Small miners the big winners from Henry Tax Review
Big miners are the losers and small explorers are the winners from the Federal Government’s response to the Henry Taxation Review.
BDO Corporate Tax Director Russell Garvey said the imposition of a 40% Resources Rent Tax proposed by the Federal Government risked undermining the competitiveness of Australia’s mining sector in the global marketplace.
However, Mr Garvey, who specialises in mining taxation, said that the Resource Exploration Rebate proposed for small exploration companies represents an improvement to the status quo and the proposed ‘flow through share scheme’.
“The onshore minerals sector feared the Federal Government would ignore the different operating and capital requirements between the mining and offshore oil and gas sectors and impose a model and rate similar to the Petroleum Resources Rent Tax. Their worst fears have been realised,” he said.
“The new resource rent tax at 40% is a significant tax increase, making Australian mining projects among the most highly taxed in the world, to the detriment of their global competitiveness.”
Mr Garvey said industry would be looking for features contained within the Petroleum Resources Rent Tax, such as transferability rules, the immediate deductibility of eligible costs, carry forward provisions and the taxing unit being assessed on a project basis, to offset at least some of the 40% tax grab.
Resource Exploration Rebate for small explorers
On face value, the creation of a Resource Exploration Rebate for junior explorers appeared even more attractive than the ‘flow through share scheme’ previously proposed for the sector.
The Resource Exploration Rebate will enable the company to retain important funds for exploration instead of generating tax credits for shareholders.
“Under the old system, the post-tax exploration costs for large miners were significantly cheaper than for explorers. This imbalance has now been rectified,” he said.
“However, the July 1, 2011, start date will cause many companies to defer exploration expenditure in the next 12 months, slowing exploration for new mineral and hydrocarbon discoveries.”
“The resources industry needs a stable and predictable taxation system that encourages ongoing investment into the sector,” Mr Garvey said.
“A well-designed tax should never distort investment decisions. If a project is economically feasible pre-tax, then it should remain so.”
“The imposition of a new Federal resource rent tax overlaying the existing State based taxes fails that test.”
Mr Garvey said the Federal Government needed to fund the cuts to company tax rates, and the mining industry was the cash cow to provide the necessary revenue.