A taxpayer's mining profit for a mining project interest for an MRRT year is calculated by subtracting mining expenditure from mining revenue.
A taxpayer's mining revenue for a mining project interest is the sum of all the amounts that are included in mining revenue from a mining revenue event or as other revenue for the interest for an MRRT year.
Mining revenue is discussed in more detail under:
- Mining revenue from a mining revenue event
- Alternative valuation method
- Other mining revenue
- Miscellaneous provisions
A taxpayer will have mining revenue for a mining project interest when a mining revenue event occurs during an MRRT year in relation to a taxable resource extracted from the project area for the interest.
Mining revenue event
A mining revenue event occurs in relation to a taxable resource when:
- an initial supply of the taxable resource is made, but not after its export from Australia
- the taxable resource is exported from Australia, but not after an initial supply takes place, or
- an initial supply, use or export is made of something produced using the taxable resource, but not after an initial supply or export of the taxable resource takes place.
However, there will be no mining revenue event for a thing produced using a taxable resource if:
- a mining revenue event has already happened in relation to the taxable resource (note, the government has introduced a Bill into Parliament which proposes to amend this requirement), or
- the thing is used in mining operations of the mining project interest for other taxable resources, and that use does not give rise to mining expenditure or is not otherwise taken into account in working out the amount of mining revenue from a mining revenue event.
Generally, there will be only one mining revenue event relating to each quantity of taxable resource. However, where the resource is used to produce more than one product, there will be more than one mining revenue event.
Initial supply
An initial supply is generally the first supply of a taxable resource that a taxpayer makes after it has been extracted or the first supply of something produced using the taxable resource. However, an initial supply does not include:
- supplies in the course of a mining venture between entities with a mining project interest in that venture, or
- supplies that do not result in a change of ownership.
The word 'supply' has the meaning given by the GST legislation.
The time of a supply will be the earliest of when:
- consideration for the supply is received or becomes receivable
- delivery takes place, or
- ownership of what is being supplied passes to another.
However, if consideration for the supply is received or receivable before 1 July 2012, the time of the supply is taken to be the earliest of when the thing is delivered, and when ownership of the thing being supplied passes.
Exportation
Export will occur when the taxable resource clears Australia's territorial waters. Merely leaving an Australian port will not amount to exportation.
Something produced using a taxable resource
There is no mining revenue event for the 'use' of a taxable resource, as opposed to the 'use' of something produced from it. For example, if coal is burned to produce electricity, it is the use of the electricity rather than the coal that triggers the mining revenue event.
Working out amounts included in mining revenue
Amounts to be included in mining revenue for a mining revenue event are worked out in a two-step process:
- Step 1 - Determine the revenue amount for the mining revenue event.
- Step 2 - Determine how much of the revenue amount is reasonably attributable to the taxable resource in the form and place in which it existed at its valuation point.
Taxpayers may use an alternative valuation method to work out mining revenue if group production of taxable resources is less than 10 million tonnes or if the taxpayer supplies things produced using taxable resources as part of an operation that existed before 2 May 2010.
For more information on the alternative valuation method, refer to 'Alternative valuation method' below.
Revenue amount
The revenue amount will be determined according to the activity resulting in the mining revenue event.
Where the mining revenue event is a supply, the revenue amount will be the consideration received or receivable for the supply. If the supply is not at arm's length then anti-profit shifting rules will apply.
Where the mining revenue event is exportation, the revenue amount is what the arm's length consideration would be for a supply at the time and place of loading for export.
Where the mining revenue event is the use of something produced using a taxable resource, the revenue amount is what the arm's length consideration would be for a supply of that thing at the time and place of use.
Arm's length consideration
An arm's length consideration for a supply is the amount reasonably expected to be receivable as consideration for the supply if the supply was made under an agreement between two entities dealing wholly independently.
The method used to determine the arm's length consideration must be the most appropriate and reliable measure of that amount having regard to the available information and the taxpayer's circumstances, including:
- the functions performed
- assets used, and
- risks assumed by the taxpayer
- in carrying on its mining, transformative, and resource marketing operations.
Refer to 'Other methods' for a list of arm's length methodologies that might produce the most appropriate and reliable measure.
However, if it is not possible to work out an arm's length consideration, the arm's length consideration for a supply is the amount that is fair and reasonable in the opinion of the Commissioner.
Attributing the revenue amount
Attributing the revenue amount involves determining how much of the revenue amount is reasonably attributable to the taxable resource in the form in which it existed and at the place that it was located when it was at its valuation point.
The legislation does not prescribe the use of any particular method for attributing the revenue amount. However, the method used must produce the most appropriate and reliable measure of the mining revenue having regard to the available information and the taxpayer's circumstances
Taxpayers may also choose to use the safe-harbour method.
Statutory assumptions
Taxpayers must make several statutory assumptions, to the extent that they are relevant, when applying their chosen method of attributing the revenue amount.
The statutory assumptions are:
- a distinct and separate entity, known as the notional downstream entity, is assumed to carry out all of the downstream mining operations, transformative operations and resource marketing operations that the taxpayer actually does for a mining project interest
- the notional downstream entity does not acquire any interest in the taxable resource and deals wholly independently with the taxpayer, and
- there is a market for what the notional downstream entity is assumed to do and the market is competitive in the sense that the returns to the notional downstream entity would be:
- no more or less than are necessary for it to commit capital, and
- commensurate with the non-diversifiable risks inherent in what it does.
The safe harbour method
A taxpayer can choose to use the safe harbour method for attributing the revenue amount. This method is intended to improve certainty and reduce compliance costs to taxpayers. When a taxpayer chooses the safe harbour method it is taken to be the most appropriate and reliable method to attribute the revenue amount.
The safe harbour method takes the revenue amount and reduces it by the amount, to the extent it reasonably relates to the taxable resource in relation to which the mining revenue event happened* that is sufficient for a notional downstream entity to recover the following having regard to the taxpayer's circumstances, available information and the statutory assumptions:
- any operating costs
- any depreciation of the assets taken to have been used by the notional downstream entity, and
- a cost of capital sufficient to justify the continued commitment of the capital.
*Note, the government has introduced a Bill into Parliament which proposes to amend this requirement.
Any costs associated with a particular operation that relate to operations that are not taken into account in working out the revenue amount must be added back.
Other methods
- The Organisation for Economic Co-operation and Development (OECD) has provided guidelines for the application of the arm's length principle using arm's length methodologies. The guidelines are titled OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. Regard may be had to these guidelines, adapted as appropriate, for the Minerals Resource Rent Tax Act (MRRTA) 2012.
Methodologies that may be relevant, either alone or in combination include:
- the comparable uncontrolled price method
- the resale price method
- the cost plus method
- the transactional net margin method, and
- profit split methods.
Last Modified: Friday, 1 June 2012