The Australian Deputy Prime Minister and Treasurer, Wayne Swan, has announced
changes to the previously-proposed resources super profits tax (RSPT), that
appear to be acceptable to the country’s largest mining companies.
Swan said the agreement provides certainty to the
resources industry, but also keeps faith with the government’s central
goal to deliver a better return for the Australian people for their resources.
It is the result of intense consultation and negotiation with the resources
industry.
The improved resource taxation reforms focus on the most profitable resources,
raise the uplift factor for tax losses and offer generous depreciation arrangements
to promote new investment. He added that the reforms “are more generous
to industry in some respects, while industry has given ground in other areas.”
The profits-based taxation reforms will continue to apply from July 1, 2012.
The resource tax reforms involve the replacement of the RSPT with a new minerals
resource rent tax (MRRT), applying only to iron ore and coal in Australia; and
the extension of the current petroleum resource rent tax (PRRT) to all Australian
onshore and offshore oil and gas projects, including the North West Shelf. The
latter is designed to provide certainty for oil and gas projects, and ensure
all such projects are treated equitably.
The government is, therefore, to focus its resource tax reforms on Australia’s
biggest and most profitable commodities: iron ore, coal, oil and gas. Those
commodities represent three-quarters of the value of Australia’s exports
and resource operating profits, and will also represent the vast bulk of growth
in the sector in the future. The number of companies affected by the new tax
will reduce from 2,500 to around 320.
The MRRT on iron ore and coal will apply an “internationally competitive”
rate of 30%. MRRT assessable profits will be calculated on the value of the
commodity, determined at its first saleable form, less all costs
to that point. Projects will be entitled to a 25% extraction allowance that
reduces taxable profits subject to the MRRT, and small miners with resource
profits below AUD50m per year will not have an MRRT liability.
Mining companies may elect to use the book or market value as the starting
base for project assets, with depreciation accelerated over five years when book
value, excluding mining rights, is used; or effective life (up to 25 years)
when market value at May 1 2010, including mining rights, is used. All post
May 1, 2010 capital expenditure will be added to the starting base.
A book value starting base will be uplifted with the long term bond rate plus
7%. However, a market value starting base will not be uplifted.
Investment post July 1, 2012 will be able to be written off immediately, rather
than depreciated over a number of years. This will allow mining projects to
access the deductions immediately, and means a project will not pay any MRRT
until it has made enough profit to pay off its up-front investment.
MRRT losses will be transferable to other iron ore and coal projects in Australia.
This should support mine development as it will mean that a company can use
the deductions that flow from investments in the construction phase of a project
to offset the MRRT liability from another of its projects that is in the production
phase.
The extension of the PRRT to cover all oil, gas and coal seam methane projects,
onshore and offshore, will continue to apply at a rate of 40%. The standard
features of the current PRRT will also continue, except that companies will
now be able to elect to use market value as the starting base for project assets,
including oil and gas rights, and that all state and federal resource taxes
will be creditable against current and future PRRT liabilities from a project.
To ensure the smooth implementation of the new arrangements, the government
is establishing a Policy Transition Group (PTG) to consult with industry and
advise the government on the implementation of the new MRRT and PRRT arrangements.
The new resource tax reforms are estimated to reduce revenue by AUD1.5bn (USD1.25bn)
over the forward estimates. As the government has always said, all elements
of the tax reform package announced at the time as the proposed RSPT are dependent
on the package being balanced by the revenues from resource taxation.
In that respect, the company tax rate will continue to be cut to 29% from 2013-14,
but will not be further reduced to 28% in the following year, as previously
planned. Small companies will still benefit from an early cut to the company
tax rate to 29% from 2012-13.
In addition, the resource exploration rebate will not be introduced. Resource
exploration costs will continue to be deductible in the normal way and the PTG
will consider the best way to promote future exploration and ensure a pipeline
of resource projects for future generations.
However, other tax benefits, including the state infrastructure fund and the
increase to the superannuation guarantee, will remain.
The three largest companies in the Australian mining sector, BHP Billiton,
Rio Tinto and Xstrata, also issued a statement saying that they are encouraged
by the government’s announcement that it proposes to replace the RSPT
with the MRRT.
In the statement, the companies agree that the proposal presented by the government
represents very significant progress towards a minerals taxation regime that
satisfies the industry’s core principles. The companies add that they
“will continue to work constructively with government to ensure that the
detailed design of minerals taxation maintains the international competitiveness
of the Australian resources industry into the future.”