SA Mines and Energy Journal : August-Sept 2010
AUGUST/SEPTEMBER 2010 SA MINES & ENERGY JOURNAL 16 FEATURE our mine site, so $50 million a year isn't a great deal to make before you start getting hit with a new tax. " The implications of taxing all iron ores the same way doesn't take into account the varying costs associated with the different products, such as hematite and magnetite, and different grades of ore. This is of particular importance to South Australia, which has great variations. The treatment of state royalty rebates is yet another aspect on which SACOME continues to work with government and stakeholders. Opinions are divided about the implication of the new taxation scheme for oil and gas projects. Under the new tax regime, the existing Petroleum Resources Rent Tax (PRRT) will apply to onshore projects. Matt Doman, communications manager at oil and gas giant Santos, said the company welcomed the uniform application of the PRRT to onshore and offshore projects. "There are still some details to be worked through, particularly around project valuations, " he said. The company's CEO, David Knox, said it was important to Santos that it was competing at the same level as others in the oil and gas industry. "We're now on the same playing field as the big players who have been successful in the west, " he said. "In uncertainty, it's very hard for businesses such as mine to invest. I'm now very pleased that we'll be able to move forward with some certainty. It also significantly helps our overseas investors. " Beach Energy spokesperson Nicola Fraser said the company also welcomed the uniform application of the PRRT and the end of uncertainty. Beach has experience with the tax, which it has been paying on its offshore Basker-Manta-Gummy project in the Gippsland Basin in which it has a 30 per cent interest. "It's still too early for us to determine the full impact of the tax, " Ms Fraser said. "We're still in the consultation process and there's not enough detail out there yet for us to make an informed comment. " Not all gas and petroleum players are convinced, and the extension of the PRRT to onshore projects may not be as straightforward as it seems. "The PRRT needs to be looked at to make sure it takes into account the differences between onshore and offshore projects, especially in how infrastructure capital is treated, " Mr Kuchel said. "It seems unlikely that many of the complex issues surrounding the tax reforms will be resolved before the next federal election, so we may well have a tax plan which may be better than the last plan, but is still fraught with complexity and unresolved issues. " We believe the $50 million point is totally inadequate Pricewaterhouse Coopers' Scott Bryant says the new tax plans are a step forward. Key features of the proposed tax reform • Applies to iron ore and coal (bulk-commodity) projects in Australia from July 1, 2012. All other non-renewable mineral projects are excluded. • Miners with "small amounts" of MRRT-assessable profits (below A$50 million per annum) will be excluded from the MRRT. • The headline rate for MRRT is 30 per cent. Projects will also be entitled to an "extraction allowance" of 25 per cent of the MRRT otherwise payable to recognise the value of know-how that the taxpayer contributes to the extraction process. (This makes an effective rate of 22.5 per cent.) • Carried-forward costs and losses are uplifted at the Government Long Term Bond Rate (LTBR) plus 7 per cent, and are transferrable between projects held by the same taxpayer • The "taxing point" will be set as close as possible to the extraction point for the minerals -- reducing the risk that profits attributed to downstream activities could be subject to the tax. All revenue and capital expenditure after July 1, 2012, will be immediately deductible for MRRT purposes. • Existing projects are to be transitioned into the MRRT, with taxpayers having the choice of the following to determine their starting base (determined at May 1, 2010): Book value (in which case the value of resource rights are not included, although the starting base is subject to an accelerated depreciation deduction over five years, and which is also uplifted at the long-term bond rate plus 7 per cent) or Market value (in which case the starting base is depreciated over an appropriate effective life [not exceeding 25 years], with no uplift available). • All expenditure incurred between May 1, 2010, and July 1, 2012, will be included in the starting base. • Various costs, including financing costs such as interest, will not be deductible in calculating the MRRT liability (similar to the treatment under the current PRRT regime). • State royalties will continue to be levied but will be a creditable against MRRT payable -- royalties will not be cash refundable and royalty credits carried forward are not transferable between projects. However, credits carried forward will be uplifted at the allowance rate. • MRRT is deductible for income tax purposes. • The corporate tax rate is to be reduced from 30 per cent to 29 per cent from 2013-14. Small companies will benefit from the 29 per cent company tax rate from 2012-13. • The Resource Exploration Rebate is no longer proceeding. • The PRRT will be extended to all onshore and offshore oil and gas projects, including coal-seam gas projects and the North West Shelf. • Existing projects to be transitioned into the extended PRRT regime are to have a similar choice between book and market value in determining their starting base. Source: PricewaterhouseCoopers Note: MRRT is Mineral Resources Rent Tax. PRRT is Petroleum Resources Rent Tax.