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Australia – Proposed Repeal Of The Minerals Resource Rent Tax.

14 November, 2013

 

Legal News & Analysis – Asia Pacific – Australia – Energy & Project Finance

 

On 24 October 2013, the new Coalition Federal Government released an exposure draft of the Minerals Resource Rent Tax Repeal and Other Measures Bill 2013 (the Bill). The Bill and the accompanying explanatory memorandum (EM) are available on the Treasury website1.

 

Proposed Repeal Of Minerals Resource Rent Tax And Related Measures


The minerals resource rent tax (MRRT) was introduced by the former Labor Government from 1 July 2012, and applies to iron ore and coal projects in Australia.


An extension of the existing petroleum resource rent tax (PRRT) to onshore petroleum projects, including coal-seam gas projects, also commenced on 1 July 2012. However as explained by the EM, coal seam gas that is only produced as a necessary incident of coal mining projects has been subject to the MRRT, not the PRRT.


If passed the Bill will repeal the MRRT with effect from 1 July 2014. The repeal would not affect taxpayers’ existing rights and obligations under the MRRT in respect of periods up until that date. This also covers part years, if the taxpayer’s MRRT year does not end on 30 June. 


The Bill also proposes to discontinue a range of measures that were intended to be funded by the MRRT (in the case of further phased increases to superannuation guarantee rates, there will be a 2 year deferral). The discontinued measures include repeal of the income tax capital allowance provisions regarding immediate deductibility of certain geothermal energy exploration expenditure.

 

Extended Petroleum Resource Rent Tax Will Continue


The Bill does not repeal the extension of the PRRT to onshore petroleum or coal-seam gas projects. It is expected that this extension will be maintained going forward.


Under the Bill, in certain circumstances coal-seam gas produced during the course of coal mining will not be taxed under the extended PRRT. The PRRT carve-out requires the following conditions to be satisfied:


  • the production permit only permits the recovery of coal-seam gas as a necessary result of coal mining, to ensure a safe working environment, or to minimise emission of methane or similar gases, and
  • all of the coal-seam gas recovered is used within the area covered by the production permit to carry out coal mining related activities.

If the carve-out conditions are not satisfied, the coal-seam gas will now be taxed under the PRRT regime.


Similarly, provisions will also be introduced to prevent PRRT deductibility of expenditure where it is not sufficiently connected to coal-seam gas exploration activities.

The closing date for submissions on the Bill was 31 October 2013.

 

Endnotes


  1. www.treasury.gov.au

 

herbert smith Freehills

 

 

For further information, please contact:

 

Robert Merrick, Partner, Herbert Smith Freehills
[email protected]

 

Herbert Smith Freehills Energy & Project Finance Practice Profile in Australia

 

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