Increase text sizeDecrease text sizeDefault text size

Focus: The MRRT – the story so far

27 April 2011

Japanese language version

In brief: As the Federal Government has accepted all the Policy Transition Group's recommendations relating to the Minerals Resource Rent Tax, the proposed legislation's design principles are now clear, and an exposure draft should be available for comment in mid 2011. Partners Grant Cathro (view CV) and Katrina Parkyn report.

How does it affect you?

  • On 24 March 2011, the Federal Government accepted all the recommendations of the Policy Transition Group (PTG) that was formed after the 2 July 2010 announcement of the Minerals Resource Rent Tax (the MRRT).
  • A Resource Tax Implementation Group (the RTIG) has been formed to support the legislative design process for the MRRT legislation.
  • It is expected an exposure draft will be released for comment in mid 2011.
  • The MRRT is still set to commence on 1 July 2012.


It is nearly 12 months since the Federal Government announced the proposed introduction of a Resource Super Profits Tax (RSPT). The following is a brief summary of events since:

  • 2 May 2010 – The Government announced that a RSPT would be imposed from 1 July 2012. This announcement was based on the recommendations of the Henry Review that an RSPT be introduced to replace the current state royalty framework and the Petroleum Resource Rent Tax (PRRT) system. The proposed RSPT received intense criticism, due to a lack of consultation with the resources industry and the resources industry's prediction that the policy would have a negative impact on investment in the Australian mining sector.
  • 2 July 2010 – After a well-publicised campaign by the resources sector against the proposed RSPT, and a change of leadership, the Government announced on 2 July 2010 that the proposed RSPT would be abandoned and replaced with the MRRT, and that the PRRT would be expanded.
  • 3 August 2010 – The PTG was formed to examine the policy, obtain industry input and make recommendations to the Government about the MRRT's operation.
  • 21 December 2010 – The PTG filed its report to the Government, providing recommendations for the design and implementation of the MRRT (as well as transitional arrangements for the extension of the existing PRRT).
  • 24 March 2011 – The Government announced that it had accepted all of the PTG's recommendations and had established the RTIG. The RTIG, comprising industry and tax representatives and government officials, has been formed to support the legislative design process for the MRRT legislation.
  • Mid 2011 – An exposure draft of the proposed legislation is expected to be released in mid 2011.
  • 1 July 2012 – The legislation is still set to commence on 1 July 2012.

Design principles of the MRRT

As a result of the Government's acceptance of the PTG's recommendations, the MRRT's design principles are now clear.

Who will be taxed?

The MRRT is a project-based tax that will apply to iron ore and coal extraction projects, as well as:

  • coal mine methane extracted as a necessary and integral part of a coal mining operation;
  • coal mining operations where gas is extracted from the underground conversion of coal; and
  • incidental production of coal or iron ore as part of a broader mining operation.

A 'project' encompasses extraction activities related to iron ore or coal up to the taxing point. However, producers with less than $50 million in resource profits in an income year will be exempt from the MRRT.

Entities that are consolidated for income tax purposes will be able to elect to be consolidated for MRRT purposes. The head company of a consolidated group that makes that election will be responsible for paying the MRRT of the entire group, but each entity in the group will be jointly and severally liable for the group's unpaid MRRT.

Tax rate

The MRRT rate is 30 per cent. However, in recognition of the contribution that miners' expertise makes to profits, projects will be entitled to a 25 per cent extraction allowance, which effectively reduces the real rate of tax to 22.5 per cent.

The MRRT will be deductible for income tax purposes.

Taxing point

Producers will be taxed on the value of minerals extracted, such value being broadly determined at the point at which the resource leaves the run of mine (ROM) stockpile or, where an arm's length sale occurs before this, the value at the point of sale.

The PTG has recommended that the ATO work with industry to develop acceptable administratively efficient approaches to allocating project costs to the taxing point, to deal with instances where existing accounting and administration systems are not aligned to that point.

Deductions and losses

Producers will be entitled to deductions for expenses of a revenue or capital nature, to the extent they are necessarily incurred in carrying on mining operations upstream of the taxing point. MRRT losses may be transferred within a group. Where unused, MRRT losses will be carried forward from year to year, and uplifted at the long-term bond rate plus 7 per cent.

Relationship to royalties

State and territory royalties will be creditable against MRRT liabilities; however, royalty credits will not be refundable or transferable. In practice, royalty payments will operate as a minimum level of tax on projects, irrespective of the project's profitability.

Private royalties imposed by the states and territories on behalf of private land owners are to be treated in the same manner as state and territory royalties: ie creditable but not refundable or transferable.

Starting base for existing projects

Miners with existing projects as at 1 May 2010 can claim MRRT deductions for a 'starting base' for those projects.

An entity can choose to calculate starting base deductions based on either book value or market value for each interest the entity holds in a project or other mining tenement that was in existence at 1 May 2010.1

  • Where book value is chosen, the book value of the project assets as at 1 May 2010 can be written off over five years and uplifted at the long-term bond rate plus 7 per cent. Capital and mine development expenditure incurred after the date at which audited accounts were prepared and before 1 July 2012 should be added to the starting base.
  • Where market value is chosen, the market value of the project assets as at 1 May 2010 can be written off over the shorter of their effective life or 25 years. A market value starting base will not be uplifted but will be indexed in line with the consumer price index (to retain its real value). Capital and mine development expenditure incurred between 2 May 2010 and 30 June 2012 should be added to the starting base.

Difficult issues remain

Although the design principles of the MRRT are now clear, there remain many difficult issues. For example:

  • Project definition – As the MRRT is a project-based tax, determining how a project is defined, the treatment of multiple interests in a project and a single interest in multiple projects will be key issues in practice.
  • Valuing the resource to determine taxable revenue – Where there is not an arm's length sale at the taxing point, issues arise as to determining how to value the resource at the time it leaves the ROM stockpile (ie the taxing point). In certain cases, a 'safe harbour' valuation method may be available.
  • Characterising expenditure upstream of the taxing point – Determining what costs are 'necessarily incurred' in carrying on mining operations upstream of the taxing point, and therefore deductible, will not always be straightforward. For example, financing costs will generally not be deductible.

Who will be affected?

While much of the focus to date has been on companies that mine iron ore and coal, the MRRT has the potential to impact a much broader range of entities that have dealings with the mining industry.

Many of the issues involved in applying the MRRT regime will require an understanding of the documentation around existing joint ventures and mining legislation.

While the MRRT will not come into operation until 1 July 2012, its impacts are already being seen in relation to current transactions and documentation. Although many entities have, to date, been focusing on getting ready for implementation on 1 July, fewer have been aware that there are issues that ought to be addressed in existing transactions.

  1. Where no election is made, the project or tenement will be taken to have a book value starting base.

For further information, please contact:

Share or Save for later

What are these?


To save this publication on your smartphone or
tablet for off-line reading (eg on a plane flight),
we recommend Pocket.



You can leave a comment on this publication below. Please note, we are not able to provide specific legal advice in this forum. If you would like advice relating to this topic, contact one of the authors directly. Please do not include links to websites or your comment may not be published.

Comment Box is loading comments...