Tax (Consequential Amendments and Transitional
Provisions) Bill 2011 (MRRT (CA&TP) Bill) unless otherwise indicated.
Summary of new law
MRRT returns and starting base returns
18.3 An entity must lodge an annual MRRT return that deals with all
of its mining project interests and pre-mining project interests. However,
there may be circumstances in which the Commissioner of Taxation
(Commissioner) will not require an entity, or class of entities, to lodge a
return. MRRT returns will be lodged electronically.
18.4 In addition, some entities will need to give the Commissioner a
starting base return.
Assessments
18.5 The MRRT is a full self assessment system. The Commissioner
will generally accept an entity's MRRT return at face value and an
assessment is deemed made when the Commissioner receives the return.
18.6 For the purposes of assessing MRRT, alternative sets of
assessment provisions have been drafted. The first set is drafted on the
basis that the Taxation Administration Act 1953 (TAA 1953) includes
indirect tax assessment provisions that require modification for MRRT
purposes. The second set is drafted on the basis that the indirect tax
assessment provisions do not receive Royal Assent in time for the
commencement of the MRRT. Both sets of provisions have been drafted
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Minerals Resource Rent Tax
in generic terms so that they can be used by other taxation laws in the
future.
Collection and recovery
18.7 The MRRT will be supported by generic collection and recovery
rules that apply generally in relation to Commonwealth taxation laws.
This means that penalties can apply to outstanding MRRT obligations,
and interest is payable on outstanding MRRT liabilities. The
Commissioner can enforce collection of MRRT through the courts if
necessary. Collection and recovery is further supported by mechanisms
requiring payers to withhold MRRT from certain types of payments.
Instalments
18.8 An entity is liable to pay instalments of MRRT on a quarterly
basis if it has mining revenue or pre-mining revenue or if it has a positive
instalment rate. The instalments provide the entity with a credit against its
MRRT liability for the year. This system ensures that an entity does not
have a significant MRRT payment due on assessment.
18.9 The amount of an entity's quarterly instalment is the product of
the applicable instalment rate and the entity's instalment income for the
quarter. The instalment income is, broadly, the consideration for supplies
of taxable resources the entity made in the quarter. Unlike the calculation
of MRRT liabilities, the consideration for supplies is not apportioned and
there is no deduction for mining expenditure. The accuracy of the result
instead depends on the instalment rate used.
18.10 The instalment rate will usually be the rate the Commissioner
gives the entity and that will usually be based on the entity's MRRT
assessment for the previous year.
18.11 As with pay as you go (PAYG) instalments for income tax, the
entity can choose a different rate that it believes better reflects its current
trading conditions. The integrity of the system is protected by imposing
the general interest charge on shortfalls if the entity chooses a rate that is
too low.
18.12 When an entity transfers a mining project interest, or part of one,
it can claim a credit for the part of its earlier instalments for the year that
relates to the transferred interest. The entity to which the interest is
transferred increases its instalment income for the quarter in which the
transfer occurs to reflect the fact that it is liable to pay MRRT for the
whole year, including the part before the transfer.
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Administration of the MRRT
Record keeping
18.13 The effective administration of the MRRT requires the
Commissioner to have access to the information needed to determine an
entity's MRRT payable.
18.14 Fundamental to this is a requirement that entities keep records of
their MRRT affairs.
18.15 The main elements of the MRRT record-keeping rules are:
· a requirement to keep relevant records;
· a requirement to keep the records in writing in English, or in
a form that can be readily converted into writing in English;
and
· a five-year time limit for keeping the records.
18.16 The MRRT record-keeping rules are similar to those of other
taxation law record-keeping regimes.
Information transfers
18.17 An entity that transfers a mining project interest or a pre-mining
project interest (or part of either of them) to another entity has 60 days in
which to also provide that entity with the information it will need to work
out its MRRT liabilities for the transferred interest and to satisfy its
MRRT obligations.
18.18 If the acquiring entity needs further particulars of the
information provided to it after a mining project transfer or split (for
example, to enable it to answer enquiries from the Commissioner), it can
ask the original entity to provide those further particulars. That request
must be answered within 60 days.
Access powers
18.19 In order to administer the MRRT, and in particular ensure
compliance, the Commissioner has the power to access premises and
documents, and gather information that is held domestically and in foreign
jurisdictions.
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Minerals Resource Rent Tax
Service
18.20 The Commissioner can serve documents on entities at addresses
provided by them, including electronic addresses. A document is
considered served when the Commissioner leaves or posts it.
Making choices
18.21 The MRRT provides a mechanism for taxpayers to make choices
about a range of matters in the course of determining their MRRT
liabilities.
18.22 Default rules apply to those choices, based on these principles:
· Entities should be able to make a choice up to the earlier of
the day they lodge their MRRT return for the first MRRT
year for which the choice applies and the due date for
lodging that return.
· To the extent an MRRT return evidences a choice, that return
is sufficient evidence of the choice.
· A choice does not have to be notified to the Commissioner
unless either the Commissioner specifically asks for it or the
entity does not have to lodge a return.
· Entities cannot revoke or vary their MRRT choices.
Rulings
18.23 The existing rulings system applies to the MRRT. Therefore,
the Commissioner can issue public rulings about any aspect of the MRRT
law. Entities can also apply for private rulings about how the MRRT laws
apply to their particular circumstances.
Annual report
18.24 The Commissioner must provide an annual report to the
Minister on the operation of the MRRT law.
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Administration of the MRRT
Detailed explanation of new law
MRRT returns
18.25 Returns are integral to self assessment. They enable entities to
inform the Commissioner of their tax position for a period.
18.26 Some conventions exist about the form and contents of returns.
They must be in the form approved by the Commissioner, and lodged in a
prescribed manner within a certain time limit. Failure to lodge a required
return can result in penalties.
Who must give an MRRT return?
18.27 An entity that holds a mining project interest or pre-mining
project interest during an MRRT year must give the Commissioner an
MRRT return for that year. The return must deal with all such interests
the entity had at any time during the year. [Schedule 1, item 8,
subsection 117-5(1) of Schedule 1 to the TAA 1953]
18.28 This means that an MRRT return is required even if an entity is
not liable to pay MRRT for the MRRT year. [Schedule 1, item 8,
subsection 117-5(2) of Schedule 1 to the TAA 1953]
18.29 It also means that an entity that transfers an interest to another
entity during an MRRT year will need to lodge an MRRT return covering
that interest. This allows the entity to obtain a credit for MRRT
instalments it paid, or amounts that were withheld, in respect of the
interest.
18.30 However, there are some exceptions to the general rule. Some
entities are not required to furnish MRRT returns for an MRRT year. This
includes entities that have elected to use the simplified MRRT method for
the year (but such entities can lodge a return in order to get a refund for
paid MRRT instalments or amounts that were withheld). It also includes
entities that belong to a class that the Commissioner has exempted from
furnishing an MRRT return for an MRRT year. [Schedule 1, item 8,
subsections 117-5(4) and (5) of Schedule 1 to the TAA 1953]
18.31 If an entity is required to lodge an MRRT return, the due date is
the first day of the sixth month after the end of the MRRT year. The
MRRT payable for the year is also due on that day. For entities operating
on the standard MRRT year ending on 30 June, the return and the
payment for the year are due on 1 December [Schedule 1, item 8,
subsection 117-5(3) of Schedule 1 to the TAA 1953]. As with other tax laws, late
lodgement results in penalties.
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Minerals Resource Rent Tax
18.32 However, the Commissioner has discretion to defer lodgement
for both individual entities, and classes of entities. [Schedule 1, item 8,
paragraphs 117-5(3)(b) and (c), and subsection 117-5(5) of Schedule 1 to the TAA 1953]
The form and contents of the MRRT return
18.33 MRRT returns must be in the approved form. [Schedule 1, item 8,
subsection 117-10(1) of Schedule 1 to the TAA 1953]
18.34 The approved form for an MRRT return must require an entity
to provide information relating to its:
· taxable mining profit for the MRRT year; and
· MRRT payable for the MRRT year.
[Schedule 1, item 8, subsection 117-10(2) of Schedule 1 to the TAA 1953]
18.35 For these purposes a taxable mining profit for a miner for an
MRRT year means the sum of the mining profits less any allowances for
each of the mining project interests that the miner has for the year.
[Schedule 3, item 83, definition of `taxable mining profit' in subsection 995-1(1) of the
ITAA 1997]
18.36 MRRT payable for a miner for an MRRT year means the sum of
the MRRT liabilities of each mining project interest the miner has for that
year, less the sum of any offsets that the miner has for that year.
[Schedule 3, item 72, definition of `MRRT payable' in subsection 995-1(1) of the
ITAA 1997]
18.37 Section 388-50 in Schedule 1 to the TAA 1953, which deals
with approved forms, allows the Commissioner to require that a range of
other information be included in MRRT returns.
Additional MRRT returns
18.38 The Commissioner can direct an entity to give a further or fuller,
or any other, MRRT return for an MRRT year or specified period,
whether or not it has already furnished an MRRT return for that period.
[Schedule 1, item 8, subsection 117-15(1) of Schedule 1 to the TAA 1953]
18.39 This enables the Commissioner to request a return where, for
example, the original return has been lost, has not been lodged, or is
otherwise unsatisfactory. It also enables the Commissioner to require a
return for part of an MRRT year. It is intended as a power for use in
special cases. For example, it might be used where an entity is engaged in
aggressive tax planning schemes, or is abandoning its Australian mining
operations. It is not intended that the Commissioner require entities to
lodge multiple returns for each MRRT year as a matter of course.
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Administration of the MRRT
18.40 The Commissioner can also request returns from entities acting
in the capacity of agent or trustee for an entity. Typically, this would be
used for cases where those agents act for foreign residents. [Schedule 1,
item 8, subsection 117-15(1) of Schedule 1 to the TAA 1953]
Electronic lodgement
18.41 Entities must lodge their MRRT returns electronically, unless
the Commissioner allows otherwise. [Schedule 1, item 8, section 117-25 of
Schedule 1 to the TAA 1953]
Returns treated as being duly made
18.42 An MRRT return purporting to be made by or signed by or on
behalf of an entity is treated as having been duly made by the entity or
with the entity's authority until the contrary is proved. [Schedule 1, item 8,
section 117-30 of Schedule 1 to the TAA 1953]
18.43 This rule allows the Commissioner to rely on the contents of an
MRRT return, and for the process of self assessment to reach its natural
conclusion; that is, it allows a return to become an assessment. However,
if an entity proves that a return was lodged without its authority, then
there is no return, and both the Commissioner and the entity must proceed
as such.
Assessments and starting base assessments
Generic assessment provisions
18.44 The MRRT (CA&TP) Bill contains two alternative sets of
provisions, both of which are designed to establish an assessment regime
for the MRRT. The reason for this is that new assessment provisions were
being written for indirect tax purposes (the indirect tax assessment
provisions) at the same time as the MRRT. The indirect tax assessment
provisions were being developed as generic assessment provisions that
existing and future taxation laws could use. The MRRT is the first of the
additional regimes to use these generic provisions.
18.45 However, the indirect tax assessment provisions have yet to be
introduced into the Parliament and there is a possibility that they will not
receive Royal Assent in time for the commencement of the MRRT.
Therefore, a set of generic assessment provisions, based on the MRRT,
were developed simultaneously. Whether this alternative set of
provisions, or the set that extends the indirect tax assessment provisions to
also cover the MRRT is used, depends on whether the proposed indirect
tax assessment provisions commence before 1 July 2012. [Clause 2, items 3
and 4 in the table]
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Minerals Resource Rent Tax
18.46 The objective is an MRRT assessment system that is
substantively the same as the income tax assessment system (see Part IV
of the Income Tax Assessment Act 1936 (ITAA 1936)). Both the
Commissioner and those entities subject to the MRRT will essentially
have the same rights and obligations in respect to the MRRT as they have
with respect to income tax.
18.47 The following explanation proceeds on the basis that the MRRT
version of the generic assessment provisions receives Royal Assent before
1 July 2012 and that the proposed indirect tax assessment provisions do
not.
Assessments
18.48 An assessment crystallises the amount that an entity is required
to pay, or the amount the Commissioner is required to refund.
18.49 An entity's taxable mining profit and the MRRT payable thereon
is an assessable amount that is determined by assessment. [Schedule 2,
item 22, Subdivision 155-A of Schedule 1 to the TAA 1953]
18.50 The term assessable amount is new. It is an adaptable term that
can be leveraged by other tax regimes in the future. At this point it means
an entity's taxable mining profit for an MRRT year and the MRRT
payable by the entity for that year in relation to that profit.
18.51 The ascertainment of the MRRT assessable amount parallels the
assessment process used in income tax. In income tax, an assessment
includes the ascertainment of taxable income and the tax payable thereon.
In MRRT, an assessment involves the ascertainment of a miner's taxable
mining profit and the MRRT payable thereon. [Schedule 2, items 11, 12 and
22, section 155-5 and subsection 155-10(2) in Schedule 1 to the TAA 1953 and the
definition of `assessment' in subsection 995-1(1) of the ITAA 1997]
18.52 To ensure that the system is not overly rigid, the Commissioner
may treat part of a tax period as the whole tax period [Schedule 2, item 22,
section 155-25 in Schedule 1 to the TAA 1953]. This is equivalent to the
Commissioner's power to make special assessments under section 168 of
the ITAA 1936, and means that, for example, the Commissioner can
assess an entity that wishes to leave Australia prior to the end of the
MRRT year, or for part of a year, such as when an entity goes into
bankruptcy.
18.53 After an assessment is made, the Commissioner is required to
issue a notice of assessment of the assessable amount to the entity as soon
as practicable. Similarly, the Commissioner must also issue notices of
amended assessment in respect of amended assessments. [Schedule 2,
item 22, subsection 155-10(1) in Schedule 1 to the TAA 1953]
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Administration of the MRRT
MRRT assessments under the proposed indirect tax assessment provisions
18.54 Should the proposed indirect tax assessment provisions receive
Royal Assent before 1 July 2012, the MRRT (CA&TP) Bill amends those
provisions to specify that an assessable amount includes an entity's
taxable mining profit for an MRRT year and the MRRT payable by the
entity for that year in relation to that profit. [Schedule 2, items 2 and 3,
paragraph 155-5(2)(e) and subsection 155-15(1) of Schedule 1 to the TAA 1953]
18.55 The MRRT (CA&TP) Bill also makes a number of other minor
amendments to those provisions to ensure that they work for MRRT
purposes. [Schedule 2, items 4 and 21, subsection 155-30(1) and the heading to
Chapter 4 in Schedule 1 to the TAA 1953]
Self assessment
18.56 Under a full self assessment system, an entity assesses its
liabilities, and the Commissioner generally accepts the entity's assessment
at face value. A present example of full self assessment is the assessment
of companies for income tax purposes, under which lodgement of a tax
return effectively serves as a notice of assessment. The process for
assessing MRRT is built on these foundations.
Self assessment under the MRRT assessment provisions
18.57 The assessable amount -- an entity's taxable mining profit for
an MRRT year and the MRRT payable by the entity for that year in
relation to that profit -- is treated as having been assessed by the
Commissioner on the day an entity lodges its MRRT return for an MRRT
year specifying the entity's taxable mining profit and MRRT payable for
the year. [Schedule 2, item 22, subsections 155-15(1) and (2), paragraph 155-15(3)(a)]
18.58 The MRRT return that is lodged by an entity is deemed to be a
notice of assessment signed by the Commissioner and given to the entity
on the day the return is given to the Commissioner. [Schedule 2, item 22,
subsection 155-15(4) of Schedule 1 to the TAA 1953]
18.59 However, it should be noted that self assessment does not apply
if, for some reason, the Commissioner has issued an assessment on or
before the day an entity required to lodge a return meets its obligation to
do so. For example, if the Commissioner issues a default assessment.
[Schedule 2, item 22, subsection 155-15(5)]
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Minerals Resource Rent Tax
Self assessment of MRRT under the proposed indirect tax assessment
provisions
18.60 Should the proposed indirect tax assessment provisions receive
Royal Assent before 1 July 2012, then the MRRT (CA&TP) Bill amends
those provisions with the effect described above. [Schedule 2, items 2 and 3,
subsections 155-15(1) and (2) of Schedule 1 to the TAA 1953]
Default assessments
Default assessments under the MRRT assessment provisions
18.61 A full self assessment system is built on significant levels of
trust. The community has demonstrated in the income tax context that
that trust is well placed. However, some entities fail to meet their self
assessment obligations. When this happens, the Commissioner needs to
step in.
18.62 Therefore, the general power to assess may apply where an
entity fails to lodge a return and the Commissioner wishes to assess an
assessable amount based on information available to him or her [Schedule 2,
item 22, section 155-5 in Schedule 1 to the TAA 1953]. This is the same as the
Commissioner's power to make default assessments under section 167 of
the ITAA 1936.
Default assessments under the proposed indirect tax assessment provisions
18.63 The version of the assessment provisions in the proposed
indirect tax assessment provisions is identical to the MRRT version and
does not need an amendment to make it applicable for MRRT purposes.
Amending assessments
18.64 Sometimes it is necessary to amend an assessment because a
mistake has been made. Amendments can be initiated by a taxpayer or by
the Commissioner. They can also be made to give effect to decisions
made by courts and tribunals.
Amending assessments under the MRRT assessment provisions
18.65 The Commissioner can amend an assessment during the period
of review, which commences on the day the Commissioner gives notice of
the original assessment and expires four years after the day after the notice
of assessment is issued (unless extended). Where an assessment is self
assessed, the period of review will commence on the day the return is
lodged, regardless of whether the return is lodged early or late. [Schedule 2,
item 22, subsections 155-35(1) and (2) in Schedule 1 to the TAA 1953]
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Administration of the MRRT
18.66 The period of review ensures that tax disputes have finality and
cannot extend indefinitely. The period of four years is consistent with the
timeframe applicable to amending the income tax assessments of medium
and large business taxpayers.
18.67 However, due to the complexity of some tax disputes, it can be
difficult to reach resolution within four years. Therefore, there is scope
for the period of review to be extended (including more than once), but
this can only be done by way of a Federal Court order or with the entity's
consent. A Federal Court order can only be granted if the Court is
satisfied that the entity under examination has not played a role in
delaying the assessment process. This rule ensures that there is no
incentive for entities to stall an examination of its affairs. [Schedule 2,
item 22, subsections 155-35(4) to (6) in Schedule 1 to the TAA 1953]
18.68 The term `examination' is a very broad concept and takes its
ordinary meaning; which includes audits, reviews, investigations or
enquiries.
18.69 There are also some circumstances in which the Commissioner
can amend an assessment after the period of review has expired. For
example, if an entity applies for an amendment within the period of
review, the Commissioner can amend outside the period of review to give
effect to that application [Schedule 2, item 22, section 155-45 in Schedule 1 to the
TAA 1953]. In addition, if an entity applies for a private ruling within the
period of review and the Commissioner issues the ruling, an assessment
can be amended outside the period of review in order to give effect to the
private ruling [Schedule 2, item 22, section 155-50 in Schedule 1 to the TAA 1953].
18.70 Equally, the Commissioner can amend an assessment at any
time to give effect to certain types of declarations and determinations.
This would include a determination to make a compensating adjustment
under the general anti-avoidance rule in the Minerals Resource Rent Tax
Bill 2011 (MRRT Bill) [Schedule 2, item 22, section 155-55 in Schedule 1 to the
TAA 1953]. That is, where an entity has been involved in an MRRT
avoidance scheme that has negatively impacted a second entity's MRRT
liabilities, the Commissioner can compensate the second entity.
18.71 The Commissioner can also amend an assessment at any time to
give effect to the anti-profit shifting rules in Division 205 of the
MRRT Bill [Schedule 2, item 22, section 155-57 in Schedule 1 to the TAA 1953].
This power recognises the complexity of these types of transactions, and
the timeframes involved in examining them. Moreover, the power is
consistent with income tax law, where the Commissioner has an unlimited
timeframe to amend to give effect to transfer pricing rules.
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Minerals Resource Rent Tax
18.72 Importantly, the Commissioner retains a right to amend an
assessment at any time to curtail fraud or evasion [Schedule 2, item 22,
paragraph 155-60(c) in Schedule 1 to the TAA 1953]. This rule protects the
integrity of the MRRT revenue base by ensuring that serious
non-compliance is not rewarded.
18.73 The amendment of an assessment -- for any of the reasons
outlined above -- raises a question about the period of review for
amending an amended assessment. An amendment to an assessment gives
rise to a refreshed period of review for the particular that is amended. A
separate refreshed period of review exists for each amended particular.
[Schedule 2, item 22, subsection 155-70(1) in Schedule 1 to the TAA 1953]
18.74 However, an amendment to give effect to:
· a taxpayer-initiated amendment;
· a private ruling application;
· anti-avoidance compensating adjustment; or
· a review, objection or fraud,
does not give rise to a refreshed period of review because the
Commissioner can make amendments for these purposes at any time.
[Schedule 2, item 22, subsection 155-70(1) in Schedule 1 to the TAA 1953]
18.75 The refreshed period of review starts immediately after the day
the Commissioner gives the entity a notice of amended assessment for the
last amendment made to the particular during the period of review, and
ends four years after that day. The refreshed period of review cannot be
extended. [Schedule 2, item 22, subsection 155-70(2) in Schedule 1 to the TAA 1953]
18.76 If the period of review (applicable to the original assessment)
has lapsed, and the Commissioner wishes to amend an amended
assessment within the refreshed period of review, he or she can only
amend in respect to a particular covered by the refreshed period of review
[Schedule 2, item 22, subsection 155-70(2) in Schedule 1 to the TAA 1953]. A
`particular' is a constituent element that affects an increase or decrease in
the assessable amount.
18.77 An amended assessment can only be amended once in relation to
a particular during the refreshed period of review. However, an entity has
its rights to object under Part IVC of the TAA 1953. [Schedule 2, item 22,
sections 155-70 and 155-90 in Schedule 1 to the TAA 1953]
18.78 Moreover, there may be more than one refreshed period of
review if different particulars are amended in the period of review. The
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Administration of the MRRT
amendments giving rise to a refreshed period of review can be initiated
either by the Commissioner or on application by the entity. [Schedule 2,
item 22, section 155-70 in Schedule 1 to the TAA 1953]
18.79 Finally, it should be noted that the requirements applying to
assessments, such as the requirement that the Commissioner issue a notice
of assessment for each assessment, also apply to amended assessments.
[Schedule 2, item 22, sections 155-80 in Schedule 1 to the TAA 1953]
Amending MRRT assessments under the proposed indirect tax assessment
provisions
18.80 Should the proposed indirect tax assessment provisions receive
Royal Assent before 1 July 2012, then the MRRT (CA&TP) Bill amends
those provisions to specify that assessments of MRRT can be amended.
[Schedule 2, items 5 to 7, 14 and 15, sections 155-55, 155-57 and 155-95 in Schedule 1
of the TAA 1953, definitions of `original assessment' and `period of review' in
subsection 995-1(1) of the ITAA 1997]
General rules
18.81 A range of general rules are necessary for consistency with the
rest of the tax system, and to support self assessment; these concern
refunds of overpaid amounts, the validity of assessments, and the rights of
entities to have taxation decisions reviewed.
General rules under the MRRT assessment provisions
18.82 First, if an amendment of an assessment results in an entity's
tax-related liability being reduced, the amount by which the liability is
reduced is treated as though it was never payable and the Commissioner
must apply that amount in accordance with the rules for running balance
accounts under Divisions 3 and 3A of Part IIB of the TAA 1953.
[Schedule 2, item 22, section 155-75 in Schedule 1 to the TAA 1953]
18.83 Second, the validity of an assessment is not affected by any
non-compliance with the provisions of any other taxation law [Schedule 2,
item 22, section 155-85 in Schedule 1 to the TAA 1953]. This rule is consistent
with section 175 of the ITAA 1936 and has the effect of ensuring that tax
disputes focus on the issue that really matters. That is, has the entity paid
the appropriate amount of tax?
18.84 Third, the question of whether an entity has paid the appropriate
amount of tax requires a dispute settlement mechanism; as such,
assessments are reviewable taxation decisions under Part IVC of the
TAA 1953 [Schedule 2, item 22, section 155-90 in Schedule 1 to the TAA 1953]. An
entity that is dissatisfied with an assessment has four years after notice of
the original assessment is issued to object against the assessment
[Schedule 2, item 18, paragraph 14ZW(1)(bg) of the TAA 1953].
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Minerals Resource Rent Tax
18.85 With respect to an amended assessment, an entity may lodge an
objection either within four years of the notice of the original assessment,
or 60 days after the relevant notice of amended assessment was given,
whichever is later. It should be noted that section 14ZV of the TAA 1953
limits any objection to an amended assessment to the particular or
particulars that have been amended. [Schedule 2, item 20,
paragraph 14ZW(1B)(b) of the TAA 1953]
18.86 The fact that entities can have MRRT decisions reviewed under
Part IVC of the TAA 1953 means that, consistent with the approach taken
to other tax laws, decisions in relation to assessments are not reviewable
decisions under the Administrative Decisions Judicial Review Act 1977
[Schedule 2, item 10, paragraph (e) of Schedule 1 of the Administrative Decisions
Judicial Review Act 1977].
Applicability of the general rules to MRRT under the proposed indirect
tax assessment provisions
18.87 If the proposed indirect tax assessment provisions receive Royal
Assent before 1 July 2012, then additional amendments are made to the
Administrative Decisions Judicial Review Act 1977 to ensure that MRRT
decisions are not reviewable under that Act. [Schedule 3, items 1 and 2,
paragraph (e) of Schedule 1 to the Administrative Decisions Judicial Review Act 1977]
They will have objection rights under Part IVC [Schedule 2, items 6 and 7,
section 155-90 in Schedule 1 to the TAA 1953].
Miscellaneous consequential amendments under the MRRT assessment
provisions
18.88 The Commissioner has a power to retain an amount until an
entity has given the Commissioner a notification that affects the refund, or
until he or she makes an assessment of the amount. A minor amendment
ensures that the Commissioner can retain an amount until he or she makes
or amends an assessment. [Schedule 2, item 17, subsection 8AAZLG(2) of the
TAA 1953]
Evidence
18.89 The Commissioner issues an extraordinarily large number of
documents to give force to decisions. As such, special evidentiary rules
exist to protect the validity of those documents and decisions. These rules
are consistent with section 177 of the ITAA 1936.
18.90 The purpose of these rules is similar to that regarding the
validity of an assessment; that is, these rules ensure that the focus of a
dispute about MRRT payable focuses on the key question: has the
relevant entity paid the appropriate amount of MRRT? These rules also
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Administration of the MRRT
ensure that where an entity has a tax debt, the Commissioner can have that
debt enforced in a Court by producing the relevant assessment.
Evidence rules under the MRRT assessment provisions
18.91 The amount included in an assessment will be conclusive
evidence of the assessment of the entity's assessable amount, other than in
proceedings commenced under Part IVC of the TAA 1953, such as an
objection against the assessment. [Schedule 2, item 25, subsection 350-10(1) in
Schedule 1 to the TAA 1953]
18.92 In addition, the production of a:
· Gazette notice purporting to be issued by the Commissioner
is conclusive evidence that the notice was so issued;
· document, copy of a document, or an extract from a
document, issued under the hand of the Commissioner, a
Second Commissioner, a Deputy Commissioner or delegate
of the Commissioner for the purposes of a taxation law, is
conclusive evidence that the document was so issued;
· notice of assessment is conclusive evidence that the
assessment was properly made and is correct, except in
Part IVC proceedings; and
· a determination under the MRRT anti-avoidance or
anti-profit shifting rules is conclusive evidence that the
determination was properly made and is correct, except in
Part IVC proceedings.
[Schedule 2, item 25, subsection 350-10(1) in Schedule 1 to the TAA 1953]
18.93 The production of a certificate that is signed by the
Commissioner, a Second Commissioner, a Deputy Commissioner, or a
delegate of the Commissioner, and which states that an amount is payable
under a taxation law, is prima facie evidence that the amount is payable
from the time stated in the certificate, and that the particulars stated in the
certificate are correct. [Schedule 2, item 25, subsection 350-10(2) in Schedule 1 to
the TAA 1953]
18.94 The production of a document that appears to be a copy of, or
extract from, an original document made or given by or to an entity for the
purposes of a taxation law, and is signed by the Commissioner, a Second
Commissioner, a Deputy Commissioner or a delegate of the
Commissioner, is evidence in the same way as the original would have
been evidence. [Schedule 2, item 25, subsection 350-10(3) in Schedule 1 to the
TAA 1953]
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Minerals Resource Rent Tax
18.95 Judicial notice must be taken of the signature of the
Commissioner, a Second Commissioner, a Deputy Commissioner or a
delegate of the Commissioner if the signature is attached to an official
document. [Schedule 2, part 2, item 19, section 350-15 in Schedule 1 to the
TAA 1953]
Applicability of the evidence rules to MRRT under the proposed indirect
tax assessment provisions
18.96 If the proposed indirect tax assessment provisions receive Royal
Assent before 1 July 2012, then amendments are made to those provisions
to ensure that they apply to MRRT-specific documents. [Schedule 2, items 8,
9, 13 and 16, section 350-5 and subsection 350-10(1) in Schedule 1 to the TAA 1953,
definitions of `Deputy Commissioner' and `Second Commissioner' in
subsection 995-1(1) of the ITAA 1997]
Starting base returns and assessments
18.97 The MRRT starting base has been brought into the assessment
regime to ensure certainty with respect to starting base allowances. This
has benefits for miners and the Commissioner -- it means that disputes
about starting base valuations cannot extend into the distant future.
18.98 Because of the necessity to assess the starting base, it is also
necessary that relevant entities furnish a starting base return.
Starting base returns
18.99 The starting base return is integral to the idea of a starting base
assessment, and an entity's capacity to claim a starting base allowance.
18.100 If an entity makes a starting base choice in relation to its mining
project interest or pre-mining project interest, then the entity must give the
Commissioner a starting base return for the first MRRT year. [Schedule 1,
item 8, subsection 117-20(1) of Schedule 1 to the TAA 1953]
18.101 The starting base return must relate to every starting base asset
(or thing that may become a starting base asset) relating to the mining
project interest, or pre-mining project interest. [Schedule 1, item 8,
subsection 117-20(2) of Schedule 1 to the TAA 1953].
18.102 Generally, if an entity is required to lodge a starting base return,
it is due on the first day of the sixth month after the end of its first MRRT
year. However, where the project interest is transferred after 1 July 2012
and before a choice is made, the transferee must make the choice and
lodge the starting base return by the same time the transferor would have
been required to if it had continued to have the interest. Failure to lodge
by this date will affect the validity of the return. However, the
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Administration of the MRRT
Commissioner can extend the period for lodgement. [Schedule 1, item 8,
subsection 117-20(3) of Schedule 1 to the TAA 1953]
18.103 As is the case with the MRRT return, the starting base return
must be in the approved form, which requires the provision of information
relating to the base value of each starting base asset an entity has and what
would be the base value of notional starting base assets. [Schedule 1, item 8,
subsections 117-20(4) and (5) of Schedule 1 to the TAA 1953]
18.104 The return needs to contain enough information to disclose the
total of base values, but it does not require that the base value of each
asset be recorded separately. As it will not be practical in many
circumstances to include asset by asset information in the starting base
return it is anticipated that the Commissioner will request summary
information of some classes of assets.
18.105 Where a miner has chosen the market value approach, it is
required to include the rights and interests that constitute the mining
project interest, any mining information, any improvements to land in the
project area and any goodwill in a single starting base asset. In addition,
the mining project interest itself may be made up of a number of
constituent interests that are combined because they are upstream
integrated. In these cases, the starting base return requires information
about the base value of the composite starting base asset, not necessarily
the individual elements of that asset.
Starting base assessments
18.106 A starting base assessment crystallises the starting base available
for use in an entity's first MRRT return.
18.107 In accordance with the assessment rules, the base value of a
starting base asset for the first MRRT year is an assessable amount. This
amount is treated as having been assessed on the day an entity lodges its
starting base return for that MRRT year. [Schedule 4, item 15]
18.108 In addition, all of the rules regarding assessments, including
those about:
· self assessment;
· default assessments;
· original assessments;
· amending and amended assessments;
· refunds of overpaid amounts;
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Minerals Resource Rent Tax
· the validity of the assessment;
· objections and judicial review; and
· evidence,
apply to the starting base assessment in the same way as they apply to an
assessment of an entity's taxable mining profit and the MRRT payable.
Collection and recovery
18.109 In order to ensure that taxpayers meet their liabilities under a
self assessment system, the system is supported by a range of collection
and recovery provisions. The Commissioner can recover unpaid tax (even
where a dispute is pending), release taxpayers from their liabilities
because of hardship, apply penalties and interest, issue notices to third
parties owing money to or holding money for a taxpayer, issue departure
prohibition orders, and apply for mareva injunctions.
18.110 Further support comes in the form of withholding provisions,
which impose obligations on the payers of certain types of payments to
withhold tax on behalf of payees, and by requiring certain classes of
taxpayers to pay instalments during the tax year, and by a running balance
account that enables the Commissioner to offset credits and debits. The
regime also recognises that sometimes taxpayers overpay their liabilities,
or pay them early, and interest can be payable on such amounts.
Generic collection and recovery rules
18.111 The following MRRT liabilities are tax-related liabilities for the
purposes of the generic collection and recovery rules:
· assessed MRRT;
· shortfall interest charge on a shortfall in MRRT; and
· quarterly MRRT instalments.
[Schedule 1, items 9 and 10, subsection 250-10(2) of Schedule 1 to the TAA 1953]
Withholding tax
Withholding from natural resource payments
18.112 Entities that are foreign residents may have MRRT withheld
from natural resource payments -- that is, payments that are of a nature
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Administration of the MRRT
described by section 12-325 of Schedule 1 to the TAA 1953. [Schedule 1,
item 4, paragraphs 12-330(1)(b) and 12-335(2)(a) of Schedule 1 to the TAA 1953]
Crediting withheld amounts
18.113 If an entity receives a natural resource payment from which an
amount has been withheld for MRRT purposes, then the recipient of the
natural resource payment is entitled to a credit equal to the amount
withheld. [Schedule 1, items 6 and 7, sections 18-10 and 18-49 in Schedule 1 to the
TAA 1953]
18.114 Consequential amendments were made to the objects of the
PAYG withholding provisions, and the heading of the subdivision dealing
with the crediting of withheld amounts. [Schedule 1, items 3 and 5,
paragraph 11-1(g) and Subdivision 18-A in Schedule 1 to the TAA 1953]
Shortfall interest charge
18.115 Existing provisions have been modified to make the shortfall
interest charge applicable to shortfalls in MRRT. [Schedule 1, items 11, 12
and 14 to 16, sections 280-1, 280-50 and 280-170, paragraph 280-105(1)(a),
subsection 280-110(1) of Schedule 1 to the TAA 1953]
18.116 An entity will be liable to pay shortfall interest charge on an
additional amount of MRRT that it is liable to pay because the
Commissioner amends its assessment for an MRRT year [Schedule 1,
item 13, subsection 280-101(1) of Schedule 1 to the TAA 1953]. Shortfall interest
charge accrues for each day beginning on the day the entity's first
assessment of MRRT for that year was due to be paid, or would have been
due if there had been any, and ending the day before the day on which the
Commissioner gave the entity notice of the amended assessment
[Schedule 1, item 13, subsection 280-101(2) of Schedule 1 to the TAA 1953].
18.117 However, if an amended assessment reinstates all or part of a
liability in relation to a particular that had been reduced by an earlier
amendment, the period for the reinstated liability begins on the day on
which MRRT under the earlier amended assessment was due to be paid,
or would have been due to be paid if there had been any. [Schedule 1,
item 13, subsection 280-101(3) of Schedule 1 to the TAA 1953]
General interest charge
18.118 The general interest charge is payable on:
· the late payment of assessed MRRT or shortfall interest
charge;
· the late payment of MRRT instalments; and
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Minerals Resource Rent Tax
· any shortfall in MRRT instalments worked out on the basis
of a varied rate.
[Schedule 1, items 1 and 2, subsection 8AAB(4) of the TAA 1953]
Interest on overpayments and early payments
18.119 The MRRT has been included as a relevant tax so that interest
can be paid on overpayments and early payments. [Schedule 3, items 86 to 89,
subsection 3(1) and section 3C of the Taxation (Interest on Overpayments and Early
Payments) Act 1983]
Liability to penalty
18.120 The administrative penalty provisions apply to the MRRT. Such
penalties apply when entities make false or misleading statements, take
positions that are not reasonably arguable, enter into schemes, and refuse
to provide documents to the Commissioner.
18.121 Minor amendments were required to ensure that entities which
take MRRT positions that are not reasonably arguable are subject to
higher administrative penalties when they have a shortfall in their MRRT
payable. [Schedule 1, items 17 to 23, sections 284-30 and 284-35,
paragraphs 284-75(2)(a) and (b), subsections 284-80(1) and 284-90(1) in Schedule 1 to
the TAA 1953]
Instalments
18.122 The MRRT instalments system provides for paying quarterly
instalments towards the annual MRRT liability of entities with mining
project interests or pre-mining project interests, in the same way that
companies pay instalments towards their income tax liability. Unlike
income tax, no entities will pay MRRT instalments annually or
half-yearly.
18.123 Like the PAYG instalments system for income tax, MRRT
instalments are intended to ensure the efficient collection of MRRT by
providing entities with a simple and convenient way to meet their annual
MRRT liability as their mining revenue is derived. A quarterly payment
system avoids the problems of large end-of-year MRRT debts and
provides the Commonwealth with revenue throughout the year. The
instalments are not precise calculations of ultimate liability but aim to get
as close as possible to the ultimate liability, within a system that is simple
and convenient. [Schedule 1, item 8, section 115-5 of Schedule 1 to the TAA 1953]
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Administration of the MRRT
Liability for instalments
18.124 Entities are liable to pay an MRRT instalment for an instalment
quarter if they have mining revenue, pre-mining revenue, or an instalment
rate greater than nil, for the quarter. [Schedule 1, item 8, subsection 115-10(1) of
Schedule 1 to the TAA 1953]
18.125 An instalment quarter is a period of three months in the year.
For an entity using a standard financial year, the quarters would be:
· First quarter: July, August and September.
· Second quarter: October, November and December.
· Third quarter: January, February and March.
· Fourth quarter: April, May and June.
[Schedule 1, item 8, subsection 115-10(2) of Schedule 1 to the TAA 1953]
18.126 An entity using a substituted accounting period would also
usually have four three-monthly quarters, although the months would
differ from the standard. When an entity changes accounting periods, the
transitional period could be longer or shorter than 12 months, leading to
more or fewer than four quarters in the year and a final quarter that could
be shorter than three months. [Schedule 1, item 8, section 115-110 of Schedule 1
to the TAA 1953]
18.127 Each quarterly instalment is due on the 21st day of the month
after the end of the quarter. [Schedule 1, item 8, section 115-25 of Schedule 1 to
the TAA 1953]
Example 18.1: Due date for instalment
For an entity using a standard MRRT year (1 July to 30 June), the
instalment for the first quarter, which ends on 30 September, would be
due on 21 October.
18.128 As with most other late payments of tax, the general interest
charge applies on a daily basis if an MRRT instalment is not paid on time.
The general interest charge ensures that the Commonwealth is
compensated for late payments of tax and discourages entities from
treating Commonwealth tax debts as a form of interest-free loan.
[Schedule 1, item 8, section 115-30 of Schedule 1 to the TAA 1953]
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Minerals Resource Rent Tax
Credit for instalments
18.129 An entity's instalments payable for an MRRT year are credited
against its final MRRT liability, once an assessment is made following the
end of the MRRT year. The crediting process is handled through the
running balance account regime in Division 3 of Part IIB of the
TAA 1953, which offsets credits against a taxpayer's tax liabilities and
refunds any excess credits. [Schedule 1, item 8, subsection 115-20(1) of
Schedule 1 to the TAA 1953]
18.130 The amount of the credit is the total of the entity's instalments
payable for the year, less any credits already claimed because it
transferred a mining project interest (or pre-mining project interest) or
because it varied its instalment rate. In effect, the entity gets a credit for
the net amount of its instalments payable for the year. [Schedule 1, item 8,
subsection 115-20(2) of Schedule 1 to the TAA 1953]
18.131 An entity gets a credit for its instalments even if it has not yet
paid them. That ensures that there is no double collection of a liability
(once for the annual MRRT liability and again when the unpaid instalment
is collected). Unpaid instalments remain debts due to the Commonwealth.
[Schedule 1, item 8, paragraph 115-20(2)(a), subsections 115-20(1) and (3) of
Schedule 1 to the TAA 1953]
The amount of an instalment
18.132 The MRRT instalment an entity is liable to pay for a quarter is:
The entity's MRRT instalment income for the quarter × the
entity's applicable instalment rate
[Schedule 1, item 8, section 115-35 of Schedule 1 to the TAA 1953]
Example 18.2: Amount of an instalment
Under Mines Pty Ltd has instalment income for a quarter of
$75 million and an applicable instalment rate of 7 per cent. Its
instalment for the quarter will be $75million × 0.07 = $5.25million.
Instalment income
18.133 The instalment income for a quarter is the sum of the following
amounts that arise because of mining revenue events that happen during
the quarter:
· consideration for supplies of taxable resources or things
produced using the taxable resources;
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Administration of the MRRT
· what would be the consideration for supplies of taxable
resources, or things produced from taxable resources, that are
exported before they are supplied; or
· what would be the consideration for supplies of something
produced from taxable resources that is used instead of being
supplied or exported.
[Schedule 1, item 8, section 115-40 of Schedule 1 to the TAA 1953]
18.134 The instalment income includes the gross consideration arising
from mining events in the quarter that will result in an amount being
included in mining revenue or pre-mining revenue. It does not include the
mining revenue itself (which is the part of the gross consideration that is
attributed to the valuation point) and it does not include some other
amounts (such as recoupments of expenditure). This is done deliberately
to make it easier for entities to calculate their instalments. In most cases,
entities will only need to track the consideration for supplies of resources
during the quarter. The reduction of the gross consideration to produce an
instalment that is close to the eventual MRRT liability is achieved by the
application of the entity's instalment rate.
Applicable instalment rates
18.135 Three possible instalment rates could apply to an entity:
· A rate the Commissioner gives the entity.
· A rate the entity chooses for the quarter.
· The default instalment rate.
[Schedule 1, item 8, subsection 115-45(1) of Schedule 1 to the TAA 1953]
18.136 If more than one possible rate applies, the rate that the entity
uses (the applicable instalment rate) is (in this order):
· A nil rate the Commissioner has given the entity.
· A rate the entity has chosen for the quarter (or an earlier
quarter in the same MRRT year).
· A rate the Commissioner has given the entity that is not a nil
rate.
· The default rate.
[Schedule 1, item 8, subsection 115-45(1) of Schedule 1 to the TAA 1953]
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Minerals Resource Rent Tax
The Commissioner's instalment rate
18.137 The Commissioner will usually give entities an instalment rate
based on their previous year's MRRT liability. This is similar to the
system used for PAYG instalments. It assumes that the ratio between an
entity's revenue and its expenditure and MRRT allowances will be fairly
consistent from year to year.
18.138 That assumption, however, may not always hold true. For
example, an entity might incur unusually large capital expenditure in one
year or the consideration for supplying taxable resources could vary
considerably relative to the entity's costs from one year to the next.
Nevertheless, it is a reasonable basis on which to build a collection system
that is only intended to collect something close to the entity's final MRRT
liability.
18.139 A rate the Commissioner gives an entity will apply for the
quarter in which it was given and will continue to apply until the
Commissioner gives the entity a new rate. It will apply even if it was
given some years ago (although the Commissioner's usual practice is to
provide a new rate each year). [Schedule 1, item 8, item 3 in the table in
subsection 115-45(1) of Schedule 1 to the TAA 1953]
18.140 The Commissioner usually works out the rate by using a formula
that determines the rate that would have produced instalments for the
previous MRRT year equal to the entity's total MRRT liability. That is:
The entity's MRRT liability for the previous MRRT year
The entity's instalment income for the previous MRRT year
[Schedule 1, item 8, subsection 115-75(2) of Schedule 1 to the TAA 1953]
18.141 The `instalment income' used in the formula does not include
amounts that related to mining project interests and pre-mining project
interests that were transferred or split to another entity during the previous
MRRT year [Schedule 1, item 8, section 115-105 of Schedule 1 to the TAA 1953]. If
either part of the formula is zero, the rate will be nil [Schedule 1, item 8,
subsection 115-75(4) of Schedule 1 to the TAA 1953].
18.142 If the entity did not have an MRRT assessment for the previous
MRRT year, the Commissioner would use the most recently assessed
MRRT year instead. [Schedule 1, item 8, subsection 115-75(3) of Schedule 1 to the
TAA 1953]
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Administration of the MRRT
Example 18.3: Commissioner's instalment rate
In the 2014-15 MRRT year, Like Mines Pty Ltd, an iron ore miner, had
an MRRT liability of $14.5 million. Its consideration for the ore it
supplied in that year was $207 million. The Commissioner would
usually provide Like Mines with a rate for the 2015-16 MRRT year of
14.5m/207m = 7%.
18.143 The Commissioner can modify the MRRT liability used to
calculate the rate in order to reflect changes in the law after the MRRT
year (the `base year') used for working out a rate. For example, if the law
were changed to allow expenditure to be deducted that had previously
been excluded expenditure, the entity's MRRT liability for the base year
would have been lower. In working out a rate, the Commissioner can use
the MRRT liability that would have applied if the change in the law had
applied for that year. This ensures that the MRRT instalments system
functions effectively relative to the current state of the law with the
intention that it neither over nor under collects instalments. [Schedule 1,
item 8, subsection 115-75(5)and section 115-80 of Schedule 1 to the TAA 1953]
18.144 The Commissioner can also modify the MRRT liability for the
previous year to work out an entity's instalment rate if the law has not
changed but, in the Commissioner's opinion, is likely to be changed in
time to apply to relevant instalments. In that case, the Commissioner can
only vary the rate to reduce it. That protects entities against paying
instalments that are too high if the anticipated law change does not
eventuate. [Schedule 1, item 8, section 115-80 of Schedule 1 to the TAA 1953]
18.145 The Commissioner may be aware of other circumstances that
would mean the rate calculated in the normal way would not be
appropriate. For example, the Commissioner might become aware that
the entity had made significant one-off capital expenditure in the previous
year. In all such cases, the Commissioner can work out an instalment rate
on a different basis if, having regard to the entity's circumstances, he or
she considers it reasonable to do so and if it would produce instalments
that are closer to the entity's likely MRRT liability for the year.
[Schedule 1, item 8, subsections 115-75(5) and (6) of Schedule 1 to the TAA 1953]
18.146 If the Commissioner believes an entity is unlikely to be liable to
pay MRRT for an MRRT year, the Commissioner can give the entity a nil
rate. [Schedule 1, item 8, subsection 115-45(2) of Schedule 1 to the TAA 1953]
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Minerals Resource Rent Tax
18.147 There are two differences between a nil rate and any other rate
the Commissioner gives an entity:
· A nil rate is the applicable instalment rate even if the entity
has chosen a different rate [Schedule 1, item 8, item 1 in the table in
subsection 115-45(1) of Schedule 1 to the TAA 1953];
· A nil rate applies for the quarter in which it is given and for
any later quarters in the same MRRT year; it does not apply
to quarters after that MRRT year [Schedule 1, item 8,
subsection 115-45(4) of Schedule 1 to the TAA 1953].
18.148 The Commissioner can give a whole class of entities a nil rate if
the Commissioner believes no member of the class will be liable to pay
MRRT for the year. [Schedule 1, item 8, subsection 115-45(3) of Schedule 1 to the
TAA 1953]
18.149 A nil rate stops applying from the quarter the Commissioner
gives the entity a different instalment rate. Unlike the nil rate, the entity
could substitute its chosen rate for that replacement Commissioner rate.
[Schedule 1, item 8, subsections 115-45(1) and (5) of Schedule 1 to the TAA 1953]
18.150 If the Commissioner gives an entity a rate, he or she must notify
the entity in writing [Schedule 1, item 8, subsections 115-45(2) and 115-75(1) of
Schedule 1 to the TAA 1953]. If the Commissioner gives a class of entities a
nil rate, the Commissioner does so by legislative instrument and does not
have to separately notify the entities in that class [Schedule 1, item 8,
subsection 115-45(3) of Schedule 1 to the TAA 1953].
The entity's chosen instalment rate
18.151 An entity can choose a different instalment rate for each quarter
but can only choose one rate for a quarter and cannot change it.
[Schedule 1, item 8, section 115-50 of Schedule 1 to the TAA 1953]
18.152 A rate an entity chooses for a quarter will continue to apply for
each later quarter in the MRRT year unless the entity chooses a different
rate for a later quarter. However, a rate an entity chose for a quarter will
not apply to a quarter in a later MRRT year, even if a new rate is not
chosen. The rate given by the Commissioner (or the default rate if the
Commissioner has never given the entity a rate) would become the
applicable rate in that later year. [Schedule 1, item 8, item 2 in the table in
subsection 115-45(1) of Schedule 1 to the TAA 1953]
The default instalment rate
18.153 If the Commissioner has not given the entity a rate, and the
entity has not chosen a rate, for a quarter, the applicable instalment rate
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Administration of the MRRT
for the quarter will be the default rate. [Schedule 1, item 8, item 4 in the table in
subsection 115-45(1) of Schedule 1 to the TAA 1953]
18.154 The default instalment rate for an entity that only has instalment
income relating to iron ore is 8 per cent [Schedule 1, item 8,
paragraph 115-85(1)(a) of Schedule 1 to the TAA 1953]. The default instalment
rate for an entity that only has instalment income relating to other taxable
resources (coal or gas) is 3 per cent [Schedule 1, item 8, paragraph 115-85(2)(a)
of Schedule 1 to the TAA 1953].
18.155 For quarters after the 2012-13 MRRT year, those default rates
can be changed by regulation. That allows the default instalment rate to
be altered quickly to reflect any global changes to profit levels in the
mining industry after the first MRRT year. After that first year, existing
miners will be given an annual rate by the Commissioner, so regulations
changing the default rate will only affect entities new to the MRRT and
only for their first MRRT year. Of course, those entities new to the
MRRT will be able to choose their own instalment rate in the usual way if
the default rate is not suitable for them. [Schedule 1, item 8,
paragraphs 115-85(1)(b) and (2)(b) and subsection 115-85(4) of Schedule 1 to the
TAA 1953]
18.156 If an entity has instalment income relating to iron ore and to coal
or gas, its default instalment rate is an amalgam of the two prescribed
rates. It would multiply the iron ore default rate by the proportion of its
instalment income for the quarter that relates to iron ore and multiply the
coal and gas default rate by the proportion of the quarter's instalment
income that relates to coal or gas. Adding the two results and rounding it
to two decimal places would give the entity its default instalment rate for
that quarter. [Schedule 1, item 8, subsection 115-85(3) of Schedule 1 to the
TAA 1953]
Example 18.4: Default rate for diverse interests
Merry Quest Co has several iron ore mines and one coal mine.
Eighty per cent of its instalment income for a quarter relates to iron ore
and the other 20 per cent relates to coal. The default rate for iron ore
for the quarter is still 8 per cent but the regulations have changed the
coal default rate to 2.5 per cent. Merry would work out its default rate
for the quarter as (8% × 80%) + (2.5% × 20%) = 6.9%
Consequences of choosing an instalment rate
18.157 As with the PAYG instalments system, an entity can choose to
use a rate that is different from the rate the Commissioner has given the
entity (or the default rate if the Commissioner has not yet given the entity
a rate). That allows the entity to take into account the circumstances it
expects will affect its end of year MRRT liability.
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Minerals Resource Rent Tax
18.158 An entity that uses the default rate, or a rate the Commissioner
has given it, has the security of knowing it cannot be liable for the general
interest charge if that rate results in instalments that are too low. An
entity that chooses its own rate must be careful to ensure its chosen rate
accurately reflects its expected MRRT liability for the year because the
general interest charge will apply if the entity chooses a rate that is too
low. As with PAYG instalments, there is a 15 per cent margin so that
entities are not penalised simply because their chosen rate is not
100 per cent accurate.
Credit for earlier quarters when an entity chooses a low instalment rate
18.159 When an entity chooses a lower rate than it was using in the
previous quarter, it can claim a credit for instalments for earlier quarters in
the year. It can claim a credit even if it has not yet paid those earlier
instalments. It would remain liable to pay the original instalment amounts
(although, in practice, the credit and the liability would usually be offset).
[Schedule 1, item 8, subsections 115-60(1) and (3) of Schedule 1 to the TAA 1953]
18.160 The entity does not have to claim a variation credit through the
instalments process. If it does not, it would get a full credit for its
instalments when an assessment is made at the end of the MRRT year
[Schedule 1, item 8, paragraph 115-20(2)(a) of Schedule 1 to the TAA 1953]. If it
does claim the credit through the instalments process, the credit for its
instalments at the end of the year will be correspondingly reduced to
reflect the earlier credit it claimed [Schedule 1, item 8, paragraph 115-20(2)(b) of
Schedule 1 to the TAA 1953].
18.161 A claim for a credit must be made in the approved form and can
only be made on or before the day the instalment is due for the quarter
That will usually be on or before the 21st day after the quarter but could be
later if the Commissioner has deferred the time for paying the instalment
(see section 255-10 of Schedule 1 to the TAA 1953). [Schedule 1, item 8,
subsection 115-60(2) of Schedule 1 to the TAA 1953]
Amount of the credit
18.162 The credit is equal to the difference between the instalments for
the earlier quarters in the year and what those instalments would have
been if they had used the new (lower) rate instead of the previous higher
rate. The amount of the credit is adjusted to reflect any credits already
claimed for the year. [Schedule 1, item 8, paragraph 115-60(1)(d) of Schedule 1 to
the TAA 1953]
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Administration of the MRRT
Example 18.5: Claiming variation credits
In the first instalment quarter of its MRRT year, Grayte Mines Pty Ltd
has instalment income of $80 million and an applicable instalment rate
of 15 per cent that was given to it by the Commissioner. It is liable to
pay an instalment of $12 million for the quarter.
In the second instalment quarter, Grayte Mines has instalment income
of $75 million and chooses an instalment rate of 12 per cent. It is
liable to pay an instalment for the quarter of $9 million. Because the
rate is lower than the rate it used in the previous quarter, it can also
claim a variation credit.
The variation credit is the difference between its instalment for the first
quarter and what that instalment would have been if it had used the
12 per cent rate. At 12 per cent, the first quarter's instalment would
have been $9.6 million, so Grayte Mines can claim a credit of the
$2.4 million difference. It would still remain liable to pay $12 million
for the first quarter instalment but it would be offset by the
$2.4 million credit if it remained unpaid.
In its third quarter, it again has instalment income of $75 million and
decides to use a rate of 10 per cent, for an instalment of $7.5 million.
Because Grayte Mines has again reduced its rate, it can again claim a
variation credit.
In this case, the credit is the difference between the total instalments
for the previous two quarters, less the credit it claimed in the second
quarter ($21m -- $2.4m = $18.6m), and what those instalments would
have been using the new rate (($80m + $75m) × 10% = $15.5m).
Therefore, Grayte Mines can claim a variation credit of $3.1 million.
General interest charge for choosing too low a rate
18.163 An entity that chooses its own instalment rate for a quarter is
liable to pay the general interest charge if the rate it chooses is below
85 per cent of the year's benchmark instalment rate. [Schedule 1, item 8,
subsection 115-65(1) of Schedule 1 to the TAA 1953]
18.164 An entity's benchmark instalment rate for an MRRT year is the
rate that would mean the year's instalments added up exactly to the
entity's MRRT liability for the year. It can only be worked out at the end
of the year, when the entity's MRRT liability and total instalment income
for the year (excluding amounts that related to mining project interests
and pre-mining project interests that were transferred or split to another
entity during the year) are determined. [Schedule 1, item 8, sections 115-70 and
115-105 of Schedule 1 to the TAA 1953]
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Minerals Resource Rent Tax
Example 18.6: Benchmark instalment rate
Bee Mines Pty Ltd has instalment income of $60 million for each
quarter of the 2014-15 MRRT year. Its MRRT liability for the year is
$28.8 million, so its benchmark instalment rate for 2014-15 is:
$28.8m
= 12%
$240m
18.165 Imposing the general interest charge when an entity chooses too
low an instalment rate is intended to discourage entities inappropriately
dropping their instalment rates to defer paying their MRRT liability until
their annual assessment is made. The Commissioner has a discretion
under section 8AAG of the TAA 1953 to remit general interest charge.
The Commissioner could use that discretion to remit the whole or part of
the general interest charge for an entity that took reasonable steps based
on the information available to it to ensure that the varied rate was
accurate relative to the entity's expected MRRT liability for the year. The
Commissioner may also use that discretion to remit the general interest
charge if the entity had also made a reasonable effort to remedy a rate it
realised was too low when new information came to light.
18.166 The general interest charge for choosing an instalment rate that
is too low is imposed on the difference between what the instalment was
for the quarter and what it would have been if the entity had not varied its
rate that was too low. If the difference would have been less if the year's
benchmark instalment rate had been used instead, then the charge is only
imposed on that lesser difference. [Schedule 1, item 8, subsection 115-65(2) of
Schedule 1 to the TAA 1953]
Example 18.7: General interest charge for choosing a low rate
Continuing the previous example, Bee Mines Pty Ltd was given a rate
of 10 per cent by the Commissioner in the 2013-14 MRRT year and it
continues to use that rate into the first quarter of its 2014-15 year. In
the second quarter, the Commissioner provides a new rate of
13 per cent. Bee Mines decides to use a lower rate and chooses
10 per cent.
Bee Mines' benchmark rate for 2014-15 is 12 per cent. If it chooses a
rate lower than 85 per cent of that (that is, below 10.2 per cent), it will
be liable for the general interest charge. Its rate in the first quarter was
below 10.2 per cent but, as it was a rate given by the Commissioner,
the charge does not apply for that quarter. However, it does apply in
the second quarter because, even though the rate is still 10 per cent, it
is now using a rate it chose rather than a rate the Commissioner gave it
(because the Commissioner has now provided a rate of 13 per cent).
Its actual instalment for the second quarter is $6 million (10 per cent of
$60 million). The instalment liability it would otherwise have had
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Administration of the MRRT
(using the most recent Commissioner rate) would have been
$7.8 million (13 per cent of $60 million). However, using the
benchmark instalment rate, the instalment liability would have been
only $7.2 million (12 per cent of $60 million). As that is lower, the
liability for the general interest charge is worked out on the difference
from the liability using the benchmark instalment rate. Bee Mines will
therefore be liable to pay the general interest charge on $1.2 million
($7.2m -- $6m).
18.167 The amount on which the general interest charge is imposed is
increased to take into account any credits the entity has claimed for the
year (which effectively reduce the instalment rate for earlier quarters).
[Schedule 1, item 8, subsection 115-65(2) of Schedule 1 to the TAA 1953]
18.168 There is a lower increase in the amount on which the general
interest charge is imposed if the credit claimed by the entity related to a
transfer of some or all of a mining project interest or pre-mining project
interest. [Schedule 1, item 8, section 115-105 of Schedule 1 to the TAA 1953]
18.169 The general interest charge for choosing too low an instalment
rate is worked out using the normal general interest charge rules. The
charge applies from the due date for the instalment for the quarter for
which the rate was reduced to the due date for paying the MRRT for the
year [Schedule 1, item 8, subsection 115-65(3) of Schedule 1 to the TAA 1953]. The
Commissioner will give the entity notice in writing of the amount of the
charge and the entity will have 14 days after being given the notice to pay
the charge [Schedule 1, item 8, subsection 115-65(4) of Schedule 1 to the TAA 1953].
If the charge is not paid within that 14 days, the general interest charge
will also apply to the unpaid amount and will continue to apply until the
full amount is paid [Schedule 1, item 8, subsection 115-65(5) of Schedule 1 to the
TAA 1953].
Special rules for transferring or splitting a mining project interest
18.170 The MRRT uses an `inherited history' approach, under which
annual liability for MRRT on a particular mining project interest or
pre-mining project interest falls onto the entity holding it at the end of the
year. That approach has three broad categories of implications for the
instalment rules:
· implications for earlier quarters' instalments;
· implications of acquiring an interest; and
· implications of transferring an interest.
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Minerals Resource Rent Tax
Implications for earlier quarters' instalments
18.171 An entity's MRRT instalment for a particular quarter is not
affected by the fact that a mining project interest or pre-mining project
interest is transferred or split in a later quarter of the year. This means
that, in working out an entity's MRRT instalments for the quarter:
· the entity's instalment income remains its instalment income
even though the MRRT liability in relation to some or all of
it will fall onto another entity because the interest was
transferred or split later in the year (although the entity may
be able to claim a credit after the transfer or split for some
part of the earlier instalments); and
· the entity's instalment income for the quarter is not increased
because it acquires a new interest after the end of that quarter
(although there may be an increase in the instalment income
for the quarter in which the interest is acquired).
[Schedule 1, item 8, subsection 115-90(1) of Schedule 1 to the TAA 1953]
Implications of acquiring an interest
18.172 An entity that acquires a mining project interest or pre-mining
project interest during a quarter will count the instalment income of that
quarter that relates to that interest when working out its instalment for the
quarter. That instalment income could include amounts relating to mining
revenue events that occurred during the quarter but before the transfer or
split. [Schedule 1, item 8, subsection 115-90(2) of Schedule 1 to the TAA 1953]
18.173 The entity also increases its instalment income in the instalment
quarter in which it acquires the interest to reflect any instalment income
relating to its new interest for earlier quarters of the MRRT year.
[Schedule 1, item 8, subsection 115-95(1) of Schedule 1 to the TAA 1953]
18.174 The amounts included for the earlier quarters are the usual
amounts of instalment income that relate to mining revenue events in
those quarters that will lead to an amount being included in the acquiring
entity's mining revenue or pre-mining revenue. [Schedule 1, item 8,
subsection 115-95(2) of Schedule 1 to the TAA 1953]
18.175 In other words, the amounts that were, or would have been,
instalment income for the transferring entity for previous quarters of the
MRRT year become instalment income of the acquiring entity in the
instalment quarter in which the transfer occurs. [Schedule 1, item 8,
subsection 115-90(2) and section 115-95 of Schedule 1 to the TAA 1953]
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Administration of the MRRT
Example 18.8: Additional instalment income for an acquiring entity
Sedgley Sand Mining Pty Ltd decides to branch out into iron ore
mining and buys some hematite mines from Francis Freerange Mining
Pty Ltd in the third quarter of its MRRT year. Francis had made
supplies from the mine in the first and second quarters for
consideration of $60 million and $75 million respectively. In the third
quarter, Francis had made supplies for consideration of $10 million
and Sedgley made further supplies, for $55 million, during the
remainder of the quarter.
To the $55 million instalment income for its own supplies in the third
quarter, Sedgley would add amounts of $60 million, $75 million and
$10 million to reflect the amounts that arose in the year during the
Francis era. Sedgley's total instalment income for the third quarter
would be $200 million.
Implications of transferring an interest
18.176 An entity that transfers all or part of a mining project interest or
a pre-mining project interest in a quarter (the original entity) will not
count the instalment income for the quarter relating to that interest (or the
part of the interest transferred) when working out its instalment for the
quarter. [Schedule 1, item 8, subsection 115-90(2) of Schedule 1 to the TAA 1953]
18.177 The original entity will also be entitled to a credit once an
assessment has been made at the end of the MRRT year for instalments
payable by it in relation to that interest (or the part of the interest
transferred) for quarters in the year before the transfer. [Schedule 1, item 8,
section 115-20 of Schedule 1 to the TAA 1953]
18.178 Some entities will not want to wait until the end of the year to
get that credit when they know their eventual MRRT liability will be
reduced because of the transfer or split. Accordingly, such entities can
claim an early credit through the instalments process. [Schedule 1, item 8,
subsection 115-100(1) of Schedule 1 to the TAA 1953]
18.179 The credit can only be claimed in the approved form on or
before the day the instalment is due for the quarter in which the transfer
occurs. [Schedule 1, item 8, subsection 115-100(2) of Schedule 1 to the TAA 1953]
Amount of the early credit
18.180 The credit is equal to the difference between:
· the instalments the transferring entity was liable to pay for
earlier quarters in the MRRT year (reduced by credits
claimed because of other transfers or because of a reduction
in the entity's instalment rate); and
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Minerals Resource Rent Tax
· the instalments that would have been due for those earlier
quarters if the entity had not had the mining revenue events
from the transferred interest (or part interest).
[Schedule 1, item 8, subsection 115-100(1) of Schedule 1 to the TAA 1953]
Notification requirements
Quarterly instalment notices
18.181 An entity liable to pay an instalment for a quarter must notify
the Commissioner of the amount of its instalment income in the approved
form [Schedule 1, item 8, subsections 115-15(1) and (2) of Schedule 1 to the
TAA 1953]. The Commissioner can determine the content of an approved
form and the manner in which it is given to the Commissioner, including
by electronic means (see section 388-50 of Schedule 1 to the TAA 1953).
18.182 The notification is due on or before the day the instalment is due
(that is, on or before the 21st day after the end of the quarter). This
information notifies the Commissioner of how an entity's instalment for
the quarter was calculated and further allows the calculation of any
general interest charge that may be imposed if the entity chose an
instalment rate that was too low. [Schedule 1, item 8, subsections 115-15(1) and
(2) of Schedule 1 to the TAA 1953]
18.183 The Commissioner can exempt taxpayers (or classes of
taxpayers) from having to provide this notification if the Commissioner
has given them a nil instalment rate. [Schedule 1, item 8, subsections 115-15(3)
and (4) of Schedule 1 to the TAA 1953]
Choosing a new instalment rate
18.184 An entity that chooses an instalment rate for a quarter must
notify the Commissioner of that choice in the approved form. Once again,
the approved form could be electronic. The choice must be notified on or
before the day the instalment for that quarter is due. [Schedule 1, item 8,
section 115-55 of Schedule 1 to the TAA 1953]
Consequential amendments
18.185 A number of consequential amendments are made to definitions
in the income tax law to cover new terms added for the MRRT
instalments regime. [Schedule 3, items 49, 52 to 55, definitions of `applicable
instalment rate', `base year', `benchmark instalment rate', `instalment income' and
`instalment quarter' in subsection 995-1(1) of the ITAA 1997]
18.186 Amendments are also made to the TAA 1953 to update
non-operative lists of provisions that either apply the general interest
charge or create a tax-related liability, to reflect the addition of such
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Administration of the MRRT
provisions in the MRRT instalments regime. [Schedule 1, items 1, 2 and 10,
subsection 8AAB(4) of the TAA 1953 and subsection 250-10(2) of Schedule 1 to the
TAA 1953]
Record keeping
18.187 Entities conducting mining or pre-mining operations are
required to keep and retain records which are relevant to the operation of
the MRRT. [Schedule 1, item 8, subsection 123-5(1) of Schedule 1 to the TAA 1953]
18.188 As with other taxes, the effective administration of the MRRT
requires the Commissioner to be able to ask taxpayers to provide evidence
supporting their self-assessed liabilities or entitlements.
18.189 In addition, the design of the MRRT necessitates that taxpayers
be required to keep records which might no longer relate to their own
mining operations or MRRT liability.
18.190 For example, the seller of a mining project interest or pre-mining
project interest is required to keep relevant records which support the
MRRT history of the interest, because, once this history is inherited by the
buyer of the interest, it is used in determining the buyer's MRRT liability.
18.191 Accordingly, these record-keeping rules apply to all taxpayers
who have conducted mining or pre-mining operations for the purposes of
the MRRT.
The records which are to be kept
18.192 A taxpayer must keep records of every act, transaction, event or
circumstance relating to their mining or pre-mining operations that are
relevant to working out their MRRT position, or that of another entity.
[Schedule 1, item 8, subsection 123-5(1) of Schedule 1 to the TAA 1953]
18.193 In this context a relevant MRRT position includes:
· the amount (if any) of the taxpayer's MRRT liability (or that
of another entity) for an MRRT year; and
· the amount of any offset to which the taxpayer or another
entity is entitled under the low profit offset or rehabilitation
tax offset provisions.
[Schedule 1, item 8, paragraphs 123-5(1)(a) and 123-5(1)(b) of Schedule 1 to the
TAA 1953]
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Minerals Resource Rent Tax
18.194 Accordingly, relevant records could include such things as
audited statements of mining revenue and expenditure, documents
detailing State royalty payments and evidence of the date when a mine
ceased commercial production.
18.195 An important issue for the MRRT is the fact that the records you
have to keep need not be relevant only to your own mining operations or
pre-mining operations. If you have a loss (for example) that you transfer
to an associate, the record will be relevant to applying the MRRT to that
other entity's mining operations. Or, you might transfer a mining project
interest to another entity, which will inherit the relevant MRRT history for
that interest from you. An entity will therefore need to keep records that
might no longer relate to its own mining operations or MRRT liability.
18.196 If such records do not already exist, the taxpayer is obliged to
create them. If such records no longer exist, the taxpayer must reconstruct
them. [Schedule 1, item 8, subsection 123-5(2) of Schedule 1 to the TAA 1953]
18.197 This circumstance might arise if, for example, an earlier holder
of the project interest failed to keep the records they should have. This
rule also covers cases where there was no obligation to keep the records at
the time (for example, records relating to pre-MRRT periods).
18.198 However, this rule is not intended to allow taxpayers to fail to
keep records with a view to reconstructing them at some later time.
18.199 A taxpayer must also keep a record of each choice, estimate,
determination and calculation they have made under an MRRT law, along
with (in the case of estimates, determinations and calculations) the basis
and method used to arrive at each amount. [Schedule 1, item 8,
subsection 123-5(3) of Schedule 1 to the TAA 1953]
18.200 This requirement is the same as the existing rules for records
relating to indirect tax laws, contained in paragraph 382-5(4)(a) of
Schedule 1 to the TAA 1953.
The form in which records are to be kept
18.201 The records which a taxpayer is required to keep must be in such
a form as to enable the relevant MRRT position (of either the taxpayer or
another entity) to be readily ascertained. [Schedule 1, item 8,
paragraph 123-5(4)(b) of Schedule 1 to the TAA 1953]
18.202 These records must be in English, or readily accessible and
easily convertible into English. [Schedule 1, item 8, paragraph 123-5(4)(a) of
Schedule 1 to the TAA 1953]
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Administration of the MRRT
18.203 The records can be kept electronically or in hard copy form.
The time for which records are to be kept
18.204 The records which a taxpayer is required to keep in relation to
the MRRT must be retained until the latest of the following:
· five years after the conclusion of the matters which are the
subject of the record;
· five years after the taxpayer made or obtained the record; or
· the end of the period of review for an assessment of MRRT
for an MRRT year (if the record is relevant to that
assessment).
[Schedule 1, item 8, section 123-10 of Schedule 1 to the TAA 1953]
18.205 This is in line with other requirements in the tax law to retain
records, generally for either five or seven years.
18.206 Requiring records to be kept until the end of any relevant
assessment period is designed to ensure that records that could be used to
verify the correctness (or otherwise) of an MRRT assessment are available
if necessary, in the event of an audit by, or a dispute with, the
Commissioner.
Example 18.9: Keeping records of a royalty payment
On 1 May 2013, Buzz Coal Co makes a royalty payment to a State
Government in respect of coal extracted during the period 1 October to
31 December 2012. Buzz Coal Co receives a written receipt for this
payment a week later, on 8 May 2013. Buzz Coal lodges its return for
the 2012-13 MRRT year on 1 November 2013.
The documentary receipt is a relevant record because it records a
transaction used in calculating Buzz Coal's royalty allowance, which
in turn is a factor in determining its MRRT liability.
How long is Buzz Coal required to keep these records?
Buzz Coal must keep the records relating to this royalty payment until
the latest of these dates, which is 8 May 2018.
The penalties for not keeping relevant records
18.207 It is an offence to fail to keep or retain a record in accordance
with the provisions discussed in this chapter. [Schedule 1, item 8,
subsection 123-15(1) of Schedule 1 to the TAA 1953]
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Minerals Resource Rent Tax
18.208 An entity does not commit an offence if the Commissioner has
notified it that it no longer needs to keep the record or if the entity is a
company that has been finally dissolved. [Schedule 1, item 8,
paragraphs 123-15(1)(c) and (d) of Schedule 1 to the TAA 1953]
18.209 The offence is one of strict liability within the meaning of
section 6.1 of the Criminal Code. Broadly, this means that the intent of
the taxpayer is not considered when assessing whether an offence has
occurred (although a defence of mistake of fact may be available). This is
consistent with similar offences elsewhere in the tax law. [Schedule 1,
item 8, subsection 123-15(2) of Schedule 1 to the TAA 1953]
18.210 The penalty for failing to keep or retain a record is 30 penalty
units, which is currently equal to $3,300. [Schedule 1, item 8,
subsection 123-15(1) of Schedule 1 to the TAA 1953]
18.211 Alternatively, an administrative penalty of 20 penalty units
(currently $2,200) may apply, as a failure to keep an MRRT record would
also breach the general requirement to keep or retain relevant tax records
(see section 288-25 of the TAA 1953). However, a taxpayer cannot be
subject to both of these penalties in respect of the same offence
(see section 8ZE of the TAA 1953).
18.212 However, a taxpayer is not penalised, under either the tax law or
the Criminal Code, for not retaining a record beyond the time of either of
the following occurrences:
· the Commissioner notifying them that they do not need to
retain the record; or
· if the taxpayer is a company, that company being finally
dissolved.
[Schedule 1, item 8, subsection 123-15(3) of Schedule 1 to the TAA 1953]
Information transfers
18.213 MRRT liabilities are worked out for mining project interests and
pre-mining project interests rather than for entities. The MRRT liability
for an interest is met by the entity that has the interest at the end of an
MRRT year, even if that entity only acquired the interest during the year.
18.214 This will mean that an entity that acquires an interest during a
year will usually need information possessed by the entity that transferred
the interest. The MRRT information transfer provisions require the
original entity to supply the information so that the acquiring entity is able
to work out its MRRT liability relating to the acquired mining project
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Administration of the MRRT
interest and to satisfy its MRRT obligations. [Schedule 1, item 8, section 121-5
of Schedule 1 to the TAA 1953]
18.215 An entity with a mining project interest or a pre-mining project
interest must provide an information notice to any entity that acquires the
interest, or part of the interest, as a result of the interest being transferred
or split. [Schedule 1, item 8, subsection 121-10(1) of Schedule 1 to the TAA 1953]
18.216 The entity must also provide the acquiring entity with a further
information notice when anything happens after the transfer or split that
affects the transferred interest. [Schedule 1, item 8, subsection 121-10(3) of
Schedule 1 to the TAA 1953]
Example 18.10: Further notice about post-transfer occurrences
Smarter Mining Ideas Pty Ltd transfers its Farragut 5 mining project
interest to On-The-Edge Investments. Later, Smarter Mining sells
some taxable resources it had extracted from the Farragut 5 mine
before the transfer. That supply of taxable resources from the interest
will generate mining revenue for whoever has the interest at the end of
the MRRT year. Therefore, Smarter Mining would have to notify
On-The-Edge that a supply had occurred and provide the information
that On-The-Edge would need to work out the related mining revenue.
Before it received the notification from Smarter Mining, On-The-Edge
had already transferred Farragut 5 to Schofield Mining Properties.
On-The-Edge would in turn have to provide Schofield with notice of
the information about Smarter Mining's supply of resources from
Farragut 5.
18.217 A notice can always be provided in writing but, if both parties
are willing, it can be provided in any other form they wish. This will
often be electronically, and could even be orally. [Schedule 1, item 8,
paragraph 121-10(4)(a) of Schedule 1 to the TAA 1953]
18.218 A notice must be given with 60 days of the transfer or split. A
notice of later occurring events must be provided within 60 days of those
events. [Schedule 1, item 8, paragraphs 121-10(4)(b) and (c) of Schedule 1 to the
TAA 1953]
18.219 The existing taxation offence provisions would apply to an
entity that did not provide a notice it was required to provide on time (see
section 8C of the TAA 1953). If it is convicted of the offence, the court
could order the entity to comply with the notice obligation (see section 8G
of the TAA 1953). A failure to provide a notice on time could instead be
subject to an administrative penalty (see section 286-75 of Schedule 1 to
the TAA 1953). There may also be penalties for providing information
that is false or misleading.
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Minerals Resource Rent Tax
What should an information notice contain?
18.220 In broad terms, the information notice must provide the new
entity with all the information it needs to work out its MRRT liability for
the interest it has acquired and to comply with its related MRRT
obligations.
18.221 The information needed would include:
· the amount of any allowance components that come with the
interest [Schedule 1, item 8, paragraph 121-10(2)(a) of Schedule 1 to
the TAA 1953]; and
· the information necessary to work out future starting base
losses for the interest [Schedule 1, item 8, paragraph 121-10(2)(b) of
Schedule 1 to the TAA 1953].
Example 18.11: Information about future starting base losses
Little Big Horn Pty Ltd transfers a mining project interest to Crazy
Horse Mining Co. It has 60 days to provide Crazy Horse with the
values of the mining right and other starting base assets transferred
with the interest. This would include the valuation method chosen for
those assets, their base values at the start of the transfer year, the basis
on which their decline in value was being worked out, and their
upstream usage histories within the interest. It would also have to
inform Crazy Horse of the amount of the interest's starting base losses
carried over from the previous MRRT year. It would also have to
inform Crazy Horse of the base values, termination values and usage
histories of any assets that experienced a starting base adjustment event
in the transfer year, so that Crazy Horse could work out how much
mining revenue or mining expenditure to include in the year from
those adjustment events.
18.222 The information needed would include the amount of the
interest's mining revenue, pre-mining revenue, mining expenditure and
pre-mining expenditure for the year. [Schedule 1, item 8,
paragraphs 121-10(2)(b) of Schedule 1 to the TAA 1953]
Example 18.12: Information about revenue and expenditure
Continuing the previous example, Little Big Horn would have to
provide Crazy Horse with details of the year's mining revenue and
expenditure for the transferred interest because Crazy Horse would be
liable to pay MRRT for the year in relation to the interest and would
need that information to work out its liability. Crazy Horse may be
able to work out its mining revenue using the alternative valuation
method, so Little Big Horn would need to advise it of the tonnes of
resources extracted in relation to the interest for the year, so that Crazy
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Administration of the MRRT
Horse could determine whether it came within the 10 million tonnes
threshold for eligibility for that method.
18.223 The information needed would include information about assets
transferred with the interest that could give rise to future revenue or
expenditure (such as their original cost and assumptions that were made
about the extent of their upstream use in the interest). [Schedule 1, item 8,
paragraphs 121-10(2)(c) and (d) of Schedule 1 to the TAA 1953]
Example 18.13: Information about other assets
Continuing the previous example, Little Big Horn would also have to
provide Crazy Horse with information about the non-starting base
assets transferred with the interest. If Crazy Horse later sold those
assets, the adjustment rules would require it to work out how much to
include in the interest's mining revenue. If it changed the upstream
usage of the assets, it could include a further amount in revenue or
expenditure as a result of a mining adjustment. To work those things
out, Crazy Horse would need to know the original cost of the assets,
the assumptions made when they were acquired about the extent of
their upstream usage in the interest, and any later adjustments made to
revenue and expenditure because of a change in their upstream usage.
Therefore, Little Big Horn would have to provide Crazy Horse with
that information about the transferred assets.
18.224 The information needed would also include:
· the information needed to work out the amount of any
rehabilitation offset for the interest (including any amounts
that have been deposited on trust or as a bond to secure future
rehabilitation of the site, any rehabilitation expenditure
incurred in the year, and the total amount of MRRT that has
ever been paid in relation to that interest) [Schedule 1, item 8,
paragraph 121-10(2)(b) of Schedule 1 to the TAA 1953];
· in the case of a transfer of part of an interest, the transferee's
split percentage [Schedule 1, item 8, paragraph 121-10(2)(c) of
Schedule 1 to the TAA 1953]; and
· the information needed to work out the instalment income of
the transferee in the transfer quarter (including instalment
income related to the transferred interest that it will inherit)
[Schedule 1, item 8, paragraph 121-10(2)(d) of Schedule 1 to the
TAA 1953].
Substantiation
18.225 The entity to which an information notice is provided may later
need further particulars of the information provided. For example, while
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Minerals Resource Rent Tax
it might be enough for the original information notice to provide just a
gross figure for the amount of the year's mining revenue up to the date of
the transfer of the interest, the new entity may need to know how that
figure was arrived at if the Commissioner queries it.
18.226 In such cases, the new entity can request the transferor to
provide further particulars to justify the information given in the original
notice. In particular, the transferee can ask for an explanation of how an
amount in the original notice was calculated and to see the underlying
document or other information on which the original notice was based.
[Schedule 1, item 8, subsection 121-15(1) of Schedule 1 to the TAA 1953]
18.227 The transferor has 60 days to comply with a request. [Schedule 1,
item 8, subsection 121-15(2) of Schedule 1 to the TAA 1953]
18.228 As with the original information notice, failing to comply with
any reasonable request for further particulars could be an offence or be
subject to an administrative penalty.
Consequential amendments
18.229 The administrative penalty provisions are amended to ensure
that an entity that does not satisfy its obligation to provide an MRRT
information notice, or satisfy a request for further particulars, within time
is subject to the administrative penalty provisions. [Schedule 1, items 24 and
25, paragraph 286-80(2)(a), subsection 286-75(2AA) of Schedule 1 to the TAA 1953]
Access powers
18.230 In order to provide for the proper administration of the tax
system, including by reviewing the affairs of taxpayers, the Commissioner
can ask taxpayers to provide additional information. Normally the
Commissioner does this informally. However, there are occasions when it
proves more difficult to access required information. For such cases, the
Commissioner is given the power to access premises and documents, and
gather information, whether held domestically or in foreign jurisdictions.
18.231 The existing access powers the Commissioner has in relation to
indirect tax laws and the administration of taxation laws are extended to
also apply to the MRRT law. [Schedule 1, items 28 to 31, sections 353-15 and
353-17, subsection 353-10(1) of Schedule 1 to the TAA 1953]
Commissioner's power
18.232 For the purpose of the administration or operation of the MRRT,
the Commissioner can provide any entity with a notice requiring it to
provide information, evidence or documents. [Schedule 1, item 28,
section 353-10 of Schedule 1 to the TAA 1953]
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Administration of the MRRT
18.233 This means that the Commissioner can obtain information,
evidence, or documents from governments and government bodies. Such
powers are important to the administration of tax laws, as demonstrated by
the following examples.
Example 18.14
Mr Diligent, an Australian Taxation Office (ATO) auditor, is
examining Outback Mining's MRRT affairs. Mr Diligent has concerns
about the veracity of a document that had been submitted by Outback
Mining in the course of the audit. In particular, Mr Diligent thought
Outback Mining may have claimed that its royalty payments to a State
government were higher than they in fact were. Mr Diligent
approached Mr Conscientious, an official from the relevant State
department, and asked if he could obtain information about Outback
Mining's royalty payments. Mr Conscientious replied that he would
be happy to help, but because of a combination of statutory and
commercial confidentiality requirements, the department would be
unable to provide the information unless the Commissioner required it
under a formal notice. Mr Diligent duly issues a notice to the State
department requiring it to provide the relevant information. The State
department complied.
Example 18.15
Mr Meticulous, an ATO auditor, is examining the affairs of a number
of entities that are closely held and operated by Mr Difficult in order to
determine the entities' goods and services tax (GST) liabilities.
Mr Meticulous has sought information from the entities, but
Mr Difficult has thus far lived up to his name. He also informed
Mr Meticulous that even if he wanted to cooperate, all of the relevant
business records had been seized by a Commonwealth agency in
relation to an investigation into non-tax matters. Mr Meticulous had
heard about Mr Diligent's experience as detailed in Example 18.14,
and thought that approach would work in his case. Mr Meticulous
approaches and subsequently issues the Commonwealth agency with a
notice requiring provision of the relevant information. The
Commonwealth agency complied.
Access to premises
18.234 The Commissioner can access premises for the purpose of
administering the MRRT. [Schedule 1, items 29 and 30, section 353-15 of
Schedule 1 to the TAA 1953]
Offshore information notices
18.235 The Commissioner can request the provision of information that
is held offshore for the purpose of administering the MRRT. [Schedule 1,
item 31, section 353-17 of Schedule 1 to the TAA 1953]
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Minerals Resource Rent Tax
Service
18.236 In order to deal with full self assessment taxpayers, the
Commissioner may need to serve documents from time to time. Although
full self assessment taxpayers do not actually receive notices of
assessment, the Commissioner may need to serve documents to amend
assessments, deal with outstanding liabilities, and participate in legal
proceedings.
Address for service
18.237 For the purposes of the MRRT law, the Commissioner can serve
documents at a physical address or postal address in Australia, or at an
electronic address an entity has provided as its address for service for the
purposes of an MRRT law. [Schedule 1, item 8, subsection 125-1 of Schedule 1 to
the TAA 1953]
18.238 Where an entity has provided the Commissioner with more than
one address, the Commissioner can serve documents at the address
considered reasonable in the circumstances. [Schedule 1, item 8,
subsection 125-1(2) of Schedule 1 to the TAA 1953]
18.239 Where an entity has not provided the Commissioner with an
address, documents can be served at the address the Commissioner
reasonably believes to be the entity's address for service for the purposes
of an MRRT law. [Schedule 1, item 8, subsection 125-1(3) of Schedule 1 to the
TAA 1953]
18.240 The Commissioner can serve a document in the manner
specified by section 28A of the Acts Interpretation Act 1901, or, where the
entity is being served electronically, by sending it to that email address or
other electronic address. [Schedule 1, item 8, subsection 125-1(4) of Schedule 1 to
the TAA 1953]
18.241 A document served by the Commissioner is taken to be given at
the time the Commissioner leaves or posts it. This is designed to override
section 29 of the Acts Interpretation Act 1901 and to ensure that there is
no room for confusion about when documents are served. [Schedule 1, item
8, subsection 125-1(5) of Schedule 1 to the TAA 1953]
18.242 This provision also overrides paragraphs 9(1)(d) and 9(2)(d) of
the Electronics Transactions Act 1999 to the effect that if the entity has
provided the Commissioner with an electronic address for service, the
Commissioner does not need to seek the entity's permission to serve
notice electronically. [Schedule 1, item 8, subsection 125-1(6) of Schedule 1 to the
TAA 1953]
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Administration of the MRRT
Making choices
18.243 A choice made by an entity under an MRRT law must be made
in accordance with the general rules described below, except to the extent
that a more specific rule in the MRRT law applies. [Schedule 1, item 8,
section 119-15 of Schedule 1 to the TAA 1953]
18.244 This approach balances the benefits of simplicity and
consistency in these matters with the recognition that variations from the
general rules are appropriate in some cases.
18.245 Each of the following is an example of a choice under the
MRRT which may be available to a taxpayer, depending on their
circumstances:
· Whether the book value or market value approach is used to
value starting base assets.
· The order in which transferred mining losses that arose at the
same time are applied.
· Whether to use the simplified MRRT method.
· Whether to consolidate for MRRT purposes.
18.246 The general rules for MRRT choices cover three matters.
· The time by which a choice must be made.
· The manner in which a choice must be recorded, and in
certain cases communicated to the Commissioner.
· The irrevocability of a choice.
When a choice must be made
18.247 In order to be valid, a taxpayer must make a choice about a
matter by a certain time.
18.248 If the taxpayer is required to lodge an MRRT return for the first
MRRT year for which the choice applies, then the choice must be made
by the earlier of the day they lodge that MRRT return and the due date for
lodging that return. [Schedule 1, item 8, subparagraph 119-5(1)(a)(i) of Schedule 1
to the TAA 1953]
18.249 If the taxpayer is not required to lodge an MRRT return for that
MRRT year, the choice must be made by the day such a return would
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Minerals Resource Rent Tax
have been due. [Schedule 1, item 8, subparagraph 119-5(1)(a)(ii) of Schedule 1 to
the TAA 1953]
18.250 Generally, the Commissioner has the ability to provide the
taxpayer with more time to make a valid choice. [Schedule 1, item 8,
paragraph 119-5(1)(b) of Schedule 1 to the TAA 1953]
18.251 This provides the Commissioner with broad discretion to take
into account circumstances which would otherwise prevent a taxpayer
from making a choice by the required time.
18.252 For example, the Commissioner may provide additional time to
make a choice to a taxpayer who is temporarily incapacitated after an
accident, or to a taxpayer who lives in an area badly affected by a natural
disaster around the time the choice would normally have been made.
18.253 A similar discretion already exists in other similar rules in the
tax law (for example, in subsection 148(4) of the ITAA 1936).
How a choice is made and communicated
18.254 The way a taxpayer prepares their MRRT return for an MRRT
year will generally be sufficient evidence of the choice(s) they have made.
[Schedule 1, item 8, subsection 119-5(2) of Schedule 1 to the TAA 1953]
18.255 This is consistent with the standard approach to choices applying
elsewhere in taxation laws. Under the self-assessment system, the
Commissioner has no need to see the records for all choices taxpayers
make.
18.256 However, there are some circumstances in which a taxpayer
must provide the Commissioner with the details of certain choices they
have made. These circumstances are:
· if the taxpayer is not required to lodge an MRRT return for
that MRRT year;
· if the MRRT law expressly requires further information to be
provided to the Commissioner; or
· if the Commissioner requests the information.
[Schedule 1, item 8, subsection 119-5(3) of Schedule 1 to the TAA 1953]
18.257 The first of these cases cover situations where a taxpayer's
choice could not be identified because there is no MRRT return to
examine. The second is an expression of the principle that any specific
rules in the MRRT law take precedence over the general rules for choices
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Administration of the MRRT
to the extent there is any conflict between them. The ability for the
Commissioner to request further information about the choices a taxpayer
makes is a standard provision used throughout the tax law.
MRRT choices are irrevocable
18.258 A choice made under the MRRT law is irrevocable. [Schedule 1,
item 8, section 119-10 of Schedule 1 to the TAA 1953]
18.259 This requirement is largely dictated by the features of the
MRRT, in particular by the way in which the MRRT history of a mining
project interest (or a pre-mining project interest) is transferred to a new
entity acquiring the interest.
18.260 For example, in working out the amount of a transferred royalty
allowance, an entity can choose the order in which to apply royalty credits
that arise at the same time. After choosing to apply royalty credits from
one of its mining project interests (rather than from others), a taxpayer
may then sell one of its other interests (with the unapplied royalty credit
attached). If the original taxpayer were to be permitted to revisit their
earlier choice and unwind the decision about which royalty credit to
apply, the purchaser would be at risk of losing the royalty credit they paid
for.
18.261 Making choices made under the MRRT law irrevocable prevents
this sort of unfair and unreasonable outcome.
18.262 However, the irrevocability of a choice only applies to a choice
that was made. In some cases, choices an entity did not make because it
was operating under a mistake of fact about its ability to make the choice,
cannot later be made because of timing restrictions on when a choice has
to be made. When there is such a case, the Commissioner could exercise
the discretion to allow further time to make that choice. In such cases, the
Commissioner would decide whether to exercise the discretion after
taking into account matters such as the law requiring the choice to be
made and whether the need to make the further choice arise because of the
Commissioner's advice or actions.
Example 18.16: Allocating losses when mining profits increase
Revisao Mining has three mining project interests: A and B make
losses and C makes a mining profit in the 2012 MRRT year. In that
year, Revisao chooses to transfer losses from A to reduce the profits of
C to nil.
After auditing Revisao, the Commissioner amends its 2012 assessment
to include further mining profits in interest C. Revisao is required by
the MRRT law to transfer further losses to the extent of those extra
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Minerals Resource Rent Tax
mining profits. Where the losses come from is a new choice; Revisao
is not remaking its previous loss transfer choice. Because the law
requires the further losses to be transferred, the Commissioner
exercises the discretion to allow Revisao the extra time to make that
choice. There are further transferable losses both in A and in B.
Therefore, Revisao can choose how much of those losses are
transferred from A and how much from B.
18.263 The irrevocability of a choice only applies to the extent that it
was validly made in the first place. If any part of a choice was invalid,
that part was never made, and so undoing it does not breach the rule about
choices being irrevocable. To the extent that there is an alternative about
what part of a choice was invalid, the entity would be able to decide
which parts of the original choice were valid and which were not.
Example 18.17: Allocating losses when mining profits decrease
The Commissioner amends the 2014 assessment of Disfaccia
Resources to reduce the mining profits of its Union mine. Disfaccia
had transferred 2014 losses to the Union mine from both its Vista and
its Wishfish mines.
To the extent that Union's profits have been reduced, the original
choice to transfer losses to it was invalid. Disfaccia can decide the
extent to which it did not validly transfer losses from Vista and
Wishfish. It decides to treat all the invalidly transferred losses as
coming from Vista. Those losses would be restored to Vista and
uplifted, just as if they had not been `transferred' in the first place.
Rulings
18.264 The Commissioner provides a range of advice and guidance to
taxpayers to explain his or her view on how the law applies. These
products include manuals and fact sheets, as well as rulings.
18.265 The rulings system enables taxpayers to self assess tax positions
with enhanced certainty.
18.266 A ruling provides taxpayers with the Commissioner's views
about how particular tax laws apply in certain situations. Public rulings
address priority technical issues. Private rulings explain how the law
applies, or would apply, in a particular situation.
18.267 The Commissioner is generally bound by the position taken in a
ruling.
18.268 A minor amendment extends the rulings system to the MRRT
law. [Schedule 1, item 32, paragraph 357-55(faa) of Schedule 1 to the TAA 1953]
384
Administration of the MRRT
18.269 However, entities cannot apply for an oral ruling about MRRT
provisions. In the general course of things, such rulings can only be
sought by individuals seeking quick answers to simple questions about
income tax. [Schedule 1, item 33, subsection 360-5(1) of Schedule 1 to the TAA 1953]
18.270 Where an entity is dissatisfied with a private ruling that relates
to MRRT, it can object to the ruling either within four years of the due
date for the relevant MRRT return, or 60 days after the ruling was made,
whichever is later. [Schedule 2, item 1 and 19, subsections 14ZW(1AB) and (1AC)
of Schedule 1 to the TAA 1953]
Annual report
18.271 The Commissioner must prepare an annual report on the
working of the MRRT law, including a report on any breaches or evasions
of the MRRT law the Commissioner knows about. The report must be
given to the Minister as soon as practicable after 30 June in each year.
The Minister must table the report in each House of the Parliament within
15 sitting days of that House after receiving the report. [Schedule 1, item 27,
section 352-10 of Schedule 1 to the TAA 1953]
18.272 A consequential amendment is made to the guide about the
Commissioner's accountability in respect to indirect tax laws so that it
now covers the MRRT. [Schedule 1, item 26, section 352-1 of Schedule 1 to the
TAA 1953]
385
Chapter 19
Miscellaneous consequential amendments
Outline of chapter
19.1 This chapter explains any consequential amendments arising as
a result of the Minerals Resource Rent Tax Bill 2011 that are not
explained in earlier chapters.
19.2 All legislative references in this chapter are to the Minerals
Resource Rent Tax (Consequential Amendments and Transitional
Provisions) Bill 2011 unless otherwise indicated.
Consequential amendments
Provision ensuring coverage in the Crimes (Taxation Offences) Act 1980
19.3 A consequential amendment extends the Crimes (Taxation
Offences) Act 1980 so that fraudulent evasion and involvement in certain
tax evasion schemes related to a Minerals Resource Rent Tax (MRRT)
can give rise to criminal offences. These amendments ensure that the Act
operates in the same way for MRRT as it does for the Petroleum Resource
Rent Tax (PRRT). [ Schedule 3, items 3 to 6, Part II (note), Part XI and
subsection 3(1) of the Crimes (Taxation Offences) Act 1980]
Wording and defined terms changes
19.4 The MRRT introduces a number of concepts and defined terms
which are new to Australian taxation law. It also uses some terms that
were already in use in different contexts with potentially different
meanings.
19.5 Hence, a number of entries have been included and
modifications made to the Dictionary definitions in the Income Tax
Assessment Act 1997 (ITAA 1997) to ensure that terms are defined
consistently in the income tax law and the MRRT law. In many cases the
Dictionary definitions point to definitions in the MRRT law. [ Schedule 3,
items 48 to 87, definitions of `allowance component', `applicable instalment rate',
`arm's length consideration', `base value', `base year', `benchmark instalment rate',
`hold', `instalment income', `instalment of MRRT', `instalment quarter', `long term
bond rate', `miner', `mining and quarrying operations', `mining expenditure', `mining
loss', `mining profit', `mining project interest', `mining project split', `mining project
387
Minerals Resource Rent Tax
transfer', `mining revenue', `mining revenue event', `MRRT', `MRRT allowance',
`MRRT law', `MRRT liability', `MRRT payable', `MRRT return', `MRRT year',
`pre-mining expenditure', `pre-mining project interest', `pre-mining revenue',
`rehabilitation tax offset', `split percentage', `starting base asset', `starting base return',
`start time', `taxable mining profits', `taxable resource' and `termination value' in
subsection 995-1(1) of the ITAA 1997]
19.6 The amendments make some corresponding adjustments to use
defined terms in other parts of the income tax law. [ Schedule 3, items 10 to
31 and 33 to 38, subparagraphs 40-80(1)(c)(i), 40-735(1)(a)(i) and 40-840(1)(c)(i),
paragraphs 40-80(1)(a), 40-630(1)(b), (1A)(b), (1B)(b) and (3)(b), 40-650(3)(a),
40-730(1)(a), 40-740(1)(a) to (c) and (e), 40-860(1)(a) and (3)(a) and (c) and
40-870(1)(a) and (2)(a), subsections 40-70(3), 40-72(1) and (3), 40-95(10) (items 1 to 3
in the table), 40-102(4) (item 9 in the table), 40-630(1) (note), 40-730(1) and (7),
40-730(4), 40-735(4), 40-740(2) and 40-860(2), and sections 40-40 (item 8 in the table)
and 40-725 of the ITAA 1997]
19.7 Definitions of `Deputy Commissioner' and `Second
Commissioner' are added to the income tax law and existing uses of those
terms are marked with an asterisk to indicate that they are defined.
[Schedule 2, items 13, 16, 23, 24 and 26 to 28, definition of `Deputy Commissioner' and
`Second Commissioner' in subsection 995-1(1) of the ITAA 1997, subsection 255-5(2)
and paragraphs 255-45(1)(b), 355-30(2)(a), 355-55(1)(c) and 357-100(b) in Schedule 1
to the TAA 1953]
Interaction with income tax law
Income tax deductions
19.8 Payments of MRRT and payments of MRRT instalments are
deductions under the income tax law. This is the same income tax
treatment as payments of PRRT and PRRT instalments (see
section 40-750 of the ITAA 1997). [ Schedule 3, item 32, subsection 40-751(1) of
the ITAA 1997]
Example 1.1: Timing of deductions for MRRT payments
Richardson Resources Co has a standard 1 July to 30 June accounting
period. It pays its MRRT instalments for the four quarters of the
2012-13 MRRT year on the due dates (21 October 2012,
21 January 2012, 21 April 2013 and 21 July 2013). It can deduct the
first three of those instalment payments for its 2012-13 income year
because the payments are made in that income year. It can deduct the
final instalment for the 2013-14 income year in which the payment is
made.
19.9 The deductions arise for the payments, but not for the credits
that become attributable to those payments when the MRRT assessment is
made. This ensures that the payments do not produce double deductions.
[ Schedule 3, item 32, subsection 40-751(2) of the ITAA 1997]
388
Miscellaneous consequential amendments
19.10 The non-operative index of deduction provisions is amended to
include the deductions for payments of MRRT. [ Schedule 3, item 8,
section 12-5 of the ITAA 1997]
Assessable income
19.11 Payments of MRRT are deductible for income tax purposes, so
refunds or other recoupments of MRRT payments are assessable income.
This is the same treatment as that for recoupments of PRRT.
19.12 As deductions for MRRT payments are provided for by
Division 40 of the ITAA 1997, the existing recoupment rules apply to
recoupments of MRRT (see subsection 20-30(1) of the ITAA 1997,
item 1.9 in the table). [ Schedule 3, item 32, subsection 40-751(1) of the ITAA
1997]
Example 0.2: Timing of assessment of recoupments
Continuing the previous example, Richardson Resources Co is
assessed as having an MRRT liability for the 2012-13 MRRT year that
is below the total of the four MRRT instalments it has paid for that
year, so it is entitled to a refund of the excess. If the Commissioner of
Taxation (Commissioner) pays that refund to Richardson in 2013-14,
or applies it in that year against another of Richardson's tax liabilities,
it would be included in its assessable income of the 2013-14 income
year.
19.13 Rehabilitation offsets that cannot be used to reduce another
MRRT liability are refunded to the miner. As with credits for
closing-down expenditure under the PRRT, refunded rehabilitation offsets
are assessable income in the income year in which the Commissioner pays
the amount to the miner. [ Schedule 3, item 9, section 15-85 of the ITAA 1997]
19.14 The non-operative index of assessable income provisions is
amended to include the assessment of refunds of MRRT rehabilitation
credits. [ Schedule 3, item 7, section 10-5 of the ITAA 1997]
Long term bond rate
19.15 Previously `long term bond rate' (LTBR) was defined in the
Petroleum Resource Rent Tax Assessment Act 1987. As the LTBR is also
relevant for uplifting allowance components under the MRRT, the
definition has been updated and moved into the Dictionary definitions in
the ITAA 1997.
389
Minerals Resource Rent Tax
19.16 The definition has been updated to reflect the terminology
currently used by the Reserve Bank of Australia. That terminology is apt
to allow for the calculation of the LTBR for any period, not just a
12-month period. [ Schedule 3, item 56, definition of `long term bond rate' in
section 995-1 of the ITAA 1997]
19.17 A consequential amendment has also been made to
section 250-105 of the ITAA 1997. [ Schedule 3, item 39, subsection 250-105(1)
of the ITAA 1997]
Example 0.3: Calculation of LTBR
Shaun is required to calculate the LTBR for the 12-month period from
1 July 2012 -- 30 June 2013. Shaun adds up all the daily assessed
Australian Government bond capital market yields in respect of 10
year non-rebate Treasury bonds that have been published by the
Reserve Bank Australia. There have been 261 daily assessed yields
published by the Reserve Bank Australia for that 12-month period.
The average of these published yields is 4.765258 per cent.
Therefore, the LTBR for this 12-month period is 4.7653 per cent
(rounding up as the 5th decimal place is more than 5).
390
Index
Minerals Resource Rent Tax Bill 2011
Bill reference Paragraph number
Section 1-10 4.47
Section 10-1 9.85, 12.8
Section 10-5 12.9
Section 10-10 6.10, 7.9
Section 10-15 8.9
Section 15-5 9.19, 10.14
Subsection 15-5(1) 3.34, 10.18, 10.74,
10.75
Subsection 15-5(2) 3.36, 3.62
Subsection 15-5(3) 3.35
Subsection 15-5(4) 3.46, 10.18, 10.74,
10.75
Subsection 15-5(5) 3.50, 3.51, 11.73
Subsection 15-5(6) 3.44
Section 15-10 3.54
Subsection 15-15(1) 3.55
Subsection 15-15(2) 3.58
Paragraph 15-20(a) 3.61, 3.62
Paragraph 15-20(b) 3.63
Subsection 20-5(1) 3.72
Paragraph 20-5(1)(a) 6.17, 9.22
Paragraph 20-5(1)(b) 6.18, 9.23
Paragraph 20-5(1)(c) 3.83, 6.17, 6.18, 9.22,
9.23
Paragraph 20-5(1)(d) 3.79, 6.18, 9.23
Subsection 20-5(2) 3.75
Subsection 20-5(3) 3.77
Section 25-5 4.7
Section 30-5 4.6, 4.7
Section 30-10 4.13
391
Minerals Resource Rent Tax
Section 30-15 4.15, 4.19
Subsection 30-15(1) 4.60
Paragraph 30-15(1)(a) 4.16, 4.22
Paragraph 30-15(1)(b) 4.17, 4.31, 4.35
Paragraph 30-15(1)(c) 4.18, 4.42
Subsection 30-15(2) 4.44
Subsection 30-20(1) 4.23
Paragraph 30-20(2)(a) 4.26
Paragraph 30-20(2)(b) 4.25
Subsection 30-25(1) 4.46
Subsection 30-25(2), item 1 in the table 4.61
Subsection 30-25(2), item 2 in the table 4.54, 4.66
Subsection 30-25(2), item 3 in the table 4.54, 4.67
Subsection 30-25(3) 4.49, 4.54, 4.78, 4.88,
4.104
Paragraph 30-25(3)(a) 4.80
Subsection 30-25(4) 4.50, 4.89, 4.90
Paragraphs 30-25(4)(a) 4.93
Paragraph 30-25(4)(b) 4.97
Paragraphs 30-25(4)(c) 4.93
Paragraph 30-25(4)(d) 4.100
Subsection 30-25(5) 4.51, 4.122
Paragraph 30-25(5)(a) 4.125
Subparagraph 30-25(5)(a)(i) 4.131
Subparagraph 30-25(5)(a)(ii) 4.132
Subparagraph 30-25(5)(a)(iii) 4.134
Paragraph 30-25(5)(b) 4.142
Subsection 30-25(6) 4.72
Subsection 30-25(7) 4.73
Section 30-30 4.81
Subsection 30-30(1) 4.68
Paragraph 30-30(2)(a) 4.69
Paragraph 30-30(2)(b) 4.70
Subsection 30-30(3) 4.75
Section 30-35 4.29, 4.40
Section 30-40 4.143, 10.39, 10.57,
10.109
392
Index
Subsection 30-40(1) 4.144
Paragraph 30-40(1)(c) 4.145
Subsection 30-40(2) 4.146
Section 30-45 4.143, 4.148, 6.32
Section 30-50 4.143, 4.149, 4.151
Section 30-55 4.143, 4.152
Section 30-60 4.11
Section 30-65 4.154
Section 30-70 4.62
Section 30-75 4.10
Division 35 6.55, 10.57, 10.109,
12.21
Subsection 35-5(2) 5.7
Section 35-10 5.8, 11.38
Subsection 35-10(2) 5.9
Section 35-15 5.19, 9.30, 11.38
Section 35-20 4.71, 9.30, 11.38
Subsection 35-20(1) 9.32
Subparagraph 35-20(1)(b)(i) 9.30
Subparagraph 35-20(1)(b)(ii) 9.30
Subsection 35-20(2) 5.30, 5.31
Paragraph 35-20(2)(f) 11.55
Paragraph 35-20(2)(h) 11.55
Section 35-25 5.6
Subdivision 35-B 5.7
Section 35-35 7.46
Subsection 35-40(2) 5.52
Subsection 35-40(4) 5.52
Subsection 35-40(5) 5.53
Section 35-50 5.54
Paragraph 35-50(a) 5.59
Paragraph 35-50(b) 5.60
Paragraph 35-50(c) 5.60
Subsection 35-55(1) 5.62
Subsection 35-55(2) 5.65
Section 35-60 5.68
Section 35-65 5.73
393
Minerals Resource Rent Tax
Paragraph 35-65(a) 5.75
Paragraph 35-65(b) 5.76
Subsection 35-70(1) 5.78
Paragraph 35-75(a) 5.82
Paragraph 35-75(b) 5.83
Paragraph 35-75(c) 5.83
Paragraph 35-75(d) 5.84
Section 35-80 5.85
Subsection 40-5(1) 3.86
Paragraph 40-5(2)(a) 3.91
Paragraph 40-5(2)(b) 3.91
Subsection 40-5(3) 3.94
Subsection 40-5(4) 3.96, 4.77
Subsection 45-5(1) 8.7, 8.8
Subsection 45-5(2) 8.9
Subsection 45-10(1) 8.11, 8.13, 8.14, 8.15
Subsection 45-10(2) 8.12
Section 50-5 3.29
Section 50-10 3.29
Section 50-15 3.29
Section 60-10 6.9, 6.11
Paragraph 60-20(1)(b) 6.26, 6.28
Subsection 60-20(2) 6.20
Section 60-30 4.148
Subsection 60-30(1) 6.30
Paragraph 60-30(1)(a) 6.31
Subsection 60-30(2) 6.32
Section 65-10 6.9, 6.11, 6.37
Section 65-15 6.11
Subsection 65-20(1) 6.38, 9.56
Paragraph 65-20(1)(b) 14.82
Section 70-10 6.9, 6.11
Section 70-15 6.11
Section 70-20 6.46
Subsection 75-20(1) 11.38
Section 70-25 3.59, 12.10
Subsection 70-35(7) 6.56, 12.21
394
Index
Subsection 70-35(8) 6.57
Subsection 70-35(9) 6.58
Section 75-10 6.9, 6.11
Section 75-15 6.11
Section 80-10 6.9, 6.11, 7.9
Section 80-15 6.11, 7.9
Section 80-20 7.10
Section 80-25 7.11
Subsection 80-25(1) 7.12, 7.17
Subsection 80-25(2) 7.12, 7.29
Paragraph 80-25(2)(b) 7.35, 7.37
Paragraph 80-25(3)(a) 7.21
Paragraph 80-25(3)(b) 7.23, 7.65
Paragraph 80-25(4)(a) 7.18
Paragraph 80-25(4)(b) 7.17
Subsection 80-25(5) 7.15
Subsection 80-30(1) 7.19
Paragraph 80-30(1)(d) 7.16
Subsection 80-30(2) 7.35
Section 80-35 7.22, 7.107
Paragraph 80-35(1)(c) 7.108
Subsection 80-35(2) 7.108
Subsection 80-40(1) 7.41, 7.47
Subsection 80-40(2) 7.42, 7.45, 7.47
Subsection 80-40(3) 7.42, 13.44
Subsection 80-40(4) 7.45, 13.44
Subsection 80-40(5) 7.46
Subsection 80-40(6) 7.68
Section 80-45 7.48
Subsection 80-45(1), paragraph (a) of the definition of `uplift factor' 7.50
Subsection 80-45(1), paragraph (b) of the definition of `uplift factor' 7.50
Section 80-50 7.51
Section 85-5 7.56
Subsection 85-5(1) 7.54, 7.58
Paragraph 85-5(1)(a) 7.52
Paragraph 85-5(1)(b) 7.53
Subsection 85-5(2) 7.52
395
Minerals Resource Rent Tax
Subsection 85-5(4) 7.59
Subsection 85-5(5) 7.58
Paragraph 85-10(1)(a) 7.60, 7.62
Paragraph 85-10(1)(b) 7.61
Paragraph 85-10(1)(c) 7.62
Subsection 85-10(2) 7.62
Section 85-15 7.52
Division 90 10.65, 10.117, 11.79
Section 90-5 7.66
Section 90-10 7.70
Subsection 90-15(1) 7.74
Subsection 90-15(1), subparagraph (a)(i) of the definition of 7.75
`remaining effective life'
Subsection 90-15(1), subparagraphs (a)(ii) and (iii) of the definition 7.80
of `remaining effective life'
Subsection 90-15(1), paragraph (b) of the definition of `remaining 7.82, 7.108
effective life'
Subsection 90-15(2) 6.72, 7.20, 7.80, 7.82,
7.108
Subsection 90-15(3) 7.20, 7.79
Subparagraph 90-25(1)(a)(i) 7.83
Subparagraph 90-25(1)(a)(ii) 7.83
Paragraph 90-25(1)(b) 7.84
Subsection 90-25(3) 7.85
Paragraph 90-25(3)(a) 7.63
Subsection 90-25(5) 7.85
Subsection 90-25(6) 7.86
Subsection 90-25(7) 7.86
Section 90-30 7.87
Section 90-35 7.88
Section 90-40 7.101
Subsection 90-40(1) 7.88
Subparagraph 90-40(1)(a)(i) 7.89
Subparagraph 90-40(1)(a)(ii) 7.89
Paragraph 90-40(1)(b) 7.90
Subsection 90-40(3) 7.95
Section 90-45 7.94
Section 90-50 7.102
396
Index
Subsection 90-55(1) 7.103, 7.104
Subparagraph 90-55(1)(a)(i) 7.105
Subparagraph 90-55(1)(a)(ii) 7.105
Subsection 90-55(2) 7.105
Subsection 90-55(4) 7.103
Subsection 90-55(5) 7.103
Subsection 90-55(6) 7.106
Subsection 90-55(7) 7.109
Section 90-60 7.111
Section 90-65 7.110
Section 95-10 6.9, 6.11, 6.66
Section 95-15 6.11
Subsection 95-15(1) 6.71, 7.20
Section 95-20 9.62
Subsection 95-20(1) 6.68, 6.69
Subsection 95-20(2) 6.68
Subsection 95-20(3) 6.69
Subsection 95-20(5) 6.70
Section 95-25 6.75, 16.30, 16.35
Paragraph 95-25(2)(b) 6.76
Paragraph 95-25(2)(c) 6.77
Paragraph 95-25(2)(d) 6.77
Subsection 95-25(3) 6.76
Section 95-30 6.75, 16.30, 16.35
Paragraph 95-30(1)(a) 6.78
Subparagraph 95-30(1)(a)(ii) 16.29, 16.34
Paragraph 95-30(1)(b) 6.79
Subsection 95-30(2) 6.80
Section 100-10 6.9, 6.11, 6.81
Section 100-15 6.11
Subsection 100-15(1) 6.82
Subsection 100-15(2) 6.83
Subsection 100-20(1) 9.68
Paragraph 100-20(1)(a) 6.84
Paragraph 100-20(1)(b) 6.84, 14.82
Paragraph 100-20(1)(c) 6.84
Section 100-25 6.85
397
Minerals Resource Rent Tax
Division 115 3.52
Section 115-10 9.43
Subsection 115-10(1) 9.45, 9.46, 9.47, 9.48
Paragraph 115-10(1)(a) 9.15, 9.49
Paragraph 115-10(1)(b) 9.50
Paragraph 115-10(1)(c) 9.50
Paragraph 115-10(1)(d) 9.50
Paragraph 115-10(1)(e) 9.50
Subsection 115-10(3) 9.51
Section 115-15 9.53, 9.58, 9.65, 9.71
Subsection 115-15(1) 9.79
Subsection 115-15(2) 9.80
Section 115-20 9.50, 9.55
Paragraph 115-20(b) 9.57
Section 115-25 9.50, 9.59
Subparagraph 115-25(a)(ii) 9.64
Paragraph 115-25(b) 9.63
Section 115-30 9.50, 9.66
Subparagraph 115-30(a)(ii) 9.70
Paragraph 115-30(b) 9.69
Section 115-35 9.72
Paragraph 115-35(a) 9.50, 9.74
Paragraph 115-35(b) 9.50, 9.75
Section 115-40 9.48, 9.83, 9.84
Section 115-45 9.86
Subsection 115-45(1) 9.87
Subsection 115-45(2) 9.88
Subsection 115-45(3) 9.89
Subsection 115-45(4) 9.90, 9.91
Subsection 115-45(5) 9.90, 9.91
Section 115-50 9.90, 9.91, 9.92, 9.93,
9.94
Subsection 115-50(2) 9.95
Subsection 115-50(3) 9.95
Subsection 115-50(4) 9.96
Section 115-55 9.63, 9.101, 9.102
Paragraph 115-55(1)(b) 9.103
398
Index
Paragraph 115-55(2)(b) 9.103
Subsection 115-55(3) 9.104
Section 115-60 9.69, 9.101, 9.102
Paragraph 115-60(1)(b) 9.103
Paragraph 115-60(2)(b) 9.103
Subsection 115-60(3) 9.104
Section 115-65 9.99
Division 120 3.52, 16.28
Section 120-10 16.32
Subsection 120-10(1) 10.20, 10.32, 10.33,
10.58
Subsection 120-10(2) 10.20, 10.22, 11.74
Subsection 120-10(3) 10.13
Subsection 120-10(4) 10.22, 10.27
Paragraph 120-10(4)(a) 10.34, 10.35
Paragraph 120-10(4)(b) 10.34, 10.35, 10.39
Paragraph 120-10(4)(c) 10.28
Paragraph 120-10(4)(d) 10.28
Subsection 120-10(5) 10.44, 10.45
Subsection 120-10(6) 10.49
Section 120-15 10.64, 16.26, 16.33
Subsection 120-15(1) 10.60
Subsection 120-15(2) 10.59, 10.61
Subsection 120-15(3) 10.59, 10.61
Subsection 120-15(4) 10.62
Section 120-20 10.52, 10.58
Subsection 120-20(2) 10.53
Section 120-25 3.49, 10.18, 10.37,
10.43, 10.56
Subsection 120-25(2) 10.44, 10.49, 10.51
Division 125 3.52
Section 125-10 16.32
Subsection 125-10(1) 10.76, 10.82, 10.110
Subsection 125-10(2) 10.76, 10.77, 11.74
Paragraph 125-10(3)(a) 10.67
Paragraph 125-10(3)(b) 10.67, 10.69
Paragraph 125-10(3)(c) 10.68, 10.69
399
Minerals Resource Rent Tax
Paragraph 125-10(3)(d) 9.16, 10.68, 10.69
Subsection 125-10(4) 10.78, 10.84, 10.85,
10.110
Paragraph 125-10(4)(a) 10.87
Paragraph 125-10(4)(b) 10.87
Paragraph 125-10(4)(c) 10.88
Paragraph 125-10(4)(d) 10.88
Subsection 125-10(5) 10.97, 10.98
Subsection 125-10(6) 10.102
Subsection 125-10(7) 10.97, 10.104
Section 125-15 10.81
Section 125-20 10.111, 10.116, 16.33
Subsection 125-20(1) 10.112
Subsection 125-20(2) 10.111, 10.113
Subsection 125-20(3) 10.111, 10.113
Subsection 125-20(4) 10.114
Section 125-25 10.120
Section 125-30 10.105, 10.110
Section 125-35 3.49
Paragraph 125-35(1)(a) 10.74
Paragraph 125-35(1)(b) 10.75
Division 130 3.53
Subsection 130-10(1) 11.11
Paragraph 130-10(1)(a) 11.13
Paragraph 130-10(1)(b) 11.15
Paragraph 130-10(1)(c) 11.25, 11.61
Subsection 130-10(2) 11.13
Subsection 130-10(3) 11.17
Subsection 130-10(4) 11.14
Section 130-15 11.28, 11.79
Paragraph 130-15(a) 11.33
Paragraph 130-15(b) 11.34
Subsection 130-20(1) 11.23, 11.62
Subsection 130-20(2) 11.24
Division 135 3.53
Section 135-5 11.25, 11.58
Section 135-10 11.63, 11.66
400
Index
Subsection 135-10(1) 11.64
Subsection 135-10(2) 11.67
Section 135-15 11.63, 11.69, 11.74
Section 135-20 11.63
Subsection 135-25(1) 11.75
Subsection 135-25(2) 11.76
Division 140 17.55, 17.88
Section 140-5 12.9, 12.11
Section 140-10 12.8, 12.9
Paragraph 140-10(2)(a) 12.12
Paragraph 140-10(2)(b) 12.12
Paragraph 140-10(2)(c) 12.14
Paragraph 140-10(2)(d) 12.14
Paragraph 140-10(2)(e) 12.14
Paragraph 140-10(2)(f) 12.12
Paragraph 140-10(2)(g) 12.12
Section 140-15 12.15
Section 140-20 12.16
Section 140-25 12.18
Subsection 140-25(2) 12.19
Division 145 10.124
Subsection 145-10(1) 10.128, 10.136, 11.94
Subsection 145-10(2) 10.126
Section 145-15 10.129
Subsection 145-15(1) 10.128, 10.136
Subsection 145-15(2) 10.136
Subsection 145-15(3) 10.130
Section 145-20 10.133
Section 145-25 10.134
Section 145-30 10.135, 11.100
Paragraph 145-30(1)(b) 10.136
Division 150 10.124
Subsection 150-10(1) 10.141, 10.152
Paragraph 150-10(2)(a) 10.137
Paragraph 150-10(2)(b) 10.137
Paragraph 150-10(2)(c) 10.138
401
Minerals Resource Rent Tax
Subsection 150-15(1) 10.141, 10.142,
10.152
Subsection 150-15(2) 10.141, 10.152
Subsection 150-15(3) 10.143
Subsection 150-15(5) 10.149
Subsection 150-15(6) 10.149
Subsection 150-15(7) 10.149
Section 150-20 10.147
Section 150-25 10.150
Section 150-30 10.148
Section 150-35 10.151, 11.100
Paragraph 150-35(1)(b) 10.152
Section 155-5 11.85
Section 155-10 11.87
Subsection 155-10(1) 11.88, 11.94
Subsection 155-10(2) 11.89
Paragraph 155-10(2)(a) 11.92
Paragraph 155-10(2)(b) 11.93
Subsection 155-10(3) 11.91
Section 155-15 11.87, 11.94
Section 155-20 11.95
Section 155-25 11.97
Subsection 155-25(2) 11.99, 11.100
Division 160 4.9, 5.38, 10.66,
10.118
Subsection 160-10(1) 13.8, 13.9
Subsection 160-10(2) 13.12
Subsection 160-10(3) 13.9
Subsection 160-15(1) 13.15
Subsection 160-15(2) 13.17
Subsection 160-15(3) 13.18
Division 165 4.9
Paragraph 165-5(1)(a) 13.21
Paragraph 165-5(1)(b) 13.22, 13.23
Paragraph 165-5(1)(c) 13.24
Subsection 165-5(2) 13.25
Paragraph 165-5(2)(a) 13.53
402
Index
Subsection 165-10(1) 13.28
Subsection 165-10(2) 13.28
Subsection 165-10(3) 13.30
Paragraph 165-10(3)(b) 13.37
Subsection 165-10(4) 13.39
Subsection 165-10(5) 13.34
Subsection 165-10(6) 13.35
Subsection 165-10(7) 13.29
Section 165-15 13.42
Section 165-20 13.28
Subsection 165-25(1) 13.28
Subsection 165-25(2) 13.28
Subsection 165-25(3) 13.28
Subsection 165-25(4) 13.28
Section 165-30 13.28
Subsection 165-35(1) 13.45
Subsection 165-35(2) 13.45
Subsection 165-35(3) 13.52
Section 165-40 13.46
Paragraph 165-40(1)(a) 13.47
Paragraph 165-40(1)(b) 13.48
Paragraph 165-40(2)(a) 13.48
Subsection 165-40(3) 13.50
Subsection 165-40(4) 13.49
Section 165-45 13.51
Subsection 165-55(1) 13.54, 13.55
Paragraph 165-55(2)(a) 13.54, 13.55
Subparagraph 165-55(2)(b)(i) 13.54
Subparagraph 165-55(2)(b)(ii) 13.55
Subsection 165-55(3) 13.57
Subsection 165-55(4) 13.57
Subsection 165-55(5) 13.54, 13.55, 13.57
Section 165-60 13.58
Subsection 170-5(1) 14.10
Subsection 170-5(2) 14.15
Paragraph 170-5(3)(a) 14.14
Paragraph 170-5(3)(b) 14.13
403
Minerals Resource Rent Tax
Subsection 170-10(1) 14.18
Subsection 170-10(2) 14.25
Subsection 170-10(3) 14.28
Subsection 170-10(4) 14.31
Subsection 170-10(5) 14.36
Paragraph 170-10(5)(a) 14.40
Paragraph 170-10(5)(b) 14.43
Paragraph 170-10(5)(c) 14.45
Subsection 170-10(6) 14.49
Paragraph 170-10(6)(a) 14.50
Paragraph 170-10(6)(b) 14.50
Paragraph 170-10(6)(c) 14.51
Subsection 170-10(7) 14.21
Section 175-5 14.58
Subsection 175-10(1) 14.64
Subparagraph 175-10(1)(b)(i) 14.76
Subparagraph 175-10(1)(b)(ii) 14.77
Paragraph 175-10(2)(a) 14.59
Paragraph 175-10(2)(b) 14.60
Subsection 175-15(1) 14.66, 14.68, 14.69,
14.71
Paragraph 175-15(1)(b) 14.70
Subsection 175-15(2) 14.70
Subsection 175-15(3) 14.72
Section 175-20 14.63
Section 175-25 14.85, 14.86
Section 175-30 14.85
Paragraph 175-35(1)(a) 14.88
Paragraph 175-35(1)(b) 14.88
Subsection 175-35(2) 14.89
Subsection 175-40(1) 14.90
Subsection 175-40(2) 14.91, 14.94
Subsection 175-40(3) 14.91, 14.94
Paragraph 175-40(3)(a) 14.90
Paragraph 175-40(3)(d) 14.93
Subsection 175-40(4) 14.92
Subsection 175-40(5) 14.91
404
Index
Subsection 175-40(6) 14.96
Subsection 175-40(7) 14.90
Subsection 175-45(1) 14.99, 14.100
Subsection 175-45(2) 14.101
Section 180-5 7.98
Subsection 180-5(1) 7.97, 7.99
Section 180-10 7.100
Subsection 185-10(1) 15.36
Subsection 185-10(2) 15.38
Subsection 185-10(3) 15.39
Subsection 185-10(4) 15.40
Subsection 185-10(5) 15.41
Subsection 185-15(1) 15.42
Subsection 185-15(2) 15.46
Subsection 185-15(3) 15.46
Subsection 185-15(4) 15.47
subsection 185-15(5) 15.48
Subsection 185-15(6) 15.40, 15.41
Subsection 185-15(7) 15.49, 15.50
Subsection 185-15(8) 15.50
Section 185-20 15.52
Subsection 185-25(1) 15.41, 15.53, 15.54,
15.55, 15.56, 15.59,
15.60
Subsection 185-25(2) 15.56
Subsection 185-25(3) 15.61, 15.62, 15.63
Section 190-5 15.66
Section 190-10 15.66
Subsection 190-15(1) 15.73
Subsection 190-15(2) 15.74
Subsection 190-15(3) 15.76
Subsection 190-15(4) 15.77
Section 190-20 15.73
Subsection 190-20(1) 15.79, 15.81
Subsection 190-20(2) 15.83
Subsection 190-20(3) 15.85
Section 190-25 15.73, 15.87
405
Minerals Resource Rent Tax
Division 195 6.55, 12.21
Section 195-5 15.15
Subsection 195-10(1) 15.17
Subparagraph 195-10(1)(a)(ii) 15.19, 15.20
Subsection 195-10(2) 15.21
Subsection 195-10(3) 15.21
Subsection 195-10(4) 15.20
Subsection 195-15(1) 15.29
Subsection 195-15(2) 15.32
Division 200 3.30
Subsection 200-10(1) 8.22
Subsection 200-10(2) 8.24
Subsection 200-10(3) 8.24
Subsection 200-10(4) 8.25
Section 200-15 8.26
Division 205 4.54, 4.63
Section 205-10 17.12
Subsection 205-10(1) 17.13, 17.15, 17.28
Paragraph 205-10(1)(a) 17.18
Paragraph 205-10(1)(b) 17.22
Paragraph 205-10(2)(a) 17.27
Paragraph 205-10(2)(b) 17.21
Subsection 205-10(3) 17.45
Subsection 205-15(1) 17.32
Paragraph 205-15(1)(a) 17.33
Paragraph 205-15(1)(b) 17.33
Paragraph 205-15(1)(c) 17.33
Paragraph 205-15(1)(d) 17.33
Subsection 205-15(2) 17.33
Section 205-20 17.47
Paragraph 205-20(1)(b) 17.48
Paragraph 205-20(1)(c) 17.49
Paragraph 205-20(2)(b) 17.48
Paragraph 205-20(2)(c) 17.49
Subsection 205-25(1) 17.50, 17.51
Subsection 205-25(2) 17.54
Subsection 205-25(3) 17.52
406
Index
Subsection 205-25(4) 17.53
Subsection 205-25(5) 17.53
Subsection 205-25(6) 17.51
Subsection 205-25(7) 17.54
Division 210 17.57
Paragraph 210-10(1)(b) 17.62
Paragraph 210-10(1)(c) 17.67, 17.71
Subsection 210-10(2) 17.74
Subsection 210-10(3) 17.64
Subsection 210-10(4) 17.75
Paragraph 210-10(4)(b) 17.76
Subsection 210-10(5) 17.67
Subsection 210-15(1) 17.65
Paragraph 210-15(1)(a) 17.60
Paragraph 210-15(1)(b) 17.60
Subsection 210-15(2) 17.61
Section 210-20 17.72
Paragraph 210-20(a) 17.73
Paragraph 210-20(b) 17.73
Paragraph 210-20(c) 17.73
Paragraph 210-20(d) 17.73
Paragraph 210-20(e) 17.73
Paragraph 210-20(f) 17.73
Paragraph 210-20(g) 17.73
Paragraph 210-20(h) 17.73
Section 210-25 17.77
Paragraph 210-25(1)(a) 17.78
Paragraph 210-25(1)(b) 17.78
Subsection 210-25(2) 17.79
Section 210-30 17.80
Paragraph 210-30(1)(a) 17.81
Paragraph 210-30(1)(b) 17.81
Paragraph 210-30(1)(c) 17.81
Subsection 210-30(2) 17.82
Paragraph 210-30(3)(a) 17.83
Paragraph 210-30(3)(b) 17.83
Subsection 210-30(4) 17.87
407
Minerals Resource Rent Tax
Subsection 210-30(5) 17.87
Subsection 210-30(6) 17.86
Section 210-35 17.84
Section 210-40 17.85
Division 215 9.20
Section 215-5 16.9
Subsection 215-10(1) 16.19
Subsection 215-10(2) 16.20
Subsection 215-10(3) 16.21
Subsection 215-10(4) 16.22
Section 215-15 16.10, 16.26, 16.33
Section 215-20 16.18, 16.27
Section 215-25 16.31
Section 215-30 16.31
Section 215-35 16.37
Section 215-40 16.36
Section 215-45 16.40
Section 215-50 16.42
Section 215-55 16.23, 16.44
Section 220-5 16.50
Subsection 220-10(1) 16.51
Subsection 220-10(2) 16.53
Division 225 11.28
Paragraph 255-5(a) 9.17
Paragraph 255-5(b) 9.17, 9.21
Paragraph 255-5(c) 9.17, 9.24
Section 225-10 11.40
Subsection 225-10(1) 11.41
Subsection 225-10(2) 11.41
Subsection 225-10(4) 11.48
Section 225-15 10.119
Paragraph 225-15(1)(a) 11.49
Paragraph 225-15(1)(b) 11.49, 11.54
Subparagraph 225-15(1)(b)(i) 11.55
Subparagraph 225-15(1)(b)(ii) 11.55
Paragraph 225-15(1)(c) 11.49
Subsection 225-15(2) 11.49
408
Index
Subsection 225-15(3) 11.50
Paragraph 225-15(3)(a) 11.52
Paragraph 225-15(3)(b) 11.52
Subsection 225-15(4) 10.122, 11.50
Paragraph 225-20(1)(a) 11.97
Subsection 225-25(1) 11.46
Subsection 225-25(2) 11.46
Subsection 225-25(3) 11.46
Section 250-5 7.38
Section 250-10 7.38
Subsection 250-10(2) 7.108
Section 250-15 7.14
Division 255 10.139
Section 255-5 10.72
Paragraph 255-5(a) 9.19
Section 255-10 9.39, 10.72
Paragraph 255-10(a) 9.17, 9.19
Paragraph 255-10(b) 9.17, 9.21
Paragraph 255-10(c) 9.17
Paragraph 255-10(d) 9.17, 9.37
Section 255-15 9.30
Subsection 255-15(1) 9.32
Section 255-20 9.37, 9.38
Subsection 255-20(3) 9.40, 10.42, 10.43,
10.95, 10.96
Section 300-1 3.56
Section 300-1, definition of `accounting standard' 7.64
Section 300-1, definition of `allowance component' 3.27, 10.29
Section 300-1, definition of `arrangement' 10.15, 10.70
Section 300-1, definition of `auditing standard' 7.64
Section 300-1, definition of `Australia' 3.65
Section 300-1, definition of `consolidatable group' 6.70
Section 300-1, definition of `entity' 16.46
Section 300-1, definition of `exploration or prospecting' 5.33
Section 300-1, definition of `foreign currency' 15.37
Section 300-1, definition of `installed ready for use' 7.27
Section 300-1, definition of `market value' 7.91
409
Minerals Resource Rent Tax
Section 300-1, definition of `mining, quarrying and prospecting 7.18
information'
Section 300-1, definition of `MRRT rate' 3.26
Section 300-1, definition of `non-cash benefit' 15.18
Section 300-1, definition of `recoupment' 6.29
Section 300-1, definition of `scheme' 17.59
Minerals Resource Rent Tax (Consequential Amendments and
Transitional Provisions) Bill 2011
Commencement
Bill reference Paragraph number
Clause 2, item 3 of the table 18.45
Clause 2, item 4 of the table 18.45
Clause 2, item 8 of the table 5.85
Schedule 1: Amendments of the Taxation Administration Act 1953 not
related to assessments
Bill reference Paragraph number
Items 1 and 2, subsection 8AAB(4) of the TAA 1953 18.118, 18.186
Item 3, paragraph 11-1(g) of Schedule 1 to the TAA 1953 18.114
Item 4, paragraph 12-330(1)(b) of Schedule 1 to the TAA 1953 18.112
Item 4, paragraph 12-335(2)(a) of Schedule 1 to the TAA 1953 18.112
Item 5, Subdivision 18-A (heading) of Schedule 1 to the TAA 1953 18.114
Item 6, section 18-10 of Schedule 1 to the TAA 1953 18.113
Item 7, section 18-49 of Schedule 1 to the TAA 1953 18.113
Item 8, Division 115 of Schedule 1 to the TAA 1953 3.29
Item 8, section 115-5 of Schedule 1 to the TAA 1953 18.123
Item 8, subsection 115-10(1) of Schedule 1 to the TAA 1953 18.124
Item 8, subsection 115-10(2) of Schedule 1 to the TAA 1953 18.125
Item 8, subsection 115-15(1) of Schedule 1 to the TAA 1953 18.181, 18.182
Item 8, subsection 115-15(2) of Schedule 1 to the TAA 1953 18.181, 18.182
Item 8, subsection 115-15(3) of Schedule 1 to the TAA 1953 18.183
Item 8, subsection 115-15(4) of Schedule 1 to the TAA 1953 18.183
Item 8, section 115-20 of Schedule 1 to the TAA 1953 18.177
Item 8, subsection 115-20(1) of Schedule 1 to the TAA 1953 18.129, 18.131
410
Index
Item 8, subsection 115-20(2) of Schedule 1 to the TAA 1953 18.130
Item 8, paragraph 115-20(2)(a) of Schedule 1 to the TAA 1953 18.131, 18.160
Item 8, paragraph 115-20(2)(b) of Schedule 1 to the TAA 1953 18.160
Item 8, subsection 115-20(3) of Schedule 1 to the TAA 1953 18.131
Item 8, section 115-25 of Schedule 1 to the TAA 1953 18.127
Item 8, section 115-30 of Schedule 1 to the TAA 1953 18.128
Item 8, section 115-35 of Schedule 1 to the TAA 1953 18.132
Item 8, section 115-40 of Schedule 1 to the TAA 1953 18.133
Item 8, subsection 115-45(1) of Schedule 1 to the TAA 1953 18.135, 18.136,
18.149
Item 8, item 1 in the table in subsection 115-45(1) of Schedule 1 to 18.147
the TAA 1953
Item 8, item 2 in the table in subsection 115-45(1) of Schedule 1 to 18.152
the TAA 1953
Item 8, item 3 in the table in subsection 115-45(1) of Schedule 1 to 18.139
the TAA 1953
Item 8, item 4 in the table in subsection 115-45(1) of Schedule 1 to 18.153
the TAA 1953
Item 8, subsection 115-45(2) of Schedule 1 to the TAA 1953 18.146, 18.150
Item 8, subsection 115-45(3) of Schedule 1 to the TAA 1953 18.148, 18.150
Item 8, subsection 115-45(4) of Schedule 1 to the TAA 1953 18.147
Item 8, subsection 115-45(5) of Schedule 1 to the TAA 1953 18.149
Item 8, section 115-50 of Schedule 1 to the TAA 1953 18.151
Item 8, section 115-55 of Schedule 1 to the TAA 1953 18.184
Item 8, subsection 115-60(1) of Schedule 1 to the TAA 1953 18.159
Item 8, paragraph 115-60(1)(d) of Schedule 1 to the TAA 1953 18.162
Item 8, subsection 115-60(2) of Schedule 1 to the TAA 1953 18.161
Item 8, subsections 115-60(3) of Schedule 1 to the TAA 1953 18.159
Item 8, subsection 115-65(1) of Schedule 1 to the TAA 1953 18.163
Item 8, subsection 115-65(2) of Schedule 1 to the TAA 1953 18.166, 18.167
Item 8, subsection 115-65(3) of Schedule 1 to the TAA 1953 18.169
Item 8, subsection 115-65(4) of Schedule 1 to the TAA 1953 18.169
Item 8, subsection 115-65(5) of Schedule 1 to the TAA 1953 18.169
Item 8, section 115-70 of Schedule 1 to the TAA 1953 18.164
Item 8, subsection 115-75(1) of Schedule 1 to the TAA 1953 18.150
Item 8, subsection 115-75(2) of Schedule 1 to the TAA 1953 18.140
Item 8, subsection 115-75(3) of Schedule 1 to the TAA 1953 18.142
Item 8, subsection 115-75(4) of Schedule 1 to the TAA 1953 18.141
411
Minerals Resource Rent Tax
Item 8, subsection 115-75(5) of Schedule 1 to the TAA 1953 18.143, 18.145
Item 8, subsection 115-75(6) of Schedule 1 to the TAA 1953 18.145
Item 8, section 115-80 of Schedule 1 to the TAA 1953 18.143, 18.144
Item 8, paragraph 115-85(1)(a) of Schedule 1 to the TAA 1953 18.154
Item 8, paragraph 115-85(1)(b) of Schedule 1 to the TAA 1953 18.155
Item 8, paragraph 115-85(2)(a) of Schedule 1 to the TAA 1953 18.154
Item 8, paragraph 115-85(2)(b) of Schedule 1 to the TAA 1953 18.155
Item 8, subsection 115-85(3) of Schedule 1 to the TAA 1953 18.156
Item 8, subsection 115-85(4) of Schedule 1 to the TAA 1953 18.155
Item 8, subsection 115-90(1) of Schedule 1 to the TAA 1953 18.171
Item 8, subsection 115-90(2) of Schedule 1 to the TAA 1953 18.172, 18.175,
18.176
Item 8, section 115-95 of Schedule 1 to the TAA 1953 18.175
Item 8, subsection 115-95(1) of Schedule 1 to the TAA 1953 18.173
Item 8, subsection 115-95(2) of Schedule 1 to the TAA 1953 18.174
Item 8, subsection 115-100(1) of Schedule 1 to the TAA 1953 18.178, 18.180
Item 8, subsection 115-100(2) of Schedule 1 to the TAA 1953 18.179
Item 8, section 115-105 of Schedule 1 to the TAA 1953 18.141, 18.164,
18.168
Item 8, section 115-110 of Schedule 1 to the TAA 1953 18.126
Item 8, subsection 117-5(1) of Schedule 1 to the TAA 1953 18.27
Item 8, subsection 117-5(2) of Schedule 1 to the TAA 1953 18.28
Item 8, subsection 117-5(3) of Schedule 1 to the TAA 1953 18.31
Item 8, paragraph 117-5(3)(b) of Schedule 1 to the TAA 1953 18.32
Item 8, paragraph 117-5(3)(c) of Schedule 1 to the TAA 1953 18.32
Item 8, subsection 117-5(4) of Schedule 1 to the TAA 1953 18.30
Item 8, paragraph 117-5(4)(a) of Schedule 1 to the TAA 1953 8.29
Item 8, subsection 117-5(5) of Schedule 1 to the TAA 1953 18.30, 18.32
Item 8, subsection 117-10(1) of Schedule 1 to the TAA 1953 18.33
Item 8, subsection 117-10(2) of Schedule 1 to the TAA 1953 18.34
Item 8, subsection 117-15(1) of Schedule 1 to the TAA 1953 18.38, 18.40
Item 8, section 117-20 of Schedule 1 to the TAA 1953 7.56, 7.98
Item 8, subsection 117-20(1) of Schedule 1 to the TAA 1953 18.100
Item 8, subsection 117-20(2) of Schedule 1 to the TAA 1953 18.101
Item 8, subsection 117-20(3) of Schedule 1 to the TAA 1953 7.65, 18.102
Item 8, subsection 117-20(4) of Schedule 1 to the TAA 1953 18.103
Item 8, subsection 117-20(5) of Schedule 1 to the TAA 1953 18.103
412
Index
Item 8, section 117-25 of Schedule 1 to the TAA 1953 18.41
Item 8, section 117-30 of Schedule 1 to the TAA 1953 18.42
Item 8, Division 119 of Schedule 1 to the TAA 1953 (TAA 1953) 8.25, 11.14
Item 8, subparagraph 119-5(1)(a)(i) of Schedule 1 to the TAA 1953 18.248
Item 8, subparagraph 119-5(1)(a)(ii) of Schedule 1 to the TAA 1953 18.249
Item 8, paragraph 119-5(1)(b) of Schedule 1 to the TAA 1953 18.250
Item 8, subsection 119-5(2) of Schedule 1 to the TAA 1953 18.254
Item 8, subsection 119-5(3) of Schedule 1 to the TAA 1953 14.61, 18.256
Item 8, section 119-10 of Schedule 1 to the TAA 1953 7.58, 7.98, 14.62,
16.24, 18.258
Item 8, section 119-15 of Schedule 1 to the TAA 1953 18.243
Item 8, Division 121 in Schedule 1 to the TAA 1953 10.36, 10.55, 10.91,
10.107
Item 8, section 121-5 of Schedule 1 to the TAA 1953 18.214
Item 8, subsection 121-10(1) of Schedule 1 to the TAA 1953 18.215
Item 8, paragraph 121-10(2)(a) of Schedule 1 to the TAA 1953 18.221
Item 8, paragraph 121-10(2)(b) of Schedule 1 to the TAA 1953 18.221, 18.222,
18.224
Item 8, paragraph 121-10(2)(c) of Schedule 1 to the TAA 1953 18.223, 18.224
Item 8, paragraph 121-10(2)(d) of Schedule 1 to the TAA 1953 18.223, 18.224
Item 8, subsection 121-10(3) of Schedule 1 to the TAA 1953 18.216
Item 8, paragraph 121-10(4)(a) of Schedule 1 to the TAA 1953 18.217
Item 8, paragraph 121-10(4)(b) of Schedule 1 to the TAA 1953 18.218
Item 8, paragraphs 121-10(4)( c) of Schedule 1 to the TAA 1953 18.218
Item 8, section 121-12 of Schedule 1 to the TAA 1953 5.81
Item 8, subsection 121-15(1) of Schedule 1 to the TAA 1953 18.226
Item 8, subsection 121-15(2) of Schedule 1 to the TAA 1953 18.227
Item 8, subsection 123-5(1) of Schedule 1 to the TAA 1953 18.187, 18.192
Item 8, paragraph 123-5(1)(a) of Schedule 1 to the TAA 1953 18.193
Item 8, paragraph 123-5(1)(b) of Schedule 1 to the TAA 1953 18.193
Item 8, subsection 123-5(2) of Schedule 1 to the TAA 1953 18.196
Item 8, subsection 123-5(3) of Schedule 1 to the TAA 1953 18.199
Item 8, paragraph 123-5(4)(a) of Schedule 1 to the TAA 1953 18.202
Item 8, paragraph 123-5(4)(b) of Schedule 1 to the TAA 1953 18.201
Item 8, section 123-10 of Schedule 1 to the TAA 1953 18.204
Item 8, subsection 123-15(1) of Schedule 1 to the TAA 1953 18.207, 18.210
Item 8, paragraph 123-15(1)(c) of Schedule 1 to the TAA 1953 18.208
Item 8, paragraphs 123-15(1)(d) of Schedule 1 to the TAA 1953 18.208
413
Minerals Resource Rent Tax
Item 8, subsection 123-15(2) of Schedule 1 to the TAA 1953 18.209
Item 8, subsection 123-15(3) of Schedule 1 to the TAA 1953 18.212
Item 8, subsection 125-1(1) of Schedule 1 to the TAA 1953 18.237
Item 8, subsection 125-1(2) of Schedule 1 to the TAA 1953 18.238
Item 8, subsection 125-1(3) of Schedule 1 to the TAA 1953 18.239
Item 8, subsection 125-1(4) of Schedule 1 to the TAA 1953 18.240
Item 8, subsection 125-1(5) of Schedule 1 to the TAA 1953 18.241
Item 8, subsection 125-1(6) of Schedule 1 to the TAA 1953 18.242
Item 9, subsection 250-10(2) of Schedule 1 to the TAA 1953 18.111
Item 10, subsection 250-10(2) of Schedule 1 to the TAA 1953 18.111, 18.186
Item 11, section 280-1 of Schedule 1 to the TAA 1953 18.115
Item 12, section 280-50 of Schedule 1 to the TAA 1953 18.115
Item 13, subsection 280-101(1) of Schedule 1 to the TAA 1953 18.116
Item 13, subsection 280-101(2) of Schedule 1 to the TAA 1953 18.116
Item 13, subsection 280-101(3) of Schedule 1 to the TAA 1953 18.117
Item 14, paragraph 280-105(1)(a) of Schedule 1 to the TAA 1953 18.115
Item 15, subsection 280-110(1) of Schedule 1 to the TAA 1953 18.115
Item 16, section 280-170 of Schedule 1 to the TAA 1953 18.115
Items 17, section 284-30 of Schedule 1 to the TAA 1953 18.121
Item 18, section 284-35 of Schedule 1 to the TAA 1953 18.121
Item 19, paragraph 284-75(2)(a) of Schedule 1 to the TAA 1953 18.121
Item 20, paragraph 284-75(2)(b) of Schedule 1 to the TAA 1953 18.121
Item 21, subsection 284-80(1) of Schedule 1 to the TAA 1953 18.121
Items 21 to 23, subsection 284-90(1) of Schedule 1 to the TAA 1953 18.121
Item 24, subsection 286-75(2AA) of Schedule 1 to the TAA 1953 18.229
Item 25, paragraph 286-80(2)(a) of Schedule 1 to the TAA 1953 18.229
Item 26, section 352-1 of Schedule 1 to the TAA 1953 18.272
Item 27, section 352-10 of Schedule 1 to the TAA 1953 18.271
Item 28, section 353-10 of Schedule 1 to the TAA 1953 18.232
Item 28, subsection 353-10(1) of Schedule 1 to the TAA 1953 18.231
Item 29, section 353-15 (heading) of Schedule 1 to the TAA 1953 18.231, 18.234
Item 30, subsection 353-15(1) of Schedule 1 to the TAA 1953 18.231, 18.234
Item 31, section 353-17 of Schedule 1 to the TAA 1953 18.231, 18.235
Item 32, paragraph 357-55(faa) of Schedule 1 to the TAA 1953 18.268
Item 33, subsection 360-5(1) of Schedule 1 to the TAA 1953 18.269
Item 34, section 444-1 of Schedule 1 to the TAA 1953 16.59
Item 35, subsection 444-5(1) of Schedule 1 to the TAA 1953 16.59
414
Index
Item 36, subsection 444-5(1A) of Schedule 1 to the TAA 1953 16.59, 16.60
Item 36, subsection 444-5(1B) of Schedule 1 to the TAA 1953 16.59, 16.60
Item 37, subsection 444-5(2) of Schedule 1 to the TAA 1953 16.59
Item 38, subsection 444-10(1) of Schedule 1 to the TAA 1953 16.59
Item 38, subsection 444-10(2) of Schedule 1 to the TAA 1953 16.59
Item 39, subsection 444-10(3) of Schedule 1 to the TAA 1953 16.59
Item 40, subsection 444-10(5) of Schedule 1 to the TAA 1953 16.59
Item 41, subsection 444-15(1) of Schedule 1 to the TAA 1953 16.59
Item 42, subsection 444-30(1) of Schedule 1 to the TAA 1953 16.59
Item 42, subsection 444-30(2) of Schedule 1 to the TAA 1953 16.59
Item 42, subsection 444-30(3) of Schedule 1 to the TAA 1953 16.59
Item 43, subsection 444-70(1) of Schedule 1 to the TAA 1953 16.59
Item 43, subsection 444-70(2) of Schedule 1 to the TAA 1953 16.59
Item 44, section 444-120 of Schedule 1 to the TAA 1953 16.61
Item 44, subsection 444-120(1) of Schedule 1 to the TAA 1953 16.62, 16.63
Item 44, subsection 444-120(2) of Schedule 1 to the TAA 1953 16.64
Item 44, subsection 444-120(3) of Schedule 1 to the TAA 1953 16.65
Item 44, subsection 444-120(4) of Schedule 1 to the TAA 1953 16.66
Item 44, subsection 444-120(5) of Schedule 1 to the TAA 1953 16.67
Item 44, subsection 444-120(6) of Schedule 1 to the TAA 1953 16.68
Item 44, subsection 444-120(7) of Schedule 1 to the TAA 1953 16.69
Schedule 2: Amendments related to assessments
Bill reference Paragraph number
Item 1, subsection 14ZW(1AB) in Schedule 1 to the TAA 1953 18.270
Item 1, subsection 14ZW(1AC) in Schedule 1 to the TAA 1953 18.270
Item 2, paragraph 155-5(2)(e) in Schedule 1 to the TAA 1953 18.54
Item 3, subsection 155-15(1) in Schedule 1 to the TAA 1953 18.54, 18.57, 18.60
Item 4, subsection 155-30(1) in Schedule 1 to the TAA 1953 18.55
Item 5, section 155-55 in Schedule 1 of the TAA 1953 18.80
Item 5, section 155-57 in Schedule 1 of the TAA 1953 18.80
Items 6 and 7, section 155-90 in Schedule 1 of the TAA 1953 18.87
Item 8, section 350-5, in Schedule 1 to the TAA 1953 18.96
Item 10, paragraph (e) of Schedule 1 of the ADJR Act 18.86
Item 11, definition of `assessable amount' in subsection 995-1(1) of 18.51
the ITAA 1997
415
Minerals Resource Rent Tax
Item 12, definition of `assessment' in subsection 995-1(1) of the 18.51
ITAA 1997
Item 13, definition of `Deputy Commissioner' in 18.96
subsection 995-1(1) of the ITAA 1997
Item 14, definition of `original assessment' in subsection 995-1(1) of 18.80
the ITAA 1997
Item 15, definition of `period of review' in subsection 995-1(1) of 18.80
the ITAA 1997
Item 16, definition of `Second Commissioner' in 18.96
subsection 995-1(1) of the ITAA 1997
Item 17, subsection 8AAZLG(2) of the TAA 1953 18.88
Item 18, paragraph 14ZW(1)(bg) of the TAA 1953 18.84
Item 19, subsection 14ZW(1AB) in Schedule 1 to the TAA 1953 18.270
Item 19, subsection 14ZW(1AC) in Schedule 1 to the TAA 1953 18.270
Item 20, paragraph 14ZW(1B)(b) of the TAA 1953 18.85
Item 21, the heading to Chapter 4 in Schedule 1 to the TAA 1953 18.55
Item 22, Subdivision 155-A of Schedule 1 to the TAA 1953 18.49
Item 22, section 155-5 in Schedule 1 to the TAA 1953 18.51, 18.62
Item 22, subsection 155-10(1) in Schedule 1 to the TAA 1953 18.53
Item 22, subsection 155-10(2) in Schedule 1 to the TAA 1953 18.51
Item 22, subsection 155-15(2) in Schedule 1 to the TAA 1953 18.57, 18.60
Item 22, paragraph 155-15(3)(a) in Schedule 1 to the TAA 1953 18.57
Item 22, subsection 155-15(4) of Schedule 1 to the TAA 1953 18.58
Item 22, subsection 155-15(5) in Schedule 1 to the TAA 1953 18.59
Item 22, section 155-25 in Schedule 1 to the TAA 1953 18.52
Item 22, subsection 155-35(1) in Schedule 1 to the TAA 1953 18.65
Item 22, subsection 155-35(2) in Schedule 1 to the TAA 1953 18.65
Item 22, subsection 155-35(4) in Schedule 1 to the TAA 1953 18.67
Item 22, subsection 155-35(6) in Schedule 1 to the TAA 1953 18.67
Item 22, section 155-45 in Schedule 1 to the TAA 1953 18.69
Item 22, section 155-50 in Schedule 1 to the TAA 1953 18.69
Item 22, section 155-55 in Schedule 1 of the TAA 1953 18.70
Item 22, section 155-57 in Schedule 1 of the TAA 1953 17.71
Item 22, paragraph 155-60(c) in Schedule 1 to the TAA 1953 18.72
Item 22, section 155-70 in Schedule 1 to the TAA 1953 18.77, 18.78
Item 22, subsection 155-70(1) in Schedule 1 to the TAA 1953 18.73, 18.74
Item 22, subsection 155-70(2) in Schedule 1 to the TAA 1953 18.75, 18.76
Item 22, section 155-75 in Schedule 1 to the TAA 1953 18.82
416
Index
Item 22, section 155-80 in Schedule 1 to the TAA 1953 18.79
Item 22, section 155-85 in Schedule 1 to the TAA 1953 18.83
Item 22, section 155-90 in Schedule 1 of the TAA 1953 18.77, 18.84
Item 23, subsection 255-5(2) in Schedule 1 to the TAA 1953 19.7
Item 24, paragraph 255-45(1)(b) in Schedule 1 to the TAA 1953 19.7
Item 25, subsection 350-10(1) in Schedule 1 to the TAA 1953 18.91, 18.92
Item 25, subsection 350-10(2) in Schedule 1 to the TAA 1953 18.93
Item 25, subsection 350-10(3) in Schedule 1 to the TAA 1953 18.94
Item 25, section 350-15 in Schedule 1 to the TAA 1953 18.95
Item 26, paragraph 355-30(2)(a) in Schedule 1 to the TAA 1953 19.7
Item 27, paragraph 355-55(1)(c) in Schedule 1 to the TAA 1953 19.7
Item 27, paragraph 355-70(1)(c) in Schedule 1 to the TAA 1953 19.7
Item 28, paragraph 357-100(b) in Schedule 1 to the TAA 1953 19.7
Schedule 3: Amendment of other Acts
Bill reference Paragraph number
Item 1, paragraph (e) of Schedule 1 of the ADJR Act 18.87
Items 3 and 4, subsection 3(1) Crimes (Taxation Offences) Act 1980 19.3
Item 5, Part II (note) of the Crimes (Taxation Offences) Act 1980 19.3
Item 6, Part XI of the Crimes (Taxation Offences) Act 1980 19.3
Item 7, section 10-5 of the ITAA 1997 19.14
Item 8, section 12-5 of the ITAA 1997 19.10
Item 9, section 15-85 of the ITAA 1997 19.13
tem 10, table item 8 in section 40-40 of the ITAA 1997 19.6
tem 11, subsection 40-70(3) of the ITAA 1997 19.6
Items 12 and 13, subsection 40-72(1) of the ITAA 1997 19.6
Item 14, subsection 40-72(3) of the ITAA 1997 19.6
Item 15, paragraph 40-80(1)(a) of the ITAA 1997 19.6
Item 16, subparagraph 40-80(1)(c)(ii) of the ITAA 1997 19.6
Item 17, table items 1, 2 and 3 in subsection 40-95(10) of the ITAA 19.6
1997
Item 18, table item 9 in subsection 40-102(4) of the ITAA 1997 19.6
Item 19, paragraph 40-630(1)(b) of the ITAA 1997 19.6
Item 20, paragraph (a) of the note in subsection 40-630(1) of the 19.6
ITAA 1997
Item 21, paragraph 40-630(1A)(b) of the ITAA 1997 19.6
Item 21, paragraph 40-630(1B)(b) of the ITAA 1997 19.6
417
Minerals Resource Rent Tax
Item 21, paragraph 40-630(3)(b) of the ITAA 1997 19.6
Item 22, paragraph 40-650(3)(a) of the ITAA 1997 19.6
Item 23, section 40-725 of the ITAA 1997 19.6
Item 24, subsection 40-730(1) of the ITAA 1997 19.6
Item 25, paragraph 40-730(1)(a) of the ITAA 1997 19.6
Item 26, subsection 40-730(7) of the ITAA 1997 19.6
Item 27, subparagraph 40-735(1)(a)(i) of the ITAA 1997 19.6
Item 28, subsection 40-735(4) of the ITAA 1997 19.6
Item 29, paragraph 40-740(1)(a) of the ITAA 1997 19.6
Item 30, paragraph 40-740(1)(b) of the ITAA 1997 19.6
Item 30, paragraph 40-740(1)(c) of the ITAA 1997 19.6
Item 30, paragraph 40-740(1)(e) of the ITAA 1997 19.6
Item 31, subsection 40-740(2) of the ITAA 1997 19.6
Item 32, subsection 40-751(1) of the ITAA 1997 19.8, 19.12
Item 32, subsection 40-751(2) of the ITAA 1997 19.9
Item 33, subparagraph 40-840(1)(c)(ii) of the ITAA 1997 19.6
Item 34, paragraph 40-860(1)(a) of the ITAA 1997 19.6
Item 35, subsection 40-860(2) of the ITAA 1997 19.6
Item 36, paragraph 40-860(3)(a) of the ITAA 1997 19.6
Item 37, paragraph 40-860(3)(c) of the ITAA 1997 19.6
Item 38, paragraph 40-870(1)(a) of the ITAA 1997 19.6
Item 38, paragraph 40-870(2)(a) of the ITAA 1997 19.6
Item 39, subsection 250-105(1) of the ITAA 1997 19.17
Items 40 and 41, subsection 703-50(1) of the ITAA 1997 16.73
Items 42 and 43, subsection 719-50(1) of the ITAA 1997 16.73
Item 44, subsection 721-10(2) of the ITAA 1997 16.76
Item 45, subsection 721-10(4) of the ITAA 1997 16.77
Item 46, subsection 721-25(1AA) of the ITAA 1997 16.80
Item 47, subsection 721-25(1B) of the ITAA 1997 16.80
Item 47, subsection 721-25(2) of the ITAA 1997 16.80
Item 47, subsection 721-25(3) of the ITAA 1997 16.80
Item 48, definition of `allowance component' in subsection 995-1(1) 19.5
of the ITAA 1997
Item 49, definition of `applicable instalment rate' in subsection 995- 19.5
1(1) of the ITAA 1997
Item 50, definition of `arm's length consideration' in subsection 995- 19.5
1(1) of the ITAA 1997
418
Index
Item 51, definition of `base value' in subsection 995-1(1) of the 19.5
ITAA 1997
Item 52, definition of `base year' in subsection 995-1(1) of the ITAA 19.5
1997
Item 53, definition of `benchmark instalment rate' in subsection 995- 19.5
1(1) of the ITAA 1997
Item 54, definition of `instalment income' in subsection 995-1(1) of 19.5
the ITAA 1997
Item 55, definition of `instalment quarter' in subsection 995-1(1) of 19.5
the ITAA 1997
Item 56, definition of `long term bond rate' in subsection 995-1(1) of 19.5
the ITAA 1997
Item 57, definition of `miner' in subsection 995-1(1) of the ITAA 19.5
1997
Item 58, definition of `mining and quarrying operations' in 19.5
subsection 995-1(1) of the ITAA 1997
Item 59, definition of `mining expenditure' in subsection 995-1(1) of 19.5
the ITAA 1997
Item 60, definition of `mining loss' in subsection 995-1(1) of the 19.5
ITAA 1997
Item 61, definition of `mining operations' in subsection 995-1(1) of 19.5
the ITAA 1997
Item 62, definition of `mining profit' in subsection 995-1(1) of the 19.5
ITAA 1997
Item 63, definition of `mining project interest' in subsection 19.5
995-1(1) of the ITAA 1997
Item 64, definition of `mining project split' in subsection 995-1(1) of 19.5
the ITAA 1997
Item 65, definition of `mining project transfer' in subsection 995- 19.5
1(1) of the ITAA 1997
Item 66, definition of `mining revenue' in subsection 995-1(1) of the 19.5
ITAA 1997 in subsection 995-1(1) of the ITAA 1997
Item 67, definition of `mining revenue event' in subsection 995-1(1) 19.5
of the ITAA 1997
Item 68, definition of `MRRT' in subsection 995-1(1) of the ITAA 19.5
1997
Item 69, definition of `MRRT allowance' in subsection 995-1(1) of 19.5
the ITAA 1997
Item 70, definition of `MRRT law' in subsection 995-1(1) of the 19.5
ITAA 1997
Item 71, definition of `MRRT liability' in subsection 995-1(1) of the 19.5
ITAA 1997
419
Minerals Resource Rent Tax
Item 72, definition of `MRRT payable' in subsection 995-1(1) of the 19.5
ITAA 1997
Item 73, definition of `MRRT return' in subsection 995-1(1) of the 19.5
ITAA 1997
Item 74, definition of `MRRT year' in subsection 995-1(1) of the 19.5
ITAA 1997
Item 75, definition of `pre-mining expenditure' in subsection 995- 19.5
1(1) of the ITAA 1997
Item 76, definition of `pre-mining project interest' in subsection 995- 19.5
1(1) of the ITAA 1997
Item 77, definition of `pre-mining revenue' in subsection 995-1(1) of 19.5
the ITAA 1997
Item 78, definition of `rehabilitation tax offset' in subsection 995- 19.5
1(1) of the ITAA 1997
Item 79, definition of `split percentage' in subsection 995-1(1) of the 19.5
ITAA 1997
Item 80, definition of `starting base asset' in subsection 995-1(1) of 19.5
the ITAA 1997
Item 81, definition of `starting base return' in subsection 995-1(1) of 19.5
the ITAA 1997
Item 82, definition of `starting base return' in subsection 995-1(1) of 19.5
the ITAA 1997
Item 83, definition of `taxable mining profit' in subsection 995-1(1) 19.5
of the ITAA 1997
Item 84, definition of `taxable resource' in subsection 995-1(1) of 19.5
the ITAA 1997
Item 85, definition of `termination value' in subsection 995-1(1) of 19.5
the ITAA 1997
Item 86, subsection 3(1) of the T(IOEP) Act 1983 18.119
Items 87, 88 and 89 section 3C of the T(IOEP) Act 1983 18.119
Item 92, section 35-80 5.85
Schedule 4: Application and transitional provisions
Bill reference Paragraph number
Item 1 17.89
Item 2 4.30
Item 3 4.147
Item 4 4.151
Item 5 5.67
Item 6 6.20
Subitem 7(1) 9.106
420
Index
Subitem 7(2) 9.41
Item 8 10.17, 10.73, 10.153
Item 9 10.125, 10.154
Item 10 15.88
Item 11 17.90
Item 12 7.113, 17.92
Item 13 16.71, 16.72
Subitem 14(1) 10.155
Subitem 14(2) 10.156
Item 15 18.107
Imposition Bills
Bill reference Paragraph number
Minerals Resource Rent Tax (Imposition -- General) Bill 2011, 3.31
section 3
Minerals Resource Rent Tax (Imposition -- General) Bill 2011, 3.26
section 4
Minerals Resource Rent Tax (Imposition -- General) Bill 2011, 3.33
section 5
Minerals Resource Rent Tax (Imposition -- Customs) Bill 2011, 3.31
section 3
Minerals Resource Rent Tax (Imposition -- Customs) Bill 2011, 3.26
section 4
Minerals Resource Rent Tax (Imposition -- Customs) Bill 2011, 3.33
section 5
Minerals Resource Rent Tax (Imposition -- Excise) Bill 2011, 3.31
section 3
Minerals Resource Rent Tax (Imposition -- Excise) Bill 2011, 3.26
section 4
Minerals Resource Rent Tax (Imposition -- Excise) Bill 2011, 3.33
section 5
421