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Natural resources taxes

Date

2.2 Tax expenditures (continued)

G. Natural resources taxes

The resource tax benchmark applying to onshore and offshore petroleum production (including coal seam gas), and to the extraction of iron ore and coal for the period 2012­13 to 2013­14, comprises a rent based tax with a full tax-loss offset. The tax-loss offset can be utilised by transferring tax losses among commonly owned projects that are subject to the same tax rate.

The benchmark includes immediate expensing of project expenditures. To the extent that losses are carried forward because they cannot be utilised immediately, they are uplifted at the long-term bond rate (a proxy for the risk-free rate). The uplift rate compensates investors for the delay in the recognition of the tax credit and preserves the value of the tax credit over time.

Under the benchmark, a refund of unutilised tax credits is available when the project closes down.

The resource tax benchmark applying to iron ore and coal extraction from the 2014­15 years onwards is set to zero, consistent with the Government’s commitment to repeal the MRRT from 1 July 2014.

G1 MRRT — denial of refund of tax credits for losses at project end
Mining, manufacturing and construction ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 2016‑17
- - - * * * - -
Tax expenditure type: Denial of refund 2012 TES code: G1
Estimate Reliability: Not Applicable * Category 1-
Commencement date: 1 July 2012 Expiry date: 30 June 2014
Legislative reference: Minerals Resource Rent Tax Assessment Act 2012

Under the Minerals Resource Rent Tax (MRRT) regime, no refund of the tax value of losses is available when the project closes down. The tax expenditure falls to zero for the 2015‑16 year onwards, consistent with the application of the revised natural resources benchmark applying from 1 July 2014.

G2 MRRT — exemption for smaller miners
Mining, manufacturing and construction ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 2016‑17
- - - * * * - -
Tax expenditure type: Exemption 2012 TES code: G2
Estimate Reliability: Not Applicable * Category 2+
Commencement date: 1 July 2012 Expiry date: 30 June 2014
Legislative reference: Minerals Resource Rent Tax Assessment Act 2012

A low profit offset applies under the MRRT which offsets the MRRT payable on mining profits up to $75 million. The offset phases out for profits between $75 million and $125 million. A miner that has group MRRT mining profits less than or equal to $75 million will not be liable to pay any MRRT. A miner that has group MRRT mining profits between $75 million and $125 million will not be liable to pay MRRT at the full rate. The tax expenditure falls to zero for the 2015‑16 year onwards, consistent with the application of the revised natural resources benchmark applying from 1 July 2014.

G3 MRRT — loss uplift rates exceeding the 10 year bond rate
Mining, manufacturing and construction ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 2016‑17
- - - - * * - -
Tax expenditure type: Deduction 2012 TES code: G3
Estimate Reliability: Not Applicable * Category 2+
Commencement date: 1 July 2012 Expiry date: 30 June 2014
Legislative reference: Minerals Resource Rent Tax Assessment Act 2012

Under the MRRT, losses, other than those attributable to the starting base allowance, are uplifted at a concessional rate of the long term bond rate plus 7 per cent rather than the benchmark rate which is the long term bond rate. The tax expenditure falls to zero for the 2015‑16 year onwards, consistent with the application of the revised natural resources benchmark applying from 1 July 2014.

G4 MRRT — royalty allowance uplift
Mining, manufacturing and construction ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 2016‑17
- - - - * * - -
Tax expenditure type: Deduction 2012 TES code: G4
Estimate Reliability: Not Applicable * Category 2+
Commencement date: 1 July 2012 Expiry date: 30 June 2014
Legislative reference: Minerals Resource Rent Tax Assessment Act 2012

Unused MRRT royalty credits are uplifted at a concessional rate of the long term bond rate plus 7 per cent. The tax expenditure falls to zero for the 2015‑16 year onwards, consistent with the application of the revised natural resources benchmark applying from 1 July 2014.

G5 MRRT — starting base and uplift rate for capital assets
Mini
ng, manufacturing and construction ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 2016‑17
- - - - * * - -
Tax expenditure type: Deduction 2012 TES code: G5
Estimate Reliability: Not Applicable * Category 2+
Commencement date: 1 July 2012 Expiry date: 30 June 2014
Legislative reference: Minerals Resource Rent Tax Assessment Act 2012

Under the MRRT, existing investments are recognised through the provision of a starting base allowance. The starting base allowance recognises assets relating to the upstream assets of an MRRT project on 2 May 2010. The starting base may be calculated using the market value method or the accounting book value method. Unused market value starting base losses are uplifted at the CPI. Unused accounting book value starting base losses are uplifted at the long term bond rate plus 7 per cent. The tax expenditure falls to zero for the 2015‑16 year onwards, consistent with the application of the revised natural resources benchmark applying from 1 July 2014.

G6 Crude Oil Excise
Fuel and energy ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 2016‑17
- - - * * * * *
Tax expenditure type: Concessional rate 2012 TES code: G6
Estimate Reliability: Not Applicable * Category NA
Commencement date: 1 July 2012 Expiry date:  
Legislative reference: Petroleum Resource Rent Tax Assessment Act 1987

Under the expanded Petroleum Resource Rent Tax (PRRT) arrangements, the North West Shelf became subject to PRRT from 1 July 2012 and subject to the revised natural resource benchmark from that time. However, crude oil excise will still be payable and will be credited against any PRRT liability. Under the post-1 July 2012 natural resource benchmark, crude oil excise is treated as a prepayment of PRRT liabilities and to the extent that the crude oil excise exceeds the PRRT payable in a year, a negative tax expenditure will arise for that period. Where crude oil excise credits are carried forward and used to reduce PRRT later periods, a tax expenditure will arise in the year the carried forward credit is utilised.

G7 Crude Oil Excise — condensate
Fuel and energy ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 2016‑17
600 590 520 - - - - -
Tax expenditure type: Exemption 2012 TES code: G7
Estimate Reliability: Medium    
Commencement date: 1977 Expiry date:  
Legislative reference: Schedule to the Excise Tariff Act 1921

Prior to midnight (Canberra time), 13 May 2008, condensate produced in a State or Territory, or inside the outer limits of the territorial sea of Australia, or marketed separately from a crude oil stream, or in the North West Shelf project area was exempt from the crude oil excise. Condensate is light oil extracted from ‘wet’ gas and primarily processed for use in motor vehicles (commonly known as petrol).

As announced in the 2008-09 Budget, the tax exemption for condensate was abolished with effect from midnight (Canberra time) 13 May 2008. From this date, condensate production from petroleum fields located in the North West Shelf project area and onshore Australia have been subject to the same excise rates as those applicable to petroleum fields discovered after 18 September 1975.

However, the benchmark for condensate produced from fields discovered prior to 18 September 1975 are the higher excise rates applied to production from fields discovered prior to 18 September 1975.

From 1 July 2012, the petroleum condensate became taxable under the PRRT and is subject to the revised natural resource taxes benchmark. Any residual tax expenditures relating to petroleum condensate will be included in the estimate for crude oil excise (G6 Crude Oil Excise).

G8 PRRT — denial of refund of tax credits for losses at project end
Fuel and energy ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 2016‑17
- - - * * * * *
Tax expenditure type: Denial of refund 2012 TES code: G8
Estimate Reliability: Not Applicable * Category 1-
Commencement date: 1 July 1990 Expiry date:  
Legislative reference: Petroleum Resource Rent Tax Act 1987

Under the PRRT regime, no refund of the tax value of losses is available when the project closes down.

This treatment is consistent with the benchmark prior to 1 July 2012 but gives rise to a tax expenditure under the benchmark applying from 1 July 2012.

G9 PRRT — expenditure uplift rate
Fuel and energy ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2
013‑14
2014‑15 2015‑16 2016‑17
- - - * * * * *
Tax expenditure type: Deduction 2012 TES code: G9
Estimate Reliability: Not Applicable * Category 2+
Commencement date: 1 July 1990 Expiry date:  
Legislative reference: Petroleum Resource Rent Tax Act 1987

Under the PRRT regime, expenditure is uplifted at a number of different rates depending on when the expenditure took place and the nature of the expenditure. For example exploration expenditure is uplifted at the long term bond rate plus 15 per cent and general expenditure is uplifted at the long term bond rate plus 5 per cent. These uplift rates are beyond the appropriate benchmark rate of the long term bond rate.

G10 PRRT — gas transfer price regulations
Fuel and energy ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 2016‑17
* * * * * * * *
Tax expenditure type: Deduction 2012 TES code: G10
Estimate Reliability: Not Applicable * Category 2+
Commencement date: 20 December 2005 Expiry date:  
Legislative reference: Petroleum Resource Rent Tax Assessment Regulations 2005

For PRRT purposes, the gas transfer price regulations stipulate rules for calculating the gas transfer price where there is no arm’s length transaction. The regulations provide an allowance for capital expenditure which is based on the long term bond rate plus 7 percentage points rather than the applicable benchmark rate. The regulations also provide further concessions in the calculation of the gas transfer price by reducing the estimated upstream gas price by half the difference between the estimated of ‘upstream’ price and the estimated ‘downstream’ price where the upstream price is the higher. Prior to 1 July 2012, the benchmark rate is the long term bond rate plus 5 percentage points. From 1 July 2012, the benchmark rate is the long term bond rate.

G11 PRRT — increased deduction for petroleum exploration expenditure in designated offshore frontier areas
Fuel and energy ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 2016‑17
* * * * * * * *
Tax expenditure type: Deduction 2012 TES code: G11
Estimate Reliability: Not Applicable * Category 1+
Commencement date: 29 March 2004 Expiry date: 2009
Legislative reference: Section 36C of the Petroleum Resource Rent Tax Assessment Act 1987

For PRRT purposes, taxpayers receive a 150 per cent uplift on pre-appraisal exploration expenditure conducted in the first term of an exploration permit in a designated offshore frontier area between 2004 and 2009.

G12 PRRT — starting base and uplift rate for capital assets
Fuel and energy ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 2016‑17
- - - * * * * *
Tax expenditure type: Deduction 2012 TES code: G12
Estimate Reliability: Not Applicable * Category 2+
Commencement date: 1 July 2012 Expiry date:  
Legislative reference: Petroleum Resource Rent Tax Assessment Act 1987

Under the PRRT regime, existing investments of projects brought under the PRRT on 1 July 2012 are recognised through the provision of a starting base allowance. The starting base allowance recognises assets relating to the upstream assets of the PRRT project on 2 May 2010. The starting base may be calculated using the market value method, the accounting book value method or the ‘look back’ value method. Unused starting base losses are uplifted at the long term bond rate plus 5 per cent. Unused exploration expenditure under the look back valuation option is uplifted at long term bond rate plus 15 per cent.

G13 PRRT — transfer of exploration expenditure between petroleum resource rent tax projects
Fuel and energy ($m)
2009‑10 2010‑11 2011‑12 2012‑13 2013‑14 2014‑15 2015‑16 2016‑17
* * * - - - - -
Tax expenditure type: Deduction 2012 TES code: G13
Estimate Reliability: Not Applicable * Category 2+
Commencement date: 1 July 1990 Expiry date:  
Legislative reference: Petroleum Resource Rent Tax Assessment Act 1987

Exploration expenditure can be transferred, under certain circumstances, between projects for PRRT purposes.

Under the benchmark applicable until 1 July 2012, the taxable entity is the project and undeducted expenditure is compounded and applied against future PRRT assessable receipts.

From 1 July 2012, the benchmark was modified to include full loss offset as an element of the benchmark, including by way of transferring tax losses among commonly owned projects that are subject to the same tax rate. Consequently, no tax expenditure is shown for this item for the 2012‑13 and later years.