What’s in it for the Resources Sector?
On Tuesday night, Treasurer Wayne Swan, handed down the 2013-2014 budget under a cloud of less-than-expected tax revenue. Following is a review, prepared by KPMG, on the budget’s major implications for the resources sector.
Removal of immediate deductions for rights and information first used for exploration
The immediate deduction for the cost of a depreciating asset first used for exploration or prospecting will exclude the cost of mining, quarrying or prospecting rights or information, subject to limited exceptions.
The deduction for the cost of such rights or information, if first used for exploration, will instead be available over the shorter of 15 years or its effective life (broadly, the life of the mine, quarry or petroleum field). If exploration is unsuccessful, the remaining value of the right, and associated information, will be written off when this is established.
However, an immediate deduction will continue to be available for the following:
- The costs of acquiring a right or information from a relevant government authority, or for costs incurred by a taxpayer itself in creating the information.
- A right acquired by a farmee under a ‘farm-in, farm-out’ arrangement to the extent that the cost is the non-cash exploration benefit provided by the farmee to the farmor.
These measures will apply to taxpayers who start to hold a right or information after 7:30pm on 14 May 2013 unless the taxpayer has committed to the acquisition before that time, or they are taken by the tax law to already hold the right or information before that time.
PRRT amendments
The Government has confirmed that amendments will be made to the Petroleum Resource Rent Tax Act 1987 (PRRT) in response to the decision in Esso Australian Resources Pty Ltd v Commissioner of Taxation.
The amendments will:
- restore the ability of taxpayers to apportion expenditure across a number of projects
- allow taxpayers to claim deductions for services provided by third parties (while preserving the requirement to break down payments made to related parties for services).
The changes will have effect from the commencement date of projects subject to PRRT.
As investment peaks, production and exports expand
With mining capital investment driven by coal, iron ore and more recently LNG projects, resources investment is expected to peak in 2013-14, with over $260 billion committed or under construction. The sector will transition to record expansion of production and export volumes, although commodity prices will gradually decline. Australia is expected to be the world’s largest LNG exporter by the end of the decade.
Lower than expected collections from MRRT and PRRT
Compared to earlier projections, lower resource rent taxes are estimated in 2013-14 due to weaker prices and assumed exchange rates
The Budget assumes that the MRRT collections will grow as production expands and deductible capital expenditure declines. PRRT receipts are expected to be weaker across the forward estimates assuming softer petroleum prices and declining production levels across a number of relevant fields.
Source: kpmg.com.au
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