Taxation Administration Act 1953 - Nil rate determination and exemption from lodging Minerals Resource Rent Tax (MRRT) Instalment Liability Notices - Instrument (No. 1) 2014

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.      Where an entity is an explorer, a pre‑production taxpayer or a simplified MRRT method taxpayer, this instrument:

• determines that a nil instalment rate applies for the first instalment quarter in the 2015 MRRT year that the entity is an explorer, a pre‑production taxpayer or a simplified MRRT method taxpayer 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 it is unlikely to be liable to pay MRRT for the 2015 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 commences on the day after its registration on the Federal Register of Legislative Instruments.

5.      The nil rate determination and exemption from lodging an MRRT instalment liability notice applies for the first instalment quarter in which the entity is an explorer, a pre‑production taxpayer or a simplified MRRT method taxpayer and for later instalment quarters in the 2015 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, pre‑production taxpayers and simplified MRRT method taxpayers 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, these entities are unlikely to be liable to pay MRRT for the 2015 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 2015 MRRT year in which it was an explorer, a pre‑production taxpayer or a simplified MRRT method taxpayer and for later instalment quarters in that MRRT year. This is because the Commissioner is of the opinion that these entities are unlikely to be liable to pay MRRT for the 2015 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 holds 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.

13.  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.

14.  Unless an entity is subject to a nil rate determination it is liable to pay MRRT instalments on its instalment income at the applicable rate as determined in subsection 115‑45(1) of Schedule 1 to the TAA. The applicable rate is a rate chosen by the taxpayer (which may include a nil rate), or by the Commissioner or the default rate.

15.  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.

16.  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).

Explorers

17.  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.

18.  The Commissioner is of the opinion that an explorer is unlikely to be liable to pay MRRT for the 2015 MRRT year as pre‑mining revenue is likely to be negligible.

19.  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. For an explorer this would mainly be from the supply of trial shipments of taxable resources which would be limited given that exploration rights do not generally allow for the commercial extraction of resources.

20.  Pre‑mining expenditure, being exploration costs, would generally exceed pre‑mining revenue.

21.  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.

Pre‑production taxpayers:

22.  Pre‑production taxpayer means an entity that (a) holds one or more mining project interests where production (other than incidental production) of a taxable resource has not commenced, and (b) does not reasonably expect that it will have any mining project interest during the remainder of that MRRT year where production (other than incidental production) of a taxable resource will occur.

23.  The Commissioner is of the opinion that a pre‑production taxpayer is unlikely to be liable to pay MRRT for the 2015 MRRT year as their mining revenue is likely to be negligible as these taxpayers will only have incidental production of a taxable resource during the MRRT year. Therefore, these entities will generally have a mining loss for the 2015 MRRT year as mining expenditure, such as mine development costs, is likely to exceed their mining revenue.

24.  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.

Simplified MRRT taxpayers:

25.  This instrument applies to entities who are simplified MRRT method taxpayers. For the purpose of this instrument, a simplified MRRT method taxpayer is an entity that (a) for the 2014 MRRT year, has made a valid choice to apply the simplified MRRT method for that MRRT year, and (b) has notified the Commissioner of that choice in the approved form.

26.  In brief, eligible taxpayers can make a choice for each MRRT year to use the simplified MRRT method. Where a valid choice is made eligible taxpayers are not required to lodge an MRRT return for that year. 

27.  One of the consequences of making this choice is the starting base assets that relate to the taxpayer’s mining project interests will cease to accrue starting base losses that can be used to offset a liability to pay the MRRT in later years.  

28.  It is unlikely that a taxpayer will make a valid choice to use the simplified MRRT method and forgo its entitlement to accrue certain starting bases losses unless the taxpayer reasonably expects these losses will not be required to offset a future liability to pay MRRT in later years.

29.  The Commissioner is of the opinion that it is unlikely that a taxpayer that made a valid choice to use the simplified MRRT method in the 2014 MRRT year will have a liability to pay MRRT in the 2015 MRRT year.

Consultation:

30.  Consultation occurred with the National Tax Liaison Group Resource Rent Tax Sub-committee (now the Resource Rent Tax Working Group) throughout 2012. The sub‑committee’s membership includes representatives of the major tax, law and accounting associations, representatives of resource industry associations, including those of which explorers, pre‑production taxpayers and simplified MRRT method taxpayers are members, and the ATO.

31.  There was further consultation with members of the sub‑committee in February 2013 in relation to pre‑production taxpayers and simplified MRRT method taxpayers.

32.  During the initial consultation it was envisaged that a legislative instrument would be made annually commencing in the 2013 MRRT year to ensure that entities who the Commissioner considers are unlikely to be liable to pay MRRT for an MRRT year would be granted a nil rate determination.

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

Statement of compatibility with human rights

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 ‑ Instrument (No. 1) 2014

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

For an entity that is an explorer, a pre‑production taxpayer or a simplified MRRT method taxpayer, this instrument:

• determines that a nil instalment rate applies for the first instalment quarter in the 2015 MRRT year that the entity was an explorer, a pre‑production taxpayer or a simplified MRRT method taxpayer 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 it is unlikely to be liable to pay MRRT for the 2015 MRRT year.

This instrument, by relieving explorers, pre‑production taxpayers and simplified MRRT method taxpayers of the obligation to pay MRRT instalments and lodge MRRT instalment liability notices, reduces their MRRT compliance burden.

Consultation was undertaken with the National Tax Liaison Group Resource Rent Tax Sub‑committee and also with entities in the mining industry, tax professionals and at industry forums to ensure that the needs of explorers, pre‑production taxpayers and simplified MRRT method taxpayers were adequately addressed. During the consultation it was envisaged that a legislative instrument would be made annually commencing in the 2013 MRRT year to ensure that entities who the Commissioner considers are unlikely to be liable to pay MRRT for an MRRT year would be granted a nil rate determination.

Human rights implications

This instrument does not engage any of the applicable rights or freedoms as its purpose is to remove an administrative obligation from certain entities and is machinery in nature.

Conclusion

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