Big tax changes loom for the mining industry

4th Feb 2010

The Henry tax review has recommended scrapping the state based royalty taxes applying to mining projects and replacing them with a uniform national resource rent tax.  The tax, most likely to be set at 40 per cent, will probably be modelled on the existing Petroleum Resource Rent Tax (PRRT) that already applies to petroleum projects in some offshore areas of Australia.

So what is Resource Tax?

PRRT has some significant differences to the calculation of royalties, including;

• PRRT is levied on the taxable profits of a petroleum project at a rate of 40%, where taxable profit is defined as “assessable receipts” less “deductible expenditure”
• Expenditure which cannot be utilised to offset assessable receipts is carried forward and subject to compounding, or augmentation.  For projects with significant pre-production costs, the effect of this augmentation can be significant
• Expenditure qualifying for deduction can be classified into separate categories, depending on the nature of the costs.  For example, Exploration expenditure is assigned to a different category to production costs
• Each category of deductible expenditure is subject to different rules, e.g.
  • Different augmentation rates
  • Exploration expenditure is unique in that costs in one project can be transferred to offset assessable receipts in another group project.
• Tax calculations are due quarterly, but performed on a YTD basis. 

What this means for Mining Companies

If the Henry Report recommendation is approved and implemented, the implications for mining companies with assets in Australia will be significant. 

With most mining assets having a life extending over a period of years, the ability to forecast future tax charges accurately over the Life of Mine will be imperative to budgeting bottom line profits. 

The increasing focus on cash flows also necessitates accurate forecasting of tax liabilities and the resulting cash flows.

How M-Power Can Help

M-Power has implemented Hyperion Planning models to forecast PRRT charges, liabilities and cash flows for our Oil & Gas customers.  The model automatically calculates the PRRT liabilities over a group of projects and tracks the future balances of un-deducted expenditure, including augmentation. 

Our real world knowledge of PRRT, coupled with our extensive experience in the mining sector, puts us in a unique position to assist the mining industry to quickly adapt to this proposed change.

If you would like to find out more about how this will affect your business and how M-Power could help please call us on (08) 9389 4413 or email mark.simpson@mpowersolutions.com.au.