Australian Mining Tax Threatened By New Row

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

25 October 2010

A question, as yet unresolved, has arisen over whether increases to mining royalties, which could be imposed by Australian state governments in the future, should be able to be offset against the federal government’s proposed mineral resources rent tax (MRRT).

When the Australian federal government announced its agreement in July this year with the three largest mining companies in the country, BHP Billiton, Rio Tinto and Xstrata, for the replacement of a proposed 40% resource super profits tax (RSPT) with the new 30% MRRT, applying only to iron ore and coal, it was assumed that the major elements to the tax reform had been agreed.

However, it is now apparent that, while the government believed that it had agreed to offset all existing state royalty payments against the MRRT, together with any royalty increases scheduled to apply as at May 2, 2010 (the RSPT’s original announcement date), the mining companies were counting on all royalties, including any future increases imposed by state governments, to be deductible.

It is reported that the Resources Minister, Martin Ferguson, has already confirmed the government’s view on the misunderstanding. It will not change its position that future unscheduled royalty increases will not be compensated against the MRRT because, for example, any such increases would effectively be a means of transferring revenue from federal to state level.

On their part, the mining companies are said to be angry that this question has arisen at all. Although it is not known if the dispute will later become a ‘deal-breaker’ in the current consultations over the details of the MRRT, it has been said that its quick resolution by further negotiation will be necessary.

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