The seventh and final article in a series of articles prepared by Holman Fenwick Willan (HFW) which aim to answer frequently asked questions concerning foreign investment in Australia’s mining sector.

IN this article, we look at the government taxes (principally, rent and royalties) imposed by the Australian Commonwealth and State and Territory governments on mining entities for the exploration and extraction of mineral resources.

Government takings payable in respect of minerals
Onshore mining is primarily regulated at State and Territory level under various mining legislation (for example, the Western Australian Mining Act 1978 {Mining Act}). However, large onshore mining projects can instead be regulated on terms and conditions negotiated, and recorded in a State Agreement, between the relevant State or Territory government and the mining entity. Royalties, stamp duty and land taxes are imposed by State and Territory governments.

The Commonwealth government is responsible for the regulation of offshore mineral and petroleum resources and imposes, inter alia, income taxes (on income sourced in Australia), goods and services taxes (for supplies connected with Australia, excluding goods exported for consumption outside Australia and certain precious metals) and resources rent taxes.

Mining tenement rents – a State and Territory perspective
The grant of a mining tenement is subject to conditions, one of which is the payment of an annual rent by the tenement holder (for more information on mining rights, see FAQS Chinese Investment in Australia’s mining sector: exploration and mining rights, published February 1, 2014). In Western Australia, under the Mining Act, rent must be paid annually in advance and is based on the size of the tenement area. The rate of rent depends on the type of mining tenement and is prescribed by the State government. In Western Australia tenement holders must pay an additional rent for the production of iron ore after 15 years from the later of the date a mining lease was obtained or September 13, 1996.

Mineral royalties
Royalties are payable for mineral resources extracted from land that is the subject of a mining tenement or the subject of an application for the grant of a mining tenement under the Mining Act.

The amount and calculation of a royalty differs in each State and Territory and depends on the mineral type. The Mining Act Regulations 1981 (WA) prescribe three calculations for mineral royalties (excluding gold), payable quarterly – a flat rate per tonne, an ad valorem rate (a percentage of the value of the resource) and a specified rate according to a formula. State Agreements may prescribe concessional royalties.

Additionally, tenement holders must submit quarterly production reports and royalty returns.

The failure to pay rent and/or royalties may result in cancellation of a tenement or imposition of a penalty on the tenement holder.

Impending repeal of the Mineral Resources Rent Tax and repeal of the carbon tax
In 2012, the previous Commonwealth Government introduced two taxes – mineral resources rent tax (MRRT) and carbon tax. The current Commonwealth Government has, in the wake of an election promise, repealed the carbon tax and is in the midst of settling the repeal of the MRRT.

The MRRT came into operation on July 1, 2012, and is essentially a tax, applied at an effective rate of 22.5%, on the upstream profits of coal, iron ore, coal seam produced in the process of mining coal and other by-products of mining iron ore and coal (taxable resources). An allowance for royalties already paid by miners is available. Essentially, miners with annual MRRT assessable profits of less than $75 million are not liable to pay the tax; however, these mining entities may still have obligations under the MRRT legislation to lodge forms and keep records.

The MRRT has not been without criticism – it has not raised as much revenue as that forecast by the former Government and it is perceived to have threatened foreign investor confidence in the Australian market.

The MRRT Repeal and Other Measures Bill 2013 (No 2) was re-introduced into Federal Parliament on June 24, 2014. The Bill was accepted with amendments by the Senate on July 17. The House of Representatives must now consider the Bill after the Senate insisted on its amendments on July 18.

Petroleum (and coal seam gas recovered under petroleum production licences) will still be the subject of a rent tax under the Petroleum Resources Rent Tax Assessment Act 1987 (Cth).

When the carbon tax was introduced on July 1, 2012, miners whose direct emissions exceeded 25,000 tonnes for the financial years 2012/2013 and 2013/2014 were liable for the tax. This tax was repealed on July 17, 2014. While carbon tax liabilities for the 2013/2014 financial year must still be met in full, no new liabilities will be incurred from July 1, 2014.

Businesses are warned to be vigilant in their conduct around the now repealed carbon tax and to ensure that they meet their 2013/2014 liability. Businesses must not engage in price exploitation or make false or misleading representations in relation to the effect of the carbon repeal on prices. Australia’s competition and consumer watchdog is on the lookout for such conduct.

HFW is a law firm advising businesses engaged in international commerce. For more information, please contact Simon Adams, Partner, on +61 9422 4700 or [email protected], or Jessica Marshall, Associate, on +61 9422 4700 or [email protected], or your usual contact at HFW.

Disclaimer: Whilst every care has been taken to ensure the accuracy of this information at the time of publication, the information is intended as a guide only. It should not be considered as legal advice.