Australian (ASX) Stock Market Forum

Mining Tax Grab - How will it pan out?

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Macquack said:
You need to brush up on your maths Jimbo.

A reduction in a tax rate from 40% to 30% is an effective 10% drop in revenue, not 25%.
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LOLOL ... good one Macquack. If 12 billion is generated by 40% tax how much will 30% tax generate?

Turnover of 30 billion taxed at 40% = 12 billion revenue

Turnover if 30 bilion taxed at 30% = (Insert answer here) revenue

So therefore Jimbob 25% statement is correct.
 
trainspotter said:
LOLOL ... good one Macquack. If 12 billion is generated by 40% tax how much will 30% tax generate?

Turnover of 30 billion taxed at 40% = 12 billion revenue

Turnover if 30 bilion taxed at 30% = (Insert answer here) revenue

So therefore Jimbob 25% statement is correct.
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Yes you are right, it is me who needs to brush up on my maths, apologies to Jimbob.
 
The Gillard Labor government has replaced the troubled Resource Super Profits Tax (RSPT) proposal with a new Minerals Resource Rent Tax (MRRT).
This looks to be the win-win outcome we said we were looking for in recent updates.
The new proposal appears to amply address key minerals industry concerns over retrospectivity, competitiveness and resource differentiation. In BHP's more tempered words, "We are encouraged."
It's amazing what can be achieved via genuine consultation and negotiation!
Here are some key points:
1. The new tax will apply only to iron ore and coal. All other minerals are exempt though that alone captures the lion's share of the extractive industries value. With respect to oil and gas, the offshore Petroleum Resources Rent Tax (PRRT) regime will be extended to capture onshore projects.
2. The headline rate of MRRT is 30 per cent of mine-gate profit. The value of the commodity is deemed its first saleable form. An extraction allowance equal to 25 per cent of the otherwise taxable profit will be deductible to recognise the profit attributable to the extraction process. Why they didn't just say the headline rate is 22.5 per cent we don't know. Probably because it sounds better!
3. There is no MRRT payable for companies with annual profit below $50 million.
4. Carried forward MRRT losses are indexed at the long-term bond rate (LTBR) plus 7 per cent (the allowance).
5. The starting base for project assets at the election of the company is either book value or market value at 1 May 2010. Book values are uplifted at the allowance rate and are depreciated over an accelerated five-year period. Market values attract no allowance indexing and depreciation is over a less favourable effective asset life to a maximum 25 years. This way the government still gets some of the up-front income it needs to fill that budget hole.
6. New projects can deduct 100 per cent of capital costs immediately.
7. Where state royalties exceed MRRT, companies can elect for an immediate refund or book as an asset and uplift at the allowance rate.
8. MMRT applies from 1 July 2012.
9. A more modestly reduced corporate income tax rate of 29 per cent kicks in from fiscal 2013, or one year earlier for small businesses.
This seems a very solid outcome indeed. Expect resource company share prices to rise in response. We will conduct a more in-depth analysis of the impact to company valuations and earnings and bring it to subscribers as soon as possible.

From Huntleys' Special Bulletin
 
Tax reform was never a priority with the original RSPT proposal in the first place, but this abandons any element of tax reform alltogether, even tn the context of Henry. It is now purely a political quick fix and a tax increase.

MINERAL RESOURCE RENT TAX HEADS OF AGREEMENT (Rio Tinto announcement - my comments in blue)

The Design of the Minerals Resource Rent Tax

The new resource tax will apply from 1 July 2012 only to mined iron ore and coal. All other minerals are excluded.

Other minerals will however remain subject to state based royalties (see below).

The rate of tax will be 30% applied to the taxable profit at the resource.
Taxable profit is to be calculated by reference to:
•
The value of the commodity, determined at its first saleable form (at mine gate) less all costs to that point
•
An extraction allowance equal to 25% of the otherwise taxable profit will be deductible to recognise the profit attributable to the extraction process. (i.e. this to only tax the resource profit)

Is this how the government has gone from a headline rate of 40% to 30% (40%x(1-0.25)=30%) or is the net MRRT tax take 30%x(1-0.25)=22.5%.

If the headline rate after deduction for extraction allowance is 22.5%, I would have thought that would have been much more politically markatable for the government.

•
Arms length principles on all transactions pre and post first saleable form.
MRRT is to be calculated on an individual taxpayer’s direct ownership interest in the project.

There will be no MRRT liability for taxpayers with low levels of resource profits (i.e. $50m per annum).

Pure politics. One would assume that they would still be subject to state based royalties.

All post 1 July 2012 expenditure is to be immediately deductible for MRRT on an incurred basis. Non-deductible expenditure will be broadly consistent with PRRT.
MRRT losses will be transferable to offset MRRT profits the taxpayer has on other iron ore and coal operations.

Carried-forward MRRT losses are to be indexed at the allowance rate equal to the LTBR plus 7 percent.

That at least makes a bit more sense.

The MRRT will be an allowable deduction for income tax.

All State and Territory royalties will be creditable against the resources tax liability but not transferable or refundable. Any royalties paid and not claimed as a credit will be carried forward at the uplift rate of LTBR plus 7 percent.

Miners will therefore pay the higher of the MRRT or state royalties. Royalties unclaimed however can be carried forward and are uplifted at a commercial rate of return (LTBR plus 7 percent).

minerals not covered by the MRRT will still be charged state royalties as they are now.


Starting Base
The starting base for project assets is, at the election of the taxpayer, either:
•
Book value (excluding the value of the resource) or
•
Market value (as at 1 May 2010).
All capital expenditure incurred post 1 May 2010 will be added to the starting base and depreciated against mining operations from 1 July 2012.
“Project assets” for the purpose of the MRRT will be defined to include tangible assets, improvements to land and mining rights (using the Income Tax definition).
Where book value is used to calculate starting base, depreciation will be accelerated over the first 5 years. The undepreciated value will be uplifted at LTBR plus 7 percent.
Where market value is used to calculate starting base, there will be no uplift and depreciation will be based on an appropriate effective life of assets, not exceeding 25 years.
Any undepreciated starting base and carry forward MRRT losses are to be transferred to a new owner if the project interest is sold.
Ends
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I don't know how the government arrived at their revised revenue calculations, but the baseline is now purely what state based royalties would have collected.

Exactly how much of a tax increase it ends up being remains to be seen (assuming the ALP are re-elected).
 
Calliope said:
A big win for Gillard.
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Wasn't that the Rudd deal ?

Still bad for the country with another global financial crisis on the way.

Our government is taking a huge gamble especially when in Afganistan they've found one of the richest iron ore deposits in the world estimated at $1 trillion US dollars. That is only a few hundred KM from China.

If we don't watch out we'll end up losing all our revenue to Afganistan which is easier to get out of the ground and much faster into China and no huge shipping bills to contend with.

Here is a copy and paste from another site explaning this bad tax deal better. Source:
http://www.supertaxforum.com.au/viewtopic.php?f=3&t=38

The deal effectively is a copy of the Petroleum resource rent tax
--Minerals resource rent tax to be 30% -down from 40%
--Effects just 320 companies in
-iron ore,coal,oil and gas

--Rate at which RRT comes in will be longterm bond rate plus 7%- so with long term bond rate at 6%,then there is a 13% return before the tax begins

--The petroleum resource rent tax will be extended to both onsure and offsure and will be at the 40% rate beginning at the current formula

--Small miners below $50,000,000 exempt

-- Cost to budget with changes is $1.5 billion .To assist,the comany tax rate reduction will be defferred to 2013-2014.

-- Smaller companies to receive reduction in company tax rate in 2012-2013

--- still confuson as increase in superannuation contribution rate to 12 % hasnt changed but this is not related to super tax profits going into super-that is only the $500 for low income earners.Refer other postings.

There is still a super profits tax at a time when World Financial markets are heading for another downturn
 
drsmith said:
Tax reform was never a priority with the original RSPT proposal in the first place, but this abandons any element of tax reform alltogether, even tn the context of Henry. It is now purely a political quick fix and a tax increase.

MINERAL RESOURCE RENT TAX HEADS OF AGREEMENT (Rio Tinto announcement - my comments in blue)


I don't know how the government arrived at their revised revenue calculations, but the baseline is now purely what state based royalties would have collected.

Exactly how much of a tax increase it ends up being remains to be seen (assuming the ALP are re-elected).
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Its obvious what will happen, there is a tax deuction rate under $50million, so BHP and co will split up into many smaller companies to get the tax rate down. Its all utter stupidity from this government.

The petrollium tax the federal government keeps on going on about was only bringing it into line with other countries at the time. This new tax makes us the most taxed country for mining. Why on earth would you want to tax this industry. After the election what is stopping the Labor government from going back to it anyway. I'm sure it will still be blocked in the senate as it shoud be.

Its clear to me, what ever you do, don't be too successful otherwise the government will take your hard earned money away from you.

Its such a stupid tax, it really does beg belief why they even did it in the first place.

And its likely to fail in the high court anyway. The mineralsare owned by each state. Its in the constitution. Thefederal government can only tax off shore. On land the ore belongs to each state government and the federal government can not tax it. Its why it is likely fail in any high court battle.

Bring on the election. The sooner this government is thrown out of office, the bettr we will all be.
 
A couple of questions:

Is the taxpayer still going to foot the bill for 40% (maybe now 30%) of failed projects?

Where does this agreement leave the Liberal Party with their avowed intention to scrap the tax?
 
Julia said:
A couple of questions:

Is the taxpayer still going to foot the bill for 40% (maybe now 30%) of failed projects?

Where does this agreement leave the Liberal Party with their avowed intention to scrap the tax?
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1. No.

2. Abbott is in trouble I reckon. Consensus is for sensible tax reform and a profit-based resources tax that is price-based. H/e, as Rudd found out, not at the expense of our sovereign risk.
 
Apollo said:
Its such a stupid tax, it really does beg belief why they even did it in the first place.
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What has been stupid beyond belief is the way they have tried to implement it.

Now it's just a case of managing the political damage and going to the polls as quickly as possible under the glow of a new leader.

My guess is an election announcement within the next two weeks and an election by the end of August.

The big mining companies while publically happy about the outcome would, I imagine still be privately concerned about the way this government derives policy.
 
miaad said:
2. The headline rate of MRRT is 30 per cent of mine-gate profit. The value of the commodity is deemed its first saleable form.
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For Iron Ore miners extracting low grade ore then processing it to convert into higher grade concentrate, does this mean that they will get taxed on the potential sale price of the low grade ore extracted and not on the sale price of the final higher grade concentrate?
 
Bushman said:
.

2. Abbott is in trouble I reckon. Consensus is for sensible tax reform and a profit-based resources tax that is price-based. H/e, as Rudd found out, not at the expense of our sovereign risk.
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Agree. I can't understand why Abbott isn't just accepting what has happened. He just looks silly saying he's going to oppose what the government and the miners have agreed.
 
Julia said:
Agree. I can't understand why Abbott isn't just accepting what has happened. He just looks silly saying he's going to oppose what the government and the miners have agreed.
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Because it will destroy Australia.

You may not be aware of it but in Afganistan close to the India border they have found the richest deposit of iron ore worth over $1 trillion US dollars. This is only a few hundred KM from China.

Why would China even need to ever buy iron ore from Australia again, when they can get it for a much cheaper rate because they are not paying for sea freight costing hundreds of millions every year.

And why would China invest in this country again with its higher tax rates.
India and China will end up buying their iron ore and other metals from Afganistan.

We'll have to drop our tax rate if we want to compete against Afganistan for sales of iron ore in India and China in the future years.

I don't think many of you realize how bad this tax would be. Even if it was only 5% increase.

Why would you invest here now!!!!!!!!!!!!
 
Bushman said:
1. No.

2. Abbott is in trouble I reckon. Consensus is for sensible tax reform and a profit-based resources tax that is price-based. H/e, as Rudd found out, not at the expense of our sovereign risk.
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The Gillard government is the one in real diabolical trouble now.

The coal seam case comes under 40% new tax. Their goes the Qld vote.
In any case the federal government is not allowed to do rent taxes
on-shore. They can only do that off shore. It will certainly lose in the high court.

I don't think this government knows what they are doing. Makng it up as they go and don't even know the laws of the land.
 
Apollo said:
Because it will destroy Australia.

You may not be aware of it but in Afganistan close to the India border they have found the richest deposit of iron ore worth over $1 trillion US dollars. This is only a few hundred KM from China.

Why would China even need to ever buy iron ore from Australia again, when they can get it for a much cheaper rate because they are not paying for sea freight costing hundreds of millions every year.

And why would China invest in this country again with its higher tax rates.
India and China will end up buying their iron ore and other metals from Afganistan.

We'll have to drop our tax rate if we want to compete against Afganistan for sales of iron ore in India and China in the future years.

I don't think many of you realize how bad this tax would be. Even if it was only 5% increase.

Why would you invest here now!!!!!!!!!!!!
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Err, i take it you are assuming that the small matter of the war raging in that region will be settled soon?
 
Julia said:
Agree. I can't understand why Abbott isn't just accepting what has happened. He just looks silly saying he's going to oppose what the government and the miners have agreed.
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Aaaaaaaah but Julia there is the constitution to think of. Technically the rights to TAX the mineral wealth is only allowed by the States. The Feds are allowed to tax the PROFIT. The other bizarre thing is that Julia Gillard has struck a deal with the INTERNATIONAL mining companies (only three of them) and not the local boys (read FMG and others)

Many, many more things are required to be tickboxed prior to sign off. Like I said in my earlier post ... the devil is in the detail of which we have seen very little thus far. There will be a veritable plethora of terminology that is going to be required to be thrashed out.
 
trainspotter said:
Aaaaaaaah but Julia there is the constitution to think of. Technically the rights to TAX the mineral wealth is only allowed by the States. The Feds are allowed to tax the PROFIT. The other bizarre thing is that Julia Gillard has struck a deal with the INTERNATIONAL mining companies (only three of them) and not the local boys (read FMG and others)

Many, many more things are required to be tickboxed prior to sign off. Like I said in my earlier post ... the devil is in the detail of which we have seen very little thus far. There will be a veritable plethora of terminology that is going to be required to be thrashed out.
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True, also I would add that Abbott is looking forward to the many millions in election donations he can now expect from the mining companies.
 
Bushman said:
Err, i take it you are assuming that the small matter of the war raging in that region will be settled soon?
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Couldn`t agree more Bushman. How long were the Russians there and now coalition forces. It will be a long time before the political and especially religious differences will make it easy for any western mining co. to venture in there, to feel safe for all their employees.

http://www.sananews.net/english/2010/06/30/afghan-taliban-threatens-mining-companies/
 
Knobby22 said:
True, also I would add that Abbott is looking forward to the many millions in election donations he can now expect from the mining companies.
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Deal or no deal, the process itself must have left a sour taste in the mouths of the big 3 miners.

Trust between them and the current government has to have been seriously compromised.
 
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