10 July, 2012
In brief
- Vendor miners that have transferred a mining or pre-mining project interest from 1 May 2010 will be required to comply with legislative reporting obligations that are timed to closely coincide with the commencement of the Minerals Resource Rent Tax Act 2012 (the "MRRT Act") on 1 July 2012.
- For transfers of interests that occurred between 1 May 2010 and 30 June 2012, vendor miners must ensure that they provide the relevant Information Notice associated with the transfer to the acquiring miner by 21 July 2012.
- For all transfers that take place from 1 July 2012 onwards, the Information Notice must be provided within 60 days after the transfer takes place. An acquiring miner should seek to obtain this information as early as possible by including provisions in the underlying legal agreement.
- The Information Notice must include information for the acquiring miner to calculate its Minerals Resource Rent Tax ("MRRT") liability and satisfy its MRRT obligations in relation to the acquired interest. The acquiring miner needs to ensure that the information the vendor miner supplies is supportable and based on robust assumptions. Failure to do so may negatively impact on the cash flow of the mining project and trigger an additional and unintended MRRT liability.
- The new reporting obligations highlight the need for miners that are acquiring a mining project, to undertake specific MRRT legal due diligence to establish the MRRT attributes of the mining project and ensure legal agreements include appropriate warranties and indemnities.
Legislative reporting obligations
Broadly, the MRRT seeks to impose tax on the profits of a mining project. Under the MRRT Act a miner must report to the ATO yearly on the relevant mining project interest by lodging a MRRT return with the ATO. When an acquisition takes place, an acquiring miner must have the most up to date information about the acquired mining project interest to anticipate its MRRT liability and obligations for the MRRT year. This will necessarily entail details of certain elections and choices made by the vendor miner.
The new legislative reporting obligations imposed under the MRRT Act increase the information available to a miner that has acquired a mining project interest, so that it may determine its MRRT liability and project the impact on its cash flow position accordingly. The vendor miner will typically have 60 days in which to provide the acquiring miner with an information notice (the "Information Notice").
When should the Information Notice be provided to the acquiring miner? The table below sets out the key deadlines for vendor miners to provide an Information Notice to the acquiring miner in relation to a mining or pre-mining project interest.
| Transfer between 1 May 2010 and 30 June 2012 | by 21 July 2012 |
| Transfer from 1 July 2012 onwards | 60 days of the transfer* |
*A transfer takes place when an arrangement that results in the interest being transferred (or split) "comes into force": sections 120-10(3) and 125-10(3) of the MRRT Act.
What should be included in the Information Notice?
The MRRT Act states that the Information Notice must contain information that will allow the acquiring miner to calculate its MRRT liabilities for the transferred interest and to satisfy its MRRT obligations. This information includes:
- the amount of any allowance components that come with the interest;
- the information necessary to work out future starting base losses for the interest;
- the amount of the mining interest's mining/pre-mining revenue and mining/pre-mining expenditure for the year of the acquisition; and
- information about assets transferred with the interest that could give rise to future revenue or expenditure (such as their original cost and assumptions that were made about the extent of their upstream use in the interest).
Furthermore, the MRRT Act provides that an acquiring miner may request that the vendor miner provide further particulars to justify the information given in the original Information Notice, such as an explanation of how an amount in the original Information Notice was calculated. This request may be made any time after the transfer. This may occur, for example, where the ATO directs the acquiring miner to provide further and fuller details about the MRRT attributes used to calculate the MRRT liability of the mining project interest. The vendor miner has 60 days to comply with a request for further particulars. It is unclear how much information the vendor miner would need to provide to further substantiate the information set out in the Information Notice.
Failure to provide an Information Notice or respond to a request for further particulars may be an offence under the Taxation Administration Act 1953, subject to administrative penalties.
Practical issues for acquiring miners relying on the Information Notice
There are a number of practical issues associated with Information Notices that acquiring miners should be aware of. These broad issues include:
- the inability to calculate their MRRT liability for the transferred interest until 60 days after the interest has been transferred; and
- the inability to calculate the MRRT instalment rate it must pay to the ATO for the MRRT liability of the project interest (although it can use the default rate instead).
Specific MRRT due diligence will likely need to be undertaken by acquiring miners, to enable them to identify the potential availability of MRRT attributes associated with a project interest prior to execution of a sale and purchase agreement. The MRRT due diligence can uncover any material discrepancies around the legal attributes of the mining interest so that the acquiring miner may approximate its MRRT liability in relation to the mining interest contemporaneously with the execution of the sale and purchase agreement. Acquiring miners will likely seek to include provisions in the sale and purchase agreement to mitigate material MRRT risks associated with the acquisition.
Mitigating the risks through the sale and purchase agreement The inclusion of specific MRRT provisions in the sale and purchase agreement can provide acquiring miners with greater certainty over MRRT risk areas.
| MRRT risk area | Mitigation through sale and purchase agreement |
| The information disclosed as part of the due diligence process may not provide an accurate portrayal of the acquiring miner's future MRRT liability or MRRT instalment rate. |
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| The timing of the Information Notice being 60 days after the transfer. |
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| The possibility that the vendor miner transfers MRRT allowances prior to transfer of the mining project interest to the acquiring miner which may not be uncovered until the Information Notice is received from the vendor miner. This would be a significant issue for the acquiring miner and negatively impact its cash flow position. |
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| A sale of shares in an entity that holds a mining project interest (ie an entity level transfer) may not constitute a transfer of the underlying mining project interest and may not require the vendor to provide information about the target company's MRRT tax profile to the acquiring miner. |
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| The administrative penalty imposed on a vendor miner for failing to provide an Information Notice or for including false or misleading information in the Information Notice, does not provide adequate protection for the acquiring miner. |
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For further information, please contact:
Ian Kellock, Partner, Ashurst
Tim Loh, Ashurst
Justin Orders, Ashurst
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