House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)

Chapter 10 Transfers and splits of mining and pre-mining project interests

Outline of chapter

10.1 This chapter explains when a mining project interest, or a pre-mining project interest, is transferred or split. The miner that has an interest after a transfer or split is liable to pay the Minerals Resource Rent Tax (MRRT) for that interest for the whole year, not just for the period after the transfer or split.

10.2 All legislative references throughout this chapter are to the Minerals Resource Rent Tax Bill 2011 unless otherwise indicated.

Summary of new law

10.3 A mining project interest is the basis upon which a miner's MRRT liability is determined. It anchors the operation of the MRRT. If a miner has mining revenue, mining expenditure, allowance components or starting base assets, it will have them for a mining project interest.

10.4 A mining project transfer is an arrangement that results in the whole mining project interest being transferred from one miner to a single other entity.

10.5 A mining project split is an arrangement that results in the whole or a part of a mining project interest being transferred from one miner to one or more other entities.

10.6 A mining project split also happens if:

•

a production right to which the mining project interest relates is split; or

•

the constituent interests of a combined interest cease being integrated with each other.

10.7 A mining project interest that is transferred from a miner to another entity by way of a mining project transfer is taken to continue in the hands of the new miner. That is, the tax history of the original interest remains with the interest after the transfer.

10.8 The miner that has the mining project interest after the transfer is the miner liable to pay MRRT for that interest for the entire MRRT year, including the period before the transfer.

10.9 Similarly, mining project interests that result from a mining project split are taken to be continuations of the mining project interest that was split. That is, the tax history of the mining project interest is inherited by the interests that emerge from the split and the miners that have those interests are liable for the MRRT payable in relation to the original interest for the entire MRRT year, including the period before the split.

10.10 For a mining project split, the extent to which the tax history and tax liability of the original mining project interest are inherited by the new interests is determined by applying the split percentage.

10.11 The split percentage is a reasonable approximation of the market value of a new interest relative to the total market values of all the interests arising from the split.

10.12 Similar rules deal with pre-mining project transfers and pre-mining project splits.

Detailed explanation of new law

When a mining project transfer occurs

10.13 A mining project transfer is an arrangement that results in a whole mining project interest being transferred from the original miner to another entity, the new miner. [Subsection 120-10(3)]

10.14 The miner's entitlement may be a share in the output of a mining venture or an entitlement to extract taxable resources [section 15-5] . The mining project transfer is effected when a miner gives that particular entitlement, being the share in an output of a mining venture or the entitlement to extract taxable resources, to another entity.

Example 10.118 : Mining project transfer

A Co has a mining project interest because it has an entitlement to extract taxable resources from the area covered by a production right (a residual mining project interest).

A Co enters into an arrangement that has the effect of transferring its entitlement to B Co. B Co now has the entitlement to extract taxable resources from the area covered by the production right (the residual mining project interest).

This is a mining project transfer.

10.15 'Arrangement' has the same wide meaning as in the Income Tax Assessment Act 1997 (ITAA 1997). [Section 300-1, definition of 'arrangement']

10.16 A mining project transfer may be effected by a sale, sub-lease, gift, or by any other means.

10.17 To avoid doubt, a mining project transfer can occur in the period 2 May 2010 to 30 June 2012. [Schedule 4 to the Minerals Resource Rent Tax (Consequential Amendments and Transitional Provisions) Bill 2011 (MRRT (CA & TP) Bill 2011), item 8]

Deemed mining project transfer

10.18 A mining project transfer will be deemed to have occurred if a miner's entitlement to extract taxable resources (a 'residual interest') is replaced (in its entirety) with an entitlement to share in the output of a mining venture (a 'mining venture interest'). That is, if the type of entitlement the miner had has changed. [Section 120-25 and subsections 15-5(1) and (4)]

Example 10.119 : Deemed mining project transfer

Cavier is granted a production right by the State Government. It has a mining project interest (MPI 1) because it has an entitlement to extract taxable resources from the area covered by a production right. MPI 1 is a residual mining project interest.

Cavier then undertakes to extract all the taxable resources from the area covered by the production right. Once extracted, it will process the taxable resource before exporting them for sale. This is a mining venture that it participates in on its own. It takes 100 per cent of the output.

The commencement of the mining venture gives rise to a new mining project interest for Cavier (MPI 2). MPI 2 is a mining venture interest which is separate and distinct from MPI 1. As the mining venture is in respect of all the taxable resources to which MPI 1 related, MPI 1 no longer exists. MPI 1 has effectively been replaced by MPI 2.

The start of the mining venture is taken to be a mining project transfer: MPI 1 is the original interest, MPI 2 is the new interest and Cavier is both the original and the new miner.

10.19 A deemed mining project transfer has all the same effects as a normal mining project transfer.

Effects of a mining project transfer

10.20 The main effect of a mining project transfer is that:

•

the mining project interest in the hands of the new miner is taken to be a continuation of the interest that the original miner had; and

•

the MRRT liability for the interest for the transfer year is payable by the new miner.

[Subsections 120-10(1) and (2)]

Continuation principle

10.21 After a mining project transfer, the original miner will cease to have the mining project interest and the new miner will start to have the interest.

10.22 The mining project interest the new miner has after the transfer is taken to be a continuation of the interest the original miner had just before the transfer. Because the new interest is taken to be a continuation of the original interest, everything that happened in relation to the original interest is taken to have happened in relation to the new interest. For the purpose of applying the MRRT law in the current and future MRRT years, mining revenue, mining expenditure and allowance components for the original miner for the original interest before the transfer are taken to be mining revenue, mining expenditure and allowance components of the new miner for the new interest. This ensures that the tax history of the original interest is inherited by the new interest. [Subsections 120-10(2) and (4)]

10.23 The new interest is taken to have started on the same day as the original interest and the same miners had the original interest will be taken to have had the new interest, at the same times as they had the original interest.

10.24 Knowing when the interest started and which miners have had the interest is relevant for determining whether a mining loss can be applied in working out, for example, a transferred mining loss allowance in relation to the interest.

Example 10.120 : Inherit ownership history

On 1 July 2012, AlexandraGeo has a mining project interest (MPI 1). At the start of 1 July 2014, it acquires another mining project interest ('new interest') from Rocky Resources.

The new interest is taken to be a continuation of the interest that Rocky Resources had and the new interest will continue to have Rocky Resources' ownership history. When acquired, the new interest has a mining loss for the 2013 MRRT year.

At the end of the 2014 MRRT year, there is a mining profit for MPI 1, while the new interest has made a mining loss. AlexandraGeo needs to determine whether the 2013 or 2014 mining losses for the new interest can be applied as a transferred mining loss allowance for MPI 1.

In relation to the 2013 mining loss, the mining loss can only be applied if the same miner had both the new interest and MPI 1 from the beginning of the 2013 MRRT year until the end of the 2014 MRRT year.

As the new interest is taken to be a continuation of the original interest that Rocky Resources had, the new interest will be taken to have been Rocky Resources' interest for the 2013 MRRT year (before AlexandraGeo had the new interest). Therefore, the common ownership test will not be satisfied in relation to the 2013 MRRT year meaning the 2013 loss will not be able to be transferred. The common ownership test would, however, be satisfied in relation to the 2014 MRRT year and the loss for this year could be transferred.

10.25 Any starting base asset that was held by the original miner in relation to the original interest that is held by the new miner in relation to the new interest (that is, after the mining project transfer), continues to be a starting base asset in relation to the new interest. The base value of the asset continues and is unaffected by the transfer (although a change in use of the starting base asset by the new miner will result in a starting base adjustment).

10.26 A starting base asset valuation method choice that the original miner made in relation to the original interest, continues to apply in relation to the starting base assets of the new interest.

MRRT amounts move with the interest

10.27 For the purpose of working out the MRRT liability of the transfer year and later MRRT years, mining revenue and mining expenditure for the original miner for the original interest are taken to be mining revenue and mining expenditure of the new miner for the new interest. All the dates and amounts that relate to the mining revenue and mining expenditure are preserved when they are inherited. [Subsection 120-10(4)]

10.28 Similarly, any allowance components for the original miner for the original interest are taken to be allowance components for the new miner for the new interest. All dates that are specific to the allowance components are preserved when they are inherited. [Paragraphs 120-10(4)(c) and (d)]

10.29 Allowance components of the original interest are:

•

royalty credits;

•

pre-mining losses;

•

mining losses; and

•

starting base losses.

[Section 300-1, definition of 'allowance component']

10.30 So, a mining loss for the original interest for the 2013 MRRT year remains a 2013 mining loss for the new interest.

10.31 The original miner is not able to use allowance components for the MRRT year in which the transfer occurs. In particular, the original miner would not be able to transfer or apply any allowance components that have accrued for the year to the date of transfer.

MRRT liability for the transfer year

10.32 The new miner is liable for any MRRT that is payable for the interest for the whole transfer year. This includes being liable for any MRRT that is payable for the interest for the part of the year in which the original miner had the interest. [Subsection 120-10(1)]

10.33 The original miner is not liable to pay any MRRT that is payable for the interest for the transfer year. [Subsection 120-10(1)]

10.34 If the original miner and the new miner have different accounting periods, the transfer year may not be the same MRRT year for both the original miner and the new miner. In such cases, the new miner may be liable to pay MRRT for that interest for a period which is longer or shorter than its normal MRRT year, as it will be liable to pay MRRT for the period from the first day of the original miner's transfer year. [Paragraphs 120-10(4)(a) and (b)]

10.35 To enable the new miner to determine the MRRT liability in the transfer year, amounts of mining revenue and mining expenditure that the original miner had in relation to the original interest for its MRRT year are instead taken to be mining revenue and mining expenditure of the new miner in relation to the new interest for its MRRT year. Excluded expenditure for the original interest remains excluded expenditure for the new interest. [Paragraphs 120-10(4)(a) and (b)]

10.36 The information transfer rules require the original miner to notify the new miner of amounts that are relevant to the mining project interest. [Schedule 1 to the MRRT (CA & TP) Bill, item 8, Division 121 in Schedule 1 to the Taxation Administration Act 1953 (TAA 1953)]

10.37 However, the information transfer rules do not require such a notice where the original miner and the new miner are the same entity, which would be the case in a deemed mining project transfer. [Section 120-25]

10.38 Chapter 18 has further information on information transfers.

10.39 In future MRRT years, the new miner will have the interest from the beginning of the MRRT year and will be liable to pay MRRT for the interest for the whole year, as it would for any other interest it has. However, this does not mean that the amounts of mining revenue, mining expenditure and allowance components that the new miner is taken to have had for a previous year are no longer relevant. For example, if the new miner sells an asset in respect of which the original miner included an amount as mining expenditure, an amount of recoupment for the new miner would be determined with reference to the mining expenditure that the original miner had (which the new miner is taken to have). [Paragraph 120-10(4)(b) and section 30-40]

Choices

10.40 Choices that the original miner made in relation to the original interest generally continue to apply in relation to the new interest. One example is the starting base valuation method choice.

10.41 There are some exceptions to this general rule.

Downstream integration choice

10.42 If the original miner made a downstream integration choice to treat its mining project interests as downstream integrated, that choice does not affect the interest when the original miner stops having the interest. That is, the new miner is not bound by the original miner's downstream integration choice. [Subsection 255-20(3)]

10.43 If the original miner is the same entity as the new miner, which is the case where there is a deemed mining project transfer, the original miner will not have ceased having the interest and therefore any downstream integration choice will still apply to that interest. [Section 120-25 and subsection 255-20(3)]

Alternative valuation method and simplified MRRT method choices

10.44 If the original miner made one of the following two choices in respect of the mining project interest for the transfer year, the new miner is not bound by the choice for its transfer year (unless the new miner is the same entity as the original miner, which can only occur when there is a deemed mining project transfer):

•

alternative valuation method choice (see Chapter 14); or

•

simplified MRRT method choice (see Chapter 8).

[Subsection 120-10(5) and 120-25(2)]

10.45 After the transfer, the new miner can determine whether or not it wants to make such choices in respect of the new interest for the transfer year. [Subsection 120-10(5)]

10.46 For example, if an original miner has made an alternative valuation method choice for the transfer year and the new miner does not make such a choice for the year, the new miner includes in its mining revenue for the transfer year the raw mining revenue for the mining revenue event (that is, the amounts unaffected by the alternative valuation method).

10.47 Similarly, if the original miner chose to use the simplified MRRT method in the transfer year then the new miner will not be bound by that choice. The new miner is obliged to account for MRRT in the same manner as they would have if the choice had never been made for that MRRT year.

10.48 However, if the original miner, or another miner who held the mining project interest, previously made the choice to apply the simplified MRRT method in a prior MRRT year, then any consequences arising from that choice, that is the cancellation of allowance components and the denial of starting base losses, continue to remain in effect. The new miner will not be able to reconstruct the allowance components for those previous years; they will remain extinguished.

Example 10.121 : The original miner made a simplified MRRT choice

Part way through the year, S & S Resources purchases a mining project interest from HC Minerals. Before the transfer, HC chose to use the simplified MRRT method for that year. HC made royalty payments in relation to the interest during the pre-transfer part year, but, because it chose to use the simplified MRRT method, this will not give rise to royalty credits in relation to the interest. HC had also chose to use the simplified MRRT method in previous MRRT years and had a number of other allowance components that were extinguished because of those choices.

When S & S Resources acquires the mining project interest, it does not make the choice to use the simplified MRRT method. S & S Resources will be able to have allowance components for the transfer year, including any royalty credits that would have been extinguished if HC continued to have the interest. However, S & S will be unable to reconstruct previous years' allowance components, they will remain extinguished.

Suspension day choice

10.49 If the old miner made a suspension day choice, the new miner will not be bound by that choice in future MRRT years (unless the new miner is the same entity as the original miner, which can only occur when there is a deemed mining project transfer). However, allowance components that have previously been cancelled because of the suspension day will continue to be cancelled, they cannot be reconstructed. Suspension days are discussed in Chapter 11. [Subsection 120-10(6) and 120-25(2)]

10.50 After the transfer, the new miner can determine whether or not it wants to choose to suspend the new interest.

Original miner and new miner are the same entity

10.51 If the original miner and the new miner are the same entity, all choices made by the original miner in relation to the original interest continue to apply to the entity when it is the new miner in relation to the new interest. The entity cannot remake the choice when it is the new miner. [Subsection 120-25(2)]

Events happening to the original miner after the transfer

10.52 If an amount of mining revenue or mining expenditure comes home to the original miner after the mining project transfer has occurred, the amount is taken to be mining revenue or mining expenditure of the new miner in relation to the new interest. The same applies to anything that affects the MRRT liability, including allowance components and the rehabilitation tax offset. This rule also applies if there has been more than one mining project transfer (including pre-mining project transfers), and to all the entities who were previously miners (or explorers) in respect of the interest. [Section 120-20]

10.53 The rule also applies if there has been one or more mining project splits (or pre-mining project splits). In such cases it is subject to the split percentage. [Subsection 120-20(2)]

Example 10.122 : Mining revenue after transfer

OldMinerCo extracts 50,000 tonnes of iron ore from a project area on 20 September 2012 and the full amount of the ore remains housed at OldMinerCo's run-of-mine stockpile.

On 21 January 2013, OldMinerCo transfers the mining project interest to NewMinerCo. OldMiner Co does not supply any of the 50,000 tonnes of iron ore before the transfer time.

On 20 February 2013, OldMinerCo supplies the 50,000 tonnes of iron ore to ForeignCo. NewMinerCo does not receive any amount in respect of this supply.

If OldMinerCo still had the interest, the amount in relation to this supply would have been included as mining revenue of the mining project interest.

The mining revenue in relation to the supply of the 50,000 tonnes of iron ore by OldMinerCo to ForeignCo, is an amount included in the mining revenue of NewMinerCo in relation to its mining project interest.

OldMinerCo must notify NewMinerCo of the amount to be included in the interest's mining revenue.

10.54 These effects are specifically provided for as they are things that happen to the original miner in relation to the mining project interest when the original miner no longer has the interest.

10.55 The information transfer rules require the original miner (or an entity who was previously a miner in relation to the interest) to notify the new miner of amounts that are relevant to the mining project interest. [Schedule 1 to the MRRT (CA & TP) Bill, item 8, Division 121 in Schedule 1 to the TAA 1953]

10.56 However, the information transfer rules do not require such a notice where the original miner and the new miner are the same entity, which would be the case in a deemed mining project transfer. [Section 120-25]

Property transferred with the mining project interest

10.57 When property is transferred from the original miner to the new miner as part of the arrangement that effects the mining project transfer, the part of the consideration for the arrangement that is attributable to the property would ordinarily be mining expenditure of the new miner in relation to the transferred mining project interest [Division 35] . Similarly, the consideration that the new miner paid to the original miner in respect of that property would be a recoupment of mining expenditure for the original miner in respect of the mining project interest [section 30-40] .

10.58 However, under inherited history, the new miner is liable for the MRRT for the mining project interest for the whole transfer year [subsection 120-10(1)] . Therefore, the new miner would have mining expenditure on acquiring the property and would also include the amount recouped by the original miner in the mining revenue of the interest for the year [section 120-20] . This would be somewhat circular.

10.59 To prevent that circularity, a special rule exists to deal with these cases. The intended effect is to cancel out the mining expenditure and the recoupment. [Subsections 120-15(2) and (3)]

10.60 The special rule applies when:

•

any property, or any legal or equitable right that is not property (the transferred property), is transferred to the new miner under the mining project transfer;

•

the original miner used the transferred property in the mining operations of the mining project interest; and

•

the transferred property:

-

gave rise to an amount of mining expenditure for the original miner, or a previous miner, in relation to the interest; or

-

is, or may become, a starting base asset in relation to the interest.

[Subsection 120-15(1)]

Effect of transferring property

10.61 The effect of transferring such property, is that:

•

the original miner is taken not to have received a recoupment [subsection 120-15(2)] ; and

•

the new miner is taken to have an amount of excluded expenditure [subsection 120-15(3)] .

10.62 To avoid doubt, the mining project transfer, and the transfer of transferred property, is not, of itself, an event or circumstance that gives rise to an adjustment. [Subsection 120-15(4)]

10.63 The amount that is taken to not be a recoupment and to be excluded expenditure is the amount of the consideration for the mining project transfer that is attributable to acquiring the particular property.

Example 10.123 : Transferred property

Ironman Resources has a mining project interest (MPI 1). In 2015, it sells the interest, along with all the assets used in MPI 1 to Washerman Co. Washerman pays Ironman $150 million for MPI 1 and the associated property. Of the $150 million, $10 million is for a fleet of trucks. Ironman purchased the fleet for $11 million in 2013 and included the $11 million in its mining expenditure for the 2013 MRRT year.

The $10 million that Ironman received for the fleet of trucks would normally be a recoupment to be included in the mining revenue of the interest. However, as the fleet of trucks was transferred as part of a mining project transfer, Ironman's recoupment is ignored.

Similarly, rather than including the $10 million as mining expenditure for the 2015 MRRT year, the expenditure is excluded expenditure for Washerman.

10.64 Starting base assets that are transferred as part of a mining project transfer continue to be starting base assets in relation to the mining project interests and do not result in an amount of mining expenditure for the new miner. [Section 120-15]

10.65 The new miner inherits the original miner's use of the starting base asset. If the new miner uses the starting base asset differently (for example, uses it more or less than the original miner used it in relation to the mining project interest) this will be reflected in the calculation of the starting base loss. [Division 90]

10.66 Similarly, if the new miner uses a non-starting base asset more or less than the original miner, there would be an adjustment. [Division 160]

When a mining project split occurs

10.67 A mining project split is an arrangement that results in:

•

the whole of the entitlement comprising the mining project interest being transferred from a miner to two or more other entities [paragraph 125-10(3)(a)] ; or

•

a part of the entitlement comprising the mining project interest being transferred from a miner to one or more other entities [paragraph 125-10(3)(b] .

10.68 A mining project split will also happen if:

•

a production right to which the mining project interest relates is split [paragraph 125-10(3)(c)] ; or

•

the constituent interests of a combined interest cease being integrated with the other constituent interests [paragraph 125-10(3)(d)] .

10.69 The entities which have a mining project interest after the split will be the new miners in relation to their respective interests. Unlike transfers, there will be multiple new interests and new miners as a result of a split. However, if the original miner retains part of the interest, it will be a new miner in respect of the part that it retains. [Paragraphs 125-10(3)(b) to (d)]

10.70 'Arrangement', which is necessary in some, but not all, mining project splits, has the same wide meaning as in the ITAA 1997. [Section 300-1, definition of 'arrangement']

10.71 The arrangement may be effected by a sale, sublease, gift, or any other means.

10.72 Constituent interests will cease to be integrated if they no longer meet the conditions for integration [sections 255-5 and 255-10] . The conditions for integration are discussed in Chapter 9.

10.73 A mining project split can occur in the period 2 May 2010 to 30 June 2012. [Schedule 4 to the MRRT (CA & TP) Bill, item 8]

Deemed mining project split

10.74 A mining project split will be deemed to have occurred if a miner's entitlement to extract taxable resources (a 'residual interest') is reduced because an entitlement to share in the output of a mining venture (a 'mining venture interest') in respect of some of those taxable resources starts to exist. [Paragraph 125-35(1)(a) and subsections 15-5(1) and (4)]

10.75 A mining project split will also be deemed to have occurred if a miner stops having an entitlement to extract taxable resources (a 'residual interest') and entitlements to share in the output of a mining venture (a 'mining venture interest') in respect of the taxable resources start to exist for more than one entity (one of which may be the miner who had the residual interest). All the new entitlements to share in the output of the mining venture collectively cover all the taxable resources to which the residual interest previously related. [Paragraph 125-35(1)(b) and subsections 15-5(1) and (4)]

Example 10.124 : Deemed mining project split

A Co has three production rights, in respect of which it has three mining project interests (three residual interests).

A Co enters into a mining venture with B Co to extract and process taxable resources from an area that spans across parts of each of the production rights. The mining venture is to run for 10 years. A Co will take 70 per cent of the output of the mining venture and B Co will take 30 per cent.

The start of the mining venture gives rise to an entitlement to an output of the mining venture for A Co and B Co. Therefore A Co and B Co have mining project interests in relation to the mining venture ('mining venture interests'). As the mining venture spans across three production rights, A Co and B Co will each have a separate mining venture interest in respect of each production right.

As the mining venture is limited to a period of 10 years, the venture covers some but not all the taxable resources that were previously part of MPI 1, MPI 2 and MPI 3, each of these mining project interests will have reduced in value as they now only relate to the taxable resources that are not covered by the mining venture.

As the start of the mining venture gives rise to mining venture interests in relation to some of the taxable resources that MPI 1, MPI 2 and MPI 3 covered, there is a deemed mining project split of MPI 1, MPI 2 and MPI 3.

MPI 1 will split into three interests; the reduced residual interest of MPI 1, the mining venture interest for A Co (MPI 4) and the mining venture interest for B Co (MPI 5).

MPI 2 will split into three interests; the reduced residual interest of MPI 2, the mining venture interest for A Co (MPI 6) and the mining venture interest for B Co (MPI 7).

MPI 3 will split into three interests; the reduced residual interest of MPI 3, the mining venture interest for A Co (MPI 8) and the mining venture interest for B Co (MPI 9).

At the end of 10 years, when the mining venture ends, each of the mining venture interests (MPI 4, 5, 6, 7, 8 and 9) will also end. However, the residual interests (MPI 1, 2 and 3) will continue in respect of all the area covered by the respective production right, including the area formerly covered by the mining venture.

Effects of a mining project split

10.76 The main effect of a mining project split is that:

•

the mining project interest in the hands of the new miner is taken to be a continuation of the interest that the original miner had; and

•

the MRRT liability for the transfer year is payable by the new miner.

[Subsections 125-10(1) and (2)]

Continuation principle

10.77 The consequences of a mining project split are very similar to those of a mining project transfer. The new interests are taken to be a continuation of the original interest, the new miners will inherit the tax history of the original miner in relation to the interest, and the new miners are liable for the MRRT liability for the new interests for the whole split year. [Subsection 125-10(2)]

10.78 The important distinction is that each of these will only happen to the new interests to the extent of their respective split percentages. This ensures the tax history that is relevant to the original interest is inherited by the new interests to the extent of their respective shares. [Subsection 125-10(4)]

10.79 If any starting base asset that was held by the original miner in relation to the original interest is held by a new miner after the mining project split to some extent, the asset continues to be a starting base asset in relation to the new interest. The base value of the asset continues unaffected by the split (although a change in use of the starting base asset by a new miner will result in a starting base adjustment).

10.80 A starting base asset valuation method election that the original miner made in relation to the original interest continues to apply in relation to the starting base assets of the new interest.

Split percentage

10.81 The split percentage is a reasonable approximation of the market value of the new interest, expressed as a percentage of the total market values of all the new interests arising from the split. The market values of the new interests are calculated immediately after the split. Each new interest has its own split percentage, the sum of which must equal 100 per cent. [Section 125-15]

Example 10.125 : Simple split percentage

ACo sells half its entitlement to share in the output of a mining venture in respect of a production right to BCo. After the mining project split, there are two new interests of equal value. Therefore, the split percentage for each of the new interests is 50 per cent.

Example 10.126 : Complex split percentage

ACo has a mining project interest (P). ACo sells to BCo an entitlement to the first 1 million tonnes of a taxable resource recovered from the project area for each year. This gives rise to a mining project interest for BCo. In this case, the entitlement that ACo sells to BCo cannot be expressed as a fixed percentage because it will change from year to year.

ACo determines the market value of each of the new interests immediately after the split. ACo's new interest (P1) is valued at $10.5 billion and the new interest that BCo has (P2) is valued at $600 million. The split percentage for ACo's P1 is 95 per cent and the split percentage for BCo's P2 is 5 per cent:

10.5/(10.5 + 0.6) = 95%

0.6/(10.5 + 0.6) = 5%

MRRT liability for the split year and later years

10.82 The new miners are each liable to pay any MRRT that is payable for their respective new interests for the whole transfer year but only to the extent of their new interests. This includes being liable to pay any MRRT that is payable for the interest for the part of the year prior to the split. [Subsection 125-10(1)]

10.83 The original miner is not liable for any MRRT that is payable for the interest for the transfer year (unless it is one of the new miners because it has retained part of the interest).

10.84 When a mining project split occurs, the tax attributes (including mining revenue, mining expenditure and allowance components) of the mining project interest are disaggregated and inherited by each of the new interests to the extent of their respective split percentages. [Subsection 125-10(4)]

10.85 If the original miner and the new miner have different accounting periods, the split year may not be the same MRRT year for both the original miner and the new miner. In such cases, the new miner may be liable to pay MRRT for a period that is longer or shorter than its normal MRRT year, as it will be liable to pay MRRT for the period from the first day of the original miner's split year. [Subsection 125-10(4)]

10.86 In future MRRT years, the new miner will have had the interest from the beginning of the MRRT year and will be liable to pay MRRT for the interest for the whole year, as it would be for any other interest it has.

MRRT amounts move with the interest

10.87 To enable the new miners to determine the respective MRRT liabilities for the new interests for the split year and later years, amounts of mining revenue and mining expenditure that the original miner had in relation to the original interest for the split year and previous MRRT years are instead taken to be mining revenue and mining expenditure of the new miners in relation to the new interest (to the extent of the split percentage). Excluded expenditure for the original interest remains excluded expenditure for the new interest. [Paragraphs 125-10(4)(a) and (b)]

10.88 Similarly, any allowance components for the original interest will be taken to be allowance components for the new miners for each of the new interests, to the extent of their respective split percentages. This includes royalty credits that arose in the split year before the split and also any allowance component that the interest was carrying forward from a previous year. [Paragraphs 125-10(4)(c) and (d)]

10.89 All the dates that are specific to the allowance components are preserved when they are inherited. For example, a mining loss for the original interest for the 2013 MRRT year will remain a 2013 mining loss for the new interests.

10.90 The original miner will not be able to use the allowance components or apply them before the split.

Example 10.127 : Applying split percentage to tax attributes

Following on from the previous example, the split percentage for ACo's P1 is 95 per cent and the split percentage for BCo's P2 is 5 per cent.

The tax history of P will be split between P1 and P2 as follows:

	Before the split ($m)	After the split ($m)
Tax attributes	P	P1	P2
Mining revenue	500	475	25
Mining expenditure	200	190	10
Royalty credit (2013)	60	57	3
Royalty credit (2014)	10	9.5	0.5
Starting base loss	5	4.75	0.25
Pre mining loss (2012)	5	4.75	0.25

10.91 The information transfer rules requires the original miner to notify the new miners of amounts that are relevant to the mining project interest. [Schedule 1 to the MRRT (CA & TP) Bill, item 8, Division 121 in Schedule 1 to the TAA 1953]

10.92 However, the information transfer rules do not require such a notice where the original miner and the new miner are the same entity, which would be the case in some mining project splits.

Choices

10.93 Choices the original miner made in relation to the original interest generally continue to apply in relation to the new interests. One example is the starting base valuation method choice.

10.94 However, there are some exceptions to this general rule.

Downstream integration choice

10.95 If the original miner had made a downstream integration choice to treat its mining project interests as downstream integrated, that choice does not affect the interest (or part of the interest) when the original miner stops having the interest. That is, the new miners are not bound by the original miner's downstream integration choice. [Subsection 255-20(3)]

10.96 If the original miner is the same entity as the new miner, the original miner will not have ceased having the interest and therefore any downstream integration choice will still apply to that interest. [Subsection 255-20(3)]

Alternative valuation method and simplified MRRT method choices

10.97 If the original miner made one of the following two choices in respect of the mining project interest for the transfer year, the new miners are not bound by the choice for their split years (unless the new miner is the same entity as the original miner):

•

alternative valuation method choice (see Chapter 14); or

•

simplified MRRT method choice (see Chapter 8).

[Subsections 125-10(5) and (7)]

10.98 After the split, the new miner can determine whether or not it wants to make such choices in respect of the new interest for the split year. [Subsection 125-10(5)]

10.99 For example, if an original miner has made an alternative valuation method choice for the split year and the new miner does not make such a choice for the year, it includes in its mining revenue for the split year the raw mining revenue (subject to the split percentage) for the mining revenue event (that is, the amounts unaffected by the alternative valuation method).

10.100 Similarly, if the original miner chose to use the simplified MRRT method in the split year then the new miner will not be bound by that choice. The new miner is obliged to account for MRRT in the same manner as they would have if the choice had never been made for that MRRT year.

10.101 However, if the original miner, or another miner who held the mining project interest, had previously made the choice to apply the simplified MRRT method in a prior MRRT year, then any consequences arising from that choice, that is the cancelling of allowance components and the inability to claim starting base losses, continue to remain in effect. The new miner will not be able to reconstruct the allowance components for those previous years; they will remain extinguished.

Suspension day choice

10.102 If the old miner made a suspension day choice, the new miner will not be bound by that choice in future MRRT years (unless the new miner is the same entity as the original miner). However, allowance components that have previously been cancelled because of the suspension day will continue to be cancelled, they cannot be reconstructed. Suspension days are discussed in Chapter 11. [Subsection 125-10(6)]

10.103 After the split, the new miner can determine whether or not it wants to choose to suspend the new interest.

Original miner and new miner are the same entity

10.104 If the original miner and the new miner are the same entity, all choices made by the original miner in relation to the original interest continue to apply to the entity when it is the new miner in relation to the new interest. [Subsection 125-10(7)]

Events happening to the original miner after the split

10.105 If an amount of mining revenue or mining expenditure relating to the original interest comes home to the original miner after the mining project split has occurred, the amount is instead taken to be mining revenue and mining expenditure of the new miners (to the extent of their split percentages) in relation to the new interests. The same applies to anything that affect the MRRT liability, including allowance components and the rehabilitation tax offset. This rule also applies if there has been more than one mining project split (including pre-mining project splits), and to all the entities that were previously miners (or explorers) in respect of the mining project interest. [Section 125-30]

Example 10.128 : Multiple mining project splits

Midnight Resource has a mining project interest. Midnight sells half the mining project interest to Sunset Mines. This sale results in a mining project split. Shortly afterwards, Sunset then sells half of its mining project interest to Daybreak Co. This results in another mining project split.

Midnight Co sells 2 million tonnes of resources that it extracted from MPI 1, which results in $50 million of mining revenue for MPI 1. However, because MPI 1 has been subject to multiple mining project splits, the $50 million is not included (at least not in its entirety) in the mining project interest that Midnight retains.

Applying the various split percentages, $25 million would be mining revenue of MPI 3, $12.5 million would be mining revenue of MPI 4 and $12.5 million would be mining revenue of MPI 5.

10.106 These effects are specifically provided for as they are things that happen to the original miner in relation to the mining project interest when the original miner no longer has the interest.

10.107 The information transfer rules require the original miner (or an entity who was previously the miner in relation to the interest) to notify the new miner of amounts that are relevant to the mining project interest. [Schedule 1 to the MRRT (CA & TP) Bill, item 8, Division 121 in Schedule 1 to the TAA 1953]

10.108 However, the information transfer rules do not require such a notice where the original miner and the new miner are the same entity, which would be the case in some mining project splits.

Property transferred with the mining project interest

10.109 When property is transferred from the original miner to the new miner as part of the arrangement that affects the mining project split, the part of the consideration that is attributable to the property would ordinarily be mining expenditure of the new miners in relation to the new interests [Division 35] . Similarly, the consideration that the new miners paid to the original miner in respect of that property would be a recoupment of mining expenditure for the original miner in respect of the mining project interest [section 30-40] .

10.110 However, under inherited history, the new miners are liable for the MRRT, to the extent of their split percentages, for the mining project interest for the whole split year [subsections 125-10(1) and (4)] . Therefore, the new miner would have mining expenditure on acquiring the property and it would also include the amount recouped by the original miner in the mining revenue for the new interest for the year [section 125-30] . This would be somewhat circular.

10.111 To prevent that circularity, a special rule exists to deal with these cases [section 125-20] . The intended effect is to cancel out the mining expenditure and the recoupment [subsections 125-20(2) and (3)] .

10.112 The special rule applies when:

•

any property, or any legal or equitable right that is not property (the transferred property), is transferred to the new miner under the mining project split;

•

the original miner used the transferred property in the mining operations of the mining project interest; and

•

the transferred property:

-

gave rise to an amount of mining expenditure for the original miner, or a previous miner, in relation to the interest; or

-

is, or may become, a starting base asset in relation to the interest.

[Subsection 125-20(1)]

Effect of transferring property

10.113 The effect of transferring such property, is that:

•

the original miner is taken not to have received a recoupment [subsection 125-20(2)] ; and

•

the new miner is taken to have an amount of excluded expenditure [subsection 125-20(3)] .

10.114 To avoid doubt, the mining project transfer, and the transfer of transferred property, is not, of itself, an event or circumstance that gives rise to an adjustment. [Subsection 125-20(4)]

10.115 The amount that is taken to not be a recoupment and to be excluded expenditure is the amount of the consideration for the mining project split that is attributable to acquiring the particular property.

10.116 Starting base assets that are transferred as part of a mining project split continue to be starting base assets in relation to the new interest and do not result in an amount of mining expenditure for the new miners. [Section 125-20]

10.117 The new miner inherits the original miner's use of the starting base asset. If the new miner uses the starting base asset differently (for example, uses it more or less) than the original miner used it in relation to the mining project interest, this will be reflected in the calculation of the starting base loss. [Division 90]

10.118 Similarly, if the new miner uses a non-starting base asset more or less than the original miner, there should be an adjustment. [Division 160]

MRRT liability for the split interest for an earlier year

10.119 The total MRRT liability that a mining project interest has ever had is relevant in working out a rehabilitation tax offset amount for the interest [section 225-15] . For more detail on the rehabilitation tax offset, see Chapter 11.

10.120 For the purpose of working out the rehabilitation tax offset amount for a mining project interest that has resulted from a mining project split (the new interest), the MRRT liability for the original interest is not necessarily apportioned based on the split percentage. Rather, the previous MRRT liabilities of the original interest should be allocated to the new interests on a reasonable basis. [Section 125-25]

10.121 This special rule recognises that the split percentage is based on market values, which takes into account prospective things, such as future profitability of the new interest. This is appropriate for allocating allowance components but it is not necessarily appropriate for allocating past MRRT liabilities. Previous MRRT liabilities should be attributed to the new interest based on things that have happened in the past, such as past profitability.

10.122 This is particularly relevant for the interests that are split towards the end of their life, where there is limited future earning capacity but large amounts of rehabilitation to be undertaken. If previous MRRT liabilities of the interest were allocated based on the split percentage this may significantly limit the new interests' ability to have a rehabilitation tax offset amount. [Subsection 225-15(4)]

Example 10.129 : Reasonably allocating previous year's MRRT liability

Big Miner has a mining project interest (MPI). Throughout its life, MPI has had a total of $50 million MRRT liabilities. One part of the project area has been heavily mined and Big Miner has extracted all the resources it can from that particular area. Coalin' Campbell Resources, however, is resourceful and has very specialised skills to extract the small amounts of remaining resources. Big Miner sells part of MPI to Coalin' Campbell. MPI has been split into two interests, Big Miner retains part of the interest (MPI 1) and Coalin' Campbell has the other part (MPI 2).

After extracting the last resources from MPI 2, Coalin' Campbell will be required to undertake rehabilitation in respect of the project area of MPI 2.

The split percentage for the split is 99 per cent for MPI 1 and 1 per cent for MPI 2. If previous MRRT liabilities of MPI were divided between MPI 1 and MPI 2 on the basis of the split percentage, MPI 2 will be taken to have had MRRT liabilities of $0.5 million. This does not take into account that the area that now is covered by MPI 2 was both heavily mined by, and extremely profitable for, Big Miner Co. In fact, the area now covered by MPI 2 contributed about 50 per cent of the profits of MPI and consequently 50 per cent of the MRRT liability.

For these reasons, the split percentage is not a reasonable basis upon which to determine the allocation of past MRRT liabilities of MPI for the purpose of calculating the rehabilitation tax offset amount. Rather, $25 million of the MRRT liability of MPI (50 per cent) will be allocated to MPI 2 for the purpose of calculating the rehabilitation tax offset amount for MPI 2. This will ensure Coalin' Campbell's ability to have a rehabilitation tax offset amount for MPI 2 is not unduly limited by the split percentage.

10.123 While the allocation of MRRT liability for the calculation of the rehabilitation tax offset amount is not required to be based on the split percentage, this does not mean that there may not be circumstances in which the split percentage would provide the most reasonable basis upon which to allocate past liabilities.

Pre-mining project transfers and splits

10.124 Similar rules provide for the transfer and splitting of pre-mining project interests. [Divisions 145 and 150]

10.125 Pre-mining project transfers and splits can occur in the period 2 May 2010 to 30 June 2012. [Schedule 4 to the MRRT (CA & TP) Bill, item 9]

Pre-mining project transfers

10.126 A pre-mining project transfer is an arrangement that results in the pre-mining project interest being transferred from the original explorer to another entity, the new explorer. [Subsection 145-10(2)]

10.127 Unlike mining project interests, the commencement of a mining venture is not relevant to holding a pre-mining project interest. Accordingly, there are no special rules to deal with that case.

10.128 The new pre-mining project interest is taken to be a continuation of the original pre-mining project interest. [Subsections 145-10(1), 145-15(1) and (2)]

10.129 The new explorer is liable to pay any MRRT for the transferred interest for the whole transfer year (although a pre-mining project interest is less likely to have an MRRT liability). [Section 145-15]

10.130 If the original explorer chose to apply the simplified MRRT method for the transfer year, the new explorer is not bound by this choice. The new explorer can choose whether this method applies to the new interest for the transfer year. [Subsection 145-15(3)]

10.131 A difference between the mining project transfer rules and those for pre-mining project transfers is that the holder of a pre-mining project interest cannot choose to use the alternative valuation method and cannot make a suspension day choice and, therefore, the alternative valuation method and the suspension day choices are not relevant choices for a new explorer.

10.132 Similarly, it is unlikely a pre-mining project interest would make a downstream integration choice.

10.133 The effects of transferring property along with the pre-mining project interest are the same as for mining project interests. [Section 145-20]

10.134 Events happening to the original explorer after the transfer come home to the new explorer. [Section 145-25]

Mining project interest originates from a pre-mining project interest

10.135 A pre-mining project transfer is taken to happen when the mining project interest originates from a pre-mining project interest. See Chapter 6 for further discussion on when a mining project interest originates from a pre-mining project interest. [Section 145-30]

10.136 This ensures that the continuation principle will apply to treat the pre-mining project interest and the mining project interest that originated from it as the same interest, allowing the mining project interest to inherit the tax history of the pre-mining project interest. [Paragraph 145-30(1)(b) and subsections 145-10(1), 145-15(1) and (2)]

Pre-mining project splits

10.137 A pre-mining project split is an arrangement that has the effect of transferring all or part of the pre-mining project interest to one or more other entities. [Paragraphs 150-10(2)(a) and (b)]

10.138 A pre-mining project split may also happen if the exploration right that relates to the pre-mining project interest is itself split. [Paragraph 150-10(2)(c)]

10.139 Unlike mining project splits, a pre-mining project split does not happen because the constituent interests of a combined interest disintegrate, as pre-mining project interests are not subject to the integration rules. [Division 255]

10.140 Unlike mining project interests, the commencement of a mining venture is not relevant to having a pre-mining project interest. Therefore, there is no case in which a pre-mining project split is deemed to have happened.

10.141 The new pre-mining project interests are taken to be a continuation of the original pre-mining project interest, to the extent of the split percentage. [Subsections 150-10(1), 150-15(1) and (2)]

10.142 The new explorer is liable to pay any MRRT for the transferred interest for the whole split year, to the extent of the split percentage. [Subsection 150-15(1)]

10.143 A simplified MRRT choice of the original explorer does not bind the new explorer for the split year. The new explorer can make its own choice as to whether it should apply. [Subsection 150-15(3)]

10.144 A difference between the mining project split rules and those for pre-mining project splits is that the holder of a pre-mining project interest cannot choose to use the alternative valuation method and cannot make a suspension day choice and, therefore, the alternative valuation method and the suspension day choices are not relevant choices for a new explorer.

10.145 Similarly, it is unlikely a pre-mining project interest would make a downstream integration choice.

10.146 A difference between the mining project split rules and those for pre-mining project split rules is that a pre-mining project interest cannot have a suspension day choice and therefore the suspension day choice is not mentioned as one that the new explorer is not bound by.

10.147 The effects of transferring property along with the split of the pre-mining project interest are the same as for mining project interests. [Section 150-20]

10.148 Events happening to the original explorer after the split, being things that would happen in relation to the original interest if the original explorer still had the interest, come home to the new explorer. [Section 150-30]

10.149 The split percentage for pre-mining project interest is worked out on the same basis as it is for mining project interests. [Subsections 150-15(5) to (7)]

10.150 For the purpose of working out a rehabilitation tax offset amount for the pre-mining project interest, previous MRRT liabilities are allocated on a reasonable basis (not necessarily the split percentage), as they are for mining project interests. [Section 150-25]

Mining project interest originates from a pre-mining project interest

10.151 A pre-mining project split is taken to happen when the mining project interest originates from a pre-mining project interest. See Chapter 6 for further discussion on when a mining project interest originates from a pre-mining project interest. [Section 150-35]

10.152 This ensures that the continuation principle will apply to treat the pre-mining project interest and the mining project interest that originated from it as the same interest, allowing the mining project interest to inherit the tax history of the pre-mining project interest (to the extent of the split percentage). [Paragraph 150-35(1)(b), subsections 150-10(1), 150-15(1) and 150-15(2)]

Application and transitional provisions

10.153 For the avoidance of doubt, there is a transitional provision that ensures mining project transfers and splits can occur from a time earlier than 1 July 2012. [Schedule 4 to the MRRT (CA & TP) Bill, item 8]

10.154 Similarly, there is a transitional provision that ensures pre-mining project transfers and splits can occur from a time earlier than 1 July 2012. [Schedule 4 to the MRRT (CA & TP) Bill, item 9]

10.155 A transitional provision exists to ensure the information transfer provisions also apply to mining project transfer, mining project splits, pre-mining project transfers and pre-mining project splits that occur between 1 May 2010 and 30 June 2012. [Schedule 4 to the MRRT (CA & TP) Bill, subitem 14(1)]

10.156 This transitional provision contains a special rule about the date by which entities are required to provide such notices. [Schedule 4 to the MRRT (CA & TP) Bill, subitem 14(2)]