Legislation implementing Australia's Mineral Resource Rent
Tax ("MRRT") was passed by the House of
Representatives on 23 November 2011. The minority Labor government
managed to secure support from the Independents and Greens to
ensure passage, and the Mineral Resources Rent Tax Bill will now
move to the Senate where debate will take place early next year.
The MRRT is scheduled to take effect from 1 July 2012.
The House of Representatives also passed an amendment bill to the
existing Petroleum Resource Rent Tax
("PRRT") on the same day, extending the
coverage of the Petroleum Resource Rent Tax Assessment Act 1987
Cover onshore petroleum projects and the North West Shelf
Apply the PRRT to shale oil and coal seam gas, but not to the
resources that are the subject of the MRRT;
Make assessable those receipts derived from selling incidental
products or providing a service relating to carbon capture and
storage produced by the petroleum project; and
Allow for the payment of other resource taxes to be grossed up
and deductible for PRRT purposes so as to avoid double
The amendments to the PRRT are also scheduled to come into
effect from 1 July 2012.
Unlike royalty and excise regimes, which tax the volume or value of
the resource extracted or produced, both the PRRT and MRRT are
profit-based taxes that tax economic rents generated from relevant
resources projects, providing deductions for all allowable capital
and revenue expenditure and uplifts for carried forward
The key features of the new MRRT are:
The tax will apply only to iron ore projects, coal projects and
coal seam gas extracted as a necessary incident of coal
The headline rate of tax will be 30 percent, payable on an
individual taxpayer's direct ownership interest in a project,
and MRRT is calculated separately for each "mining project
interest" of a miner for a MRRT year.
The tax will be applied at the "taxing
point"—being the closest point to (but not at)
extraction as possible. That is, the pricing arrangements to
determine the taxable revenue will focus only on the value of the
resource extracted less all costs before it enters any significant
beneficiation processes (usually just before it is removed from the
Projects will also be entitled to a 25 percent "extraction
factor" of the otherwise taxable profit, deductible to
recognise the profit attributable to the extraction process
(i.e., to tax only the resource profit and provide
compensation for miners for the extra returns from such things as
managerial expertise, entrepreneurship and technical innovation
captured by the tax) which should have the effect, in the absence
of any restrictions, of reducing the headline MRRT rate to
effectively 22.5 percent.
Transitional starting base allowances for project interests in
existence as at 2 May 2010, which will give the taxpayer a choice
of using either a market value or book value approach for
determining the value of starting base assets on that date. This
will recognise the market value of the capital already invested
into the project, which will be deductible over the term of the
project (up to a maximum of 25 years). By using book value,
recognition of the investment will be accelerated and deductible
over five years.
The uplift rate on unutilised expenditure will be set at the
Long Term Bond Rate ("LTBR") plus 7
A de minimis exemption will apply for taxpayers with MRRT
assessable group profits of $75 million or less, which phases out
where the profit is between $75 million and $125 million.
All expenditure after 1 July 2012 is to be immediately
deductible for MRRT on an incurred basis, and any MRRT losses will
be transferable to offset MRRT profits the taxpayer has on MRRT
Carried-forward MRRT losses are to be indexed at the
"allowance rate," equal to the LTBR plus 7 percent.
The MRRT will be an allowable deduction for income tax, and all
State and Territory royalties will be creditable against MRRT
liability but not transferable or refundable. Any royalties paid
and not claimed as a credit will be carried forward at the uplift
rate of LTBR plus 7 percent.
The MRRT will only be imposed when profits exceed the LTBR plus
7 percent; thus, the MRRT is more reflective of a tax on profits
above a risk-adjusted rate of return than the so-called "super
profits tax" (which was a profit above a risk-free rate of
The Australian government plans to use the revenue generated by the
MRRT to reduce the corporate tax rate to 29 percent from 1 July
2013. Hence, the estimated combined effective tax rate for
companies affected by the MRRT will be between 42 percent and 45
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
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