Australia Appoints Mining Tax Policy Group

by Mary Swire, Tax-News.com, Hong Kong

04 August 2010

Australia’s Treasurer and Deputy Prime Minister, Wayne Swan, has announced the composition and terms of reference of the Policy Transition Group (PTG) to pursue the reforms represented by the proposed minerals resource rent tax (MRRT).

If re-elected on August 21, the Labor government will constitute the PTG, which will be co-chaired by Don Argus, chairman of BHP Billiton until the end of March this year, and the Minister for Resources and Energy, Martin Ferguson. It will commence its work after the outcome of the election is determined.

The PTG, which will consult with industry and provide advice on the implementation of the resource taxation reforms, will also include: Keith Spence, who retired from Woodside Petroleum in 2008; David Klingner, ex-Rio Tinto and currently chairman of Energy Resources of Australia; Erica Smyth, chair of Toro Energy, a uranium exploration company; and Chris Jordan, chairman of KPMG New South Wales and a tax expert.

The PTG’s terms of reference are to advise the government on the technical design of the MRRT, and transition of existing petroleum projects to the petroleum resource rent tax (PRRT) regime, as announced by the government on July 2, 2010.

In developing this advice, the PTG will consult with directly affected companies, relevant government departments and stakeholders on the implementation of the new MRRT and the extension of the PRRT, to ensure the new tax arrangements are implemented efficiently and as consistent with the government’s design principles as possible.

Particular issues for consideration for the minerals to be taxed (iron ore, coal, oil, gas and coal seam gas) include the taxing point and valuation method to be used for the commodity; the definition of a project and interest in a project; eligible project expenditure; the definition of exploration expenditure; and the determination and calculation of the starting base for existing projects including the rules for electing a particular starting base.

The PTG will also look at a workable exclusion where resource profits are below AUD50m (USD45m) per annum; the crediting of state and territory royalties; integrity rules supporting the policy underpinning the new resource taxation arrangements; and the identification of opportunities to minimize associated compliance and administration costs.

It will also consider the best way to achieve smooth interaction between the MRRT, PRRT and state and territory royalty regimes.

Its recommendations will have to be consistent with the government’s fiscal strategy as stated in the 2010/11 budget, and any policy deviation from the government’s announcement of July 2, 2010 is to be fully offset within the recommendations in terms of any impact on revenue or costs.

The PTG is to provide its advice to the government by the end of 2010 to allow for the legislation supporting the MRRT and extension of the PRRT to be introduced into parliament in accordance with the government’s timetable.

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