Minerals resource rent tax (MRRT)
The minerals resource rent tax (MRRT) is a tax on certain profits generated from the extraction of taxable resources during the period 1 July 2012 to 30 September 2014.
Taxable resources for MRRT are:
- iron ore
- anything produced by the in situ consumption of coal or iron ore
- coal seam gas extracted as a necessary incident of coal mining or from a proposed coal mine.
For coal seam gas extracted as a necessary incident of coal mining after 1 October 2014, refer to Petroleum Resource Rent Tax
Who does MRRT apply to
Broadly, MRRT affects entities that have a mining project interest (MPI) or that hold a pre-mining project interest (PMPI)
An entity has an MPI if it is entitled to share in the output of a mining venture that relate to at least one production right and the mining venture is carried on to extract taxable resources and produce a resource commodity (which could be the taxable resource or something produced from the taxable resource). An entity also has an MPI if it has the right to extract taxable resources from an area covered by a production right.
An entity holds a PMPI if it is entitled holds an interest in an exploration right (exploration permit or a retention lease).
How MRRT is calculated
The MRRT is a project-based tax which means that an entity calculates its MRRT liability separately for each mining project interest and pre-mining project interest that it has at the end of each MRRT year. The entity's liability to pay MRRT is equal to the sum of its MRRT liabilities for each of its interests for that year.
The MRRT liability for each interest is calculated by using the following formula:
MRRT liability = MRRT rate X (mining profit – MRRT allowances)
An MRRT liability will exist for an interest when mining profit exceeds MRRT allowances.
Where mining profit does not exceed MRRT allowances, then the MRRT liability will be zero
The MRRT payable by an entity is the sum of the MRRT liabilities for each of its interests reduced by any low profit offset and rehabilitation tax offset available.
MRRT payable = sum of MRRT liabilities – available offsets
If the available offsets are greater than or equal to the sum of MRRT liabilities there will be no MRRT payable.
The effective MRRT rate is 22.5%. This is the nominal rate of 30%, less an extraction factor of 7.5%. This extraction factor recognises the specialist skills required to extract the resource and get it to the valuation point.
Mining profit is mining revenue less mining expenditure. However, if mining expenditure exceeds mining revenue, mining profit is zero and the project will have a mining loss.
Mining revenue can arise from the supply, export, or use of something produced using the taxable resource. Generally, mining revenue is that part of an entity's sale proceeds attributable to the taxable resource at its valuation point.
The usual valuation point for coal and iron or is immediately before it leaves the run-of-mine stockpile. Where there is no run-of-mine stockpile, the valuation point is immediately before the taxable resource enters the first mine site beneficiation process. If there is no run-of-mine stockpile and no mine site beneficiation process, the valuation point is when the taxable resource leaves the point of extraction.
Mining operations that occur before the valuation point are upstream mining operations; those that occur afterwards are downstream mining operations. These are important distinctions because MRRT applies at the valuation point which separates upstream and downstream operations, effectively taxing the value of the extracted resources and not the value added in the downstream activities. An entity needs to apply arm’s length principles on all transactions before and after the valuation point.
Mining revenue also includes recoupment of some amounts that have been previously allowed as mining expenditure.
Mining expenditure includes certain operating and capital costs necessarily incurred by the entity in carrying on its upstream mining operations.
MRRT allowances reduce the mining profit of an MPI or PMPI in order to calculate the MRRT liability for that interest. An MRRT liability exists for an interest when mining profit exceeds MRRT allowances. Each of the MRRT allowances is made up of allowance components. The MRRT allowances must be applied in a particular order. The allowance highest in the order must be fully applied before the next highest can be applied. An entity needs to apply all available allowances until its mining profit is reduced to zero. However, MRRT allowances cannot reduce its mining profit to less than zero.
Certain allowance components remaining after the mining profit has been reduced to nil can, subject to certain conditions being satisfied, be transferred to other mining project interests to the extent possible to reduce their mining profits. Allowance components remaining at the end of the MRRT year are uplifted.
MRRT offsets reduce the sum of MRRT liabilities to work out the assessed MRRT payable for any given MRRT year.
The MRRT offsets available (subject to meeting certain criteria) are the:
- Low profit offset which applies where an entity's group mining profit is equal to or less than $75 million, the low profit offset will reduce its liability to nil. The low profit offset phases out if the entity's group mining profit is between $75 million and $125 million.
- A rehabilitation tax offset reduces the amount of MRRT that an entity otherwise has to pay for the MRRT year. The offset can arise if upstream rehabilitation expenditure would not otherwise be taken into account in working out a liability for MRRT (because an MPI or a PMPI is winding down or has ended).
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The minerals resource rent tax (MRRT) applies to certain profits from taxable resources extracted in Australia during the period 1 July 2012 to 30 September 2014. As a coal or iron ore explorer or producer, find out how MRRT may affect you during the period.