The controversial Minerals Resource Rent Tax
(MRRT) has now become law in Australia and will
come into effect on 1 July 2012.
The MRRT is a tax on profits made from extracting iron ore and
coal in Australia, as well as gas extracted as a necessary incident
of coal mining and gas produced by the in situ combustion of
The MRRT will apply in full to those miners whose profits exceed
AUD$125 million per year. Miners with mining profits of less than
AUD$75 million per year will have their MRRT liability reduced to
nil. To reduce distortions, the MRRT liability for miners with
profits between AUD$75 million and AUD$125 million will be phased
There will be approximately 320 MRRT taxpayers in total. The
Australian Federal Government currently predicts that the MRRT will
generate AUD$10.6 billion in revenue over the next three years,
with BHP Billiton, Rio Tinto and Xstrata to account for 90 per cent
of this revenue. The Government's revenue projections have,
however, been disputed in estimates provided by the investment
banks involved in preparing liability estimates for BHP Billiton,
Rio Tinto and Fortescue Metals.
A miner's MRRT liability is calculated as follows:
The base MRRT rate is 30 per cent, but is reduced by an
'extraction factor' of 25 per cent, giving an effective
rate of 22.5 per cent.
'Mining profit' is equal to mining revenue less mining
expenditure. Mining revenue and mining expenditure are calculated
by reference to a 'valuation point' (a point prior to any
significant processing or value-adding being performed, usually the
point immediately before removal from a run-of-mine stockpile).
Mining revenue is the revenue the miner makes from the resources
(which reasonably relates to the form and place the resources were
in when leaving the valuation point). Mining expenditure is the
cost of finding the resources and bringing them to the valuation
The final MRRT amount paid will depend on the mining allowances
claimed. These operate as deductions from the mining profit amount
and include allowances for:
State and Commonwealth royalty payments (including royalties
paid on other mining projects);
expenditure incurred before a mining project commences (like
circumstances where mining expenditure exceeds mining revenue
for a given year (where the excess will carry forward and can be
claimed against future mining profits); and
the costs of assets acquired after the announcement of the MRRT
in May 2010 but before the commencement date of 1 July 2012.
The Government plans to use part of the proceeds of the MRRT to
cut the company tax rate from 30 per cent to 29 per cent. However,
the Government may struggle to pass the necessary legislation
through the Federal Parliament as the Australian Greens have
indicated that they will support tax cuts for small business only.
The Government would not be able to pass the legislation without
the support of the Australian Greens. The use of the MMRT proceeds
will be debated in Parliament in May.
There are several parties contemplating initiating or joining a
High Court challenge to the MRRT including Fortescue Metals, mining
magnate Clive Palmer, and the States of Western Australia,
Queensland and New South Wales. However, it is uncertain whether
any such challenge will be successful, and given the rapidly
approaching commencement date for the MRRT, companies should start
preparing for the MRRT regardless of any possible legal
The first instalment payment date for the MRRT is 21 October
2012. Producing companies will need to start preparing their
records, including assessing any available deductions, in order to
evaluate whether they can pay a lower instalment rate than the
default rates. This should be done as soon as possible as it will
take time to gather all the relevant records together and the
assessment needs to be done carefully, given that penalties apply
where companies have paid a lower instalment rate and that rate was
Companies also need to be aware of the MMRT in relation to
financial reporting obligations – the end of the
financial year is approaching and companies need be able to advise
shareholders whether they will be paying the tax, how much they
expect to pay and how project value will be impacted.
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.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).