SA Mines and Energy Journal : June-July 2010
12 JUNE/JULY 2010 SA MINES & ENERGY JOURNAL TAX FEATURE What Henry said ... What the Government about ... resources rent For non-renewable resources that are expected to generate significant amounts of economic rent, a rent-based tax is the most suitable charging mechanism, as the potential economic efficiency and revenue gains are likely to outweigh the higher administration and compliance costs of this tax compared with output-based royalties and income-based taxes. Under a rent-based tax the government shares in the risk of the project. It can do this in two ways. The government can provide an immediate refund for the tax value of expenditure (under a Brown tax). Alternatively, it can allow expenditure (whether in the form of a loss or of a measure of corporate capital) to be carried for ward with interest for tax purposes and utilised as a deduction against future income. The current resource charging arrangements imposed on non-renewable resources by the Australian and State governments should be replaced by a uniform resource rent tax imposed and administered by the Australian government that is levied at a rate of 40 per cent, with that rate adjusted to offset any future change in the company income tax rate from 25 per cent, to achieve a combined statutory tax rate of 55 per cent super profits rents as net income less an allowance for corporate capital, with the allowance rate set at the long-term Australian government bond rate (currently 6 per cent). resources rent The Resources Super Profit Tax (RSPT) will be payable at a rate of 40 per cent on the realised value of resource deposits, The RSPT will be a deductible expense for income tax purposes, so that after income tax, the effective rate of RSPT will be less than 40 per cent. Unlike company income tax, under the RSPT the Australian Government will guarantee to credit firms for the tax value of their extraction and exploration costs, and will even refund that credit when a project winds up. Where there are delays in receiving a credit for exploration or production costs (for example, through depreciation or loss carry forward arrangements) entities will be compensated by an RSPT allowance. super profits Measured as the difference between the revenues generated from resource extraction and associated costs, including a reasonable return for investors. Kevin Rudd and Wayne Swan arrive at the tax reform press conference Tax reform snapshot On May 2, 2010, the Australian Government announced reforms stating its intention to ensure Australians get a fair share from our valuable non-renewable resources, which are owned by all Australians. It said that in effect, the Australian community will share in the costs of, and returns from, realising the value of resource deposits. The Government proposes to introduce a 40 per cent resource super profits tax (RSPT) from July 1, 2012, to be levied on the "super profits" derived from the sale of mineral resources. Under the RSPT, the Government provides a refundable credit to resource entities for state royalties and to contribute 40 per cent of the investment cost of a resource project. It says a significant proportion of funds raised from the RSPT will be returned to the resources industry through a new resource exploration rebate and investments in infrastructure. The resources sector will also benefit from a lower company tax rate.