One year on from its election victory, the Federal Government has fulfilled its commitment to repeal the Commonwealth Minerals Resource Rent Tax and related tax measures, by passing a repeal Bill through the Senate yesterday. The repeal is expected to take effect later this year. Partner Martin Fry and Senior Associate Julian Feiner explain the context and implications.
How does it affect you?
- Repeal of the Minerals Resource Rent Tax (MRRT) will reduce the tax burden for the small number of iron ore and coal miners who have an MRRT liability, and remove the compliance and administrative burden for the large number of iron ore and coal miners who are registered or required to register for MRRT but do not have any liability. All iron ore and coal miners will continue to be subject to relevant state royalty arrangements and Commonwealth income tax.
- The related tax measures to be repealed include the limited 'loss carry back' concession for companies and the immediate deduction for geothermal energy exploration and prospecting expenditure. Those measures were intended to be funded by the MRRT and are now considered by the Government to be unsupportable in light of its repeal.
- The repeal of the MRRT will not take effect from 1 July 2014 as previously proposed. It is instead expected to take effect at a date later this year to be fixed by proclamation. Taxpayers will need to continue to meet their MRRT obligations until the repeal date.
Since 1 July 2012, MRRT has been imposed under a suite of legislation including the Minerals Resource Rent Tax Act 2012 (Cth), under which MRRT is payable. The MRRT is a project-based tax, imposed at an effective rate of 22.5 per cent on mining profits derived from the extraction of iron ore, coal or coal seam gas. It is only payable if a taxpayer group's annual mining profits are greater than $75 million. The taxpayer's liability to pay MRRT is offset fully by the amount of any royalties paid by the taxpayer under Commonwealth, state or territory laws.
The Government first introduced a Bill to repeal the MRRT legislation on 23 June 2014. However, it was unable to obtain a majority of senators to pass that Bill and it did not agree with the amendments proposed by the cross-bench senators on 18 July 2014. Negotiations with cross-bench senators continued and ultimately the initial repeal Bill was laid aside by the House of Representatives two days ago, to be replaced by a second repeal Bill, the Minerals Resource Rent Tax Repeal and Other Measures Bill 2014 (the MRRT Repeal Bill), which was quickly passed by the House of Representatives and by a majority of 36-33 in the Senate yesterday.
The revenue expected to be raised by the MRRT has been progressively revised down since its announcement, in part because the states increased their royalties (which are credited against MRRT). There is no indication that the impending repeal of the MRRT will be matched by reductions in state royalties. The repeal of the MRRT means that the Petroleum Resource Rent Tax stands alone as a profit-based tax on resource projects.
The MRRT Repeal Bill provides for the repeal of the full suite of MRRT legislation and some related tax measures that were intended to be funded by the Government's MRRT revenue.
In particular, the key related tax measures include:
- the 'loss carry back' measure, which allowed companies to carry up to $1 million of their tax losses back to an earlier year (in which they paid tax) to obtain a tax offset for the current year. This limited concession will be repealed so that companies can only carry their tax losses forward to use as a deduction for a future year; and
- the 'geothermal exploration deduction' measure, which made geothermal energy exploration and prospecting expenditure deductible in the income year that the asset was first used or expenditure was incurred. This expenditure will no longer be immediately deductible. However, a new measure will provide capital gains tax roll-over relief to defer liability if a geothermal exploration right is exchanged for a right relating to a similar area. This brings the capital gains tax roll-over relief into line with the capital gains tax roll-over relief for mining and prospecting rights.
There will also be consequential amendments to the Petroleum Resource Rent Tax Assessment Act 1987 (Cth) to remove references to MRRT and amend provisions in relation to coal seam gas.
Other measures to be repealed or rephased relate to capital allowances for small business entities, the superannuation guarantee charge percentage, the low income superannuation contribution, the income support bonus and the schoolkids bonus.
Rather than take effect from 1 July 2014 as previously proposed, the repeal of the MRRT and related tax measures will take effect from a date fixed by proclamation. Taxpayers will need to continue to meet their obligations up until the repeal date, and consider their circumstances to ensure that their reporting obligations are met for the financial year ending 30 June 2015.