Taxation Administration Act 1953 – Nil rate determination and exemption from lodging Minerals Resource Rent Tax (MRRT) Instalment Liability Notices – Explorers Instrument (No. 1) 2012

Explanatory Statement

General Outline of Instrument

1. This instrument is made under:

• subsection 115-15(3) of Schedule 1 to the Taxation Administration Act 1953 (TAA); and
• subsection 115-45(3) of Schedule 1 to the TAA

2.      For an explorer, this instrument:

• determines that a nil instalment rate applies for the first instalment quarter in the 2013 MRRT year that the entity was an explorer and for later instalment quarters in that MRRT year and
• exempts the entity from lodging MRRT instalment liability notices for those quarters.

as the Commissioner is of the opinion that explorers are unlikely to be liable to pay MRRT for the 2013 MRRT year.

3.      This instrument is a legislative instrument for the purposes of the Legislative Instruments Act 2003 and is legally binding on the Commissioner of Taxation.

Date of effect

4.      This instrument is taken to have commenced on the day after registration and only applies for the 2013 MRRT year.

5.      The nil rate determination and exemption from lodging an MRRT instalment liability notice only applies for the instalment quarter in which the Commissioner makes it and for later instalment quarters in the 2013 MRRT year.

6.      The nil rate determination ceases to apply if the Commissioner gives the entity an instalment rate under Subdivision 115-E of Schedule 1 to the TAA.

What is this instrument about:

7.      The purpose of this instrument is to determine a nil instalment rate for explorers under subsection 115-45(3) of Schedule 1 to the TAA and also exempt them from lodging MRRT instalment liability notices under subsection 115-15(3) of Schedule 1 to the TAA because, in the Commissioner's opinion, the entities are unlikely to be liable to pay MRRT for the 2013 MRRT year.

What is the effect of this instrument:

8.      The effect of this instrument is that an entity does not have to pay an MRRT instalment or lodge an MRRT instalment liability notice for the first instalment quarter in the 2013 MRRT year in which it was an explorer and for later instalment quarters in that MRRT year. This is because the Commissioner is of the opinion that explorers are unlikely to be liable to pay MRRT for the 2013 MRRT year.

9.      This will ensure that an entity does not have to pay quarterly instalments or lodge instalment liability notices if it is unlikely that it will be liable to pay MRRT for the MRRT year.

10.  Compliance cost impact: Low. An assessment of the compliance cost impact indicates that the impact will result in a low overall impact, comprising a low implementation impact and a low decrease in ongoing compliance costs.

Background:

11.  The MRRT instalment system ensures the efficient collection of MRRT by the payment of quarterly instalments which are calculated in a manner to ensure that the total instalments for the MRRT year are as close as possible to the amount of MRRT that an entity is liable to pay for the MRRT year.

12.  An entity is liable to pay an MRRT instalment for an instalment quarter if it has a mining project interest or hold a pre-mining project interest in the instalment quarter and either:

• has mining revenue or pre-mining revenue relating to the instalment quarter or
• its applicable instalment rate for the instalment quarter is greater than nil.

If an entity is liable to pay an MRRT instalment for an instalment quarter, it must also lodge an MRRT instalment liability notice notifying the Commissioner of its instalment income for the instalment quarter.

13.  As the 2013 MRRT year is the first MRRT year, the default instalment rate of 8% for coal and 3% for iron ore all apply to entities at first instance meaning they are liable to pay MRRT instalments and lodge an MRRT instalment liability notice for instalment quarters. The exception is where:

• the Commissioner has made a nil rate determination for an entity (see below),
• the entity has chosen to vary its instalment rate and that rate applies instead or,
• the Commissioner has notified the entity of a Commissioner’s instalment rate which, for most entities, will not occur for the 2013 MRRT year, as they will not yet have lodged an MRRT return.

14.  Subsection 115‑45(3) of Schedule 1 to the TAA provides that the Commissioner may, by legislative instrument, determine a nil rate for a class of entities for an MRRT year if, in the Commissioner’s opinion, each entity in the class is unlikely to be liable to pay MRRT for that MRRT year.

15.  This instrument applies to entities who are explorers. For the purposes of this instrument, an explorer is an entity that (a) holds one or more pre‑mining project interests and does not hold any mining project interests in an instalment quarter in an MRRT year; and (b) does not reasonably expect that it will have any mining project interest during the remainder of that MRRT year.

16.  A pre-mining project interest is an interest in an exploration right. An exploration right under the MRRT law is an authority or right under an Australian law for the purpose (other than an incidental purpose) of exploring or prospecting for iron ore or coal in a particular area in Australia. Examples of exploration rights are a mineral development licence, a retention lease and an exploration permit. An entity holds a pre-mining project interest if it holds or would hold the interest in the exploration right for the purposes of section 40-40 of the Income Tax Assessment Act 1997. These rights do not generally allow the commercial extraction of resources.

17.  An entity that is an explorer during the 2013 MRRT year is, in the Commissioner's opinion, unlikely to be liable to pay MRRT for that MRRT year.

18.  In carrying on exploration and prospecting activities in respect of a pre-mining project interest it is unlikely that there will be a profit giving rise to a liability to pay MRRT. This is because it is expected that an entity will incur pre-mining expenditure which in turn is expected to exceed pre-mining revenue. Pre-mining revenue mainly arises from the supply or export of taxable resources or something produced from taxable resources and the recoupment of expenditure that gave rise to pre-mining expenditure. Pre-mining revenue is expected to be minimal as exploration rights do not generally allow the commercial extraction of resources.

19.  In addition, the availability of MRRT allowances and the low-profit offset would mean that it would be unlikely that such an entity will be liable to pay MRRT for an MRRT year.

20.  If the Commissioner has determined that a nil rate applies for a class of entities, subsection 115-15(3) of Schedule 1 to the TAA provides that the Commissioner may, by legislative instrument, also exempt that class of entities from having to notify the Commissioner of its instalment income (that is, from having to lodge an MRRT instalment liability notice for the quarters to which the nil rate determination applies).

Consultation:

21.  Consultation occurred with the National Tax Liaison Group Resource Rent Tax Sub-committee. The committee’s membership includes representatives of the major tax, law and accounting associations, representatives of resource industry associations, including those of which explorers are members, and the ATO.

22.  Some additional consultation occurred in discussions with entities, tax professionals and at industry forums. Wider consultation was not considered necessary given the scope of this instrument, that is its application to explorers who are members of the mining industry, its impact and that it is providing a concession provided for by the MRRT law.

Statement of compatibility with human rights

23.  This statement is prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Taxation Administration Act 1953 ‑ Nil rate determination and exemption from lodging Minerals Resource Rent Tax (MRRT) Instalment Liability Notices – Explorers Instrument (No. 1) 2012.

24.  This instrument is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview

25.  For an explorer, this instrument:

• determines that a nil instalment rate applies for the first instalment quarter in the 2013 MRRT year that the entity was an explorer and for later instalment quarters in that MRRT year and
• exempts the entity from lodging MRRT instalment liability notices for those quarters.

as the Commissioner is of the opinion that explorers are unlikely to be liable to pay MRRT for the 2013 MRRT year.

26.  This instrument, by relieving explorers of the obligation to pay MRRT instalments and lodge MRRT instalment liability notices, reduces their MRRT compliance burden.

27.  Consultation has been undertaken with the National Tax Liaison Group Resources Rent Tax Subcommittee and also with entities in the mining industry, tax professionals and at industry forums to ensure that the needs of explorers were adequately addressed.

Human rights implications

28.  This instrument does not engage any of the applicable rights or freedoms.

Conclusion

29.  This instrument is compatible with human rights as it does not raise any human rights issues.

Legislative references:

Minerals Resource Rent Tax Act 2012

Taxation Administration Act 1953

Income Tax Assessment Act 1997

Human Rights (Parliamentary Scrutiny) Act 2011

Legislative Instruments Act 2003