Tuesday, May 25, 2010

Mistrust anyone who produces a graph like this:

It's from the Minerals Council

This is how it should look:

Just saying.

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Anonymous said...

where are they getting the numbers from?

Peter Martin said...

The numbers are dodgy too, although there's so much smoke around it is hard to tell what's what.

They are Tax Office figures for the proportion of taxable income taxed. Needless to say the proportion is abound 30 per cent, the tax rate.

What's interesting is how much of mining companies' total income is taxed. Miners make use of a lot more deductions and depreciation allowances than other industries.

Ben said...

Fair go ... they could have started to Y axis at 24% and ended it at 28% ... making the mining bar go "off the scale"

It's quite a responsible graph really

Taylor said...

"Miners make use of a lot more deductions and depreciation allowances than other industries."

Isn't that simply because mining is more capital-intensive than other industries? Even third-world countries appreciate capital-intensive industries.

In resource tax language, if the deductions and depreciation weren't allowed, the income tax imposed on companies would be even less neutral than it already is.

Peter Martin said...

1. General Details of Support and Tax breaks for Mining Industry


While exploration and prospecting costs are capitalised for accounting purposes there is a tax concession giving an outright deduction is the year incurred other than for depreciating assets.

Deduction for pooled project expenditure

Certain mining project expenditure and related transport expenditure may be deducted over the expected life of the project with a concessional 150% or 200% rate of accelerated depreciation.

Deductions for site rehabilitation
An outright deduction is available for current and capital expenditure on rehabilitation of sites (Australian and foreign) that have been used by the taxpayer for mining, quarrying and petroleum operations or ancillary operations.

Deduction for Petroleum Resource Rent Tax payments
PRRT is fully deductible for income tax purposes.

Black Hole Expenditure

Examples of mining specific expenditure, not otherwise deductible, that are allowable under the blackhole expenditure rule include the formation of a company to undertake exploration.

Research and Development (R&D)
Existing R&D concessions allowing 125% deductibility (occasionally 175%) of relevant expenses are widely enjoyed by the mining industry. There is new law before Parliament to give more generous concessions (45% and 40% tax offsets) but restricting these credits to core activities or supporting activities with a dominant purpose of experimentation.


Peter Martin said...


Capital Gains Tax (CGT)
There are compulsory roll-over provisions for the mining industry giving CGT concessions when prospecting and mining interests change hands
150% deduction for designated frontier expenditure under PRRT
Under the PRRT regime there is a 150% deduction for exploration expenditure in designated frontier areas.

capital allowance concessions

• Some assets used by mining companies benefit from accelerated depreciation arrangements as a result of a statutory cap on their effective life.

– Offshore platforms used for oil and gas extraction (20 years, compared to the Commissioner of Taxation's determination of 30 years).

– Oil and gas production assets, other than an offshore platform or for electricity generation (15 years, compared to the Commissioner's determination of 30 years for many assets).

– Assets used to manufacture condensate, crude oil, domestic gas, liquid natural gas or liquid petroleum gas, but not if the manufacture occurs in an oil refinery (15 years, compared to the Commissioner's determination of 30 years for many assets).

The concessional treatments for uniform capital allowance (depreciation) in the mining and petroleum industry are listed below.

Capped life of certain depreciating assets used in specified industries
Item Kind of depreciating asset Industry in which the asset is used Period

1 Gas transmission asset Gas supply 20 years

2 Gas distribution asset Gas supply 20 years

3 Oil production asset (other than an electricity generation asset or an offshore platform) Oil and gas extraction 15 years

4 Gas production asset (other than an electricity generation asset or an offshore platform) Oil and gas extraction 15 years

5 Offshore platform Oil and gas extraction 20 years

2. Details of fuel tax credits provided to mining companies
In 2008-09, there were 7,284 fuel tax credits paid to the Mining industry, which gives a dollar value of $1.749 billion.
These statistics come from the ATO Taxation Statistics which were released on 24 March 2010 - http://www.ato.gov.au/content/downloads/cor00225078_2008CH14EGS.pdf
Fuel tax credits are available to business at a rate of 16.443 cents per litre for vehicles greater than 4.5 tonnes GMV.
However for mining industry activities this rate rises to 38.143 cents per litre with no restriction on the size of vehicle or machinery consuming the fuel.

Sources: Fuel tax credits rates and eligible fuels http://www.ato.gov.au/businesses/content.asp?doc=/content/00174722.htm
Fuel tax Credits for Business


"Grendel" said...

The minerals dug from the ground and sold overseas cannot be replaced. Essentially mining companies are profiting from non-renewable resources. Any nation should be entitled to tax these as highly as they can as they are non-renewable revenue sources as well.

I own mining shares and while I love a good dividend I am unwilling to see the country sell its resources too cheaply - and yes, I acknowledge the flow on effect of increased resource prices on other economic sectors - but I want my grandchildren to have the benefit of infrastructure built with the revenue from what is dug out of the ground today, rather than just see the wealth hoarded for the grandchildren of the mining company executives.

Ralph said...

Very well said, Grendel. Very difficult to argue with that. Whatever the optimum level of taxation, we're dealing with non-renewable resources that need to be managed well.

It's taken us 200 years to develop our economy to the state it's in today, much of that based on mining non-renewable resources. When we no longer have minerals, what will Australia have? Apart from selling overpriced real estate, very little that's internationally competitive. So I'd suggest that it's going to take a hell of a lot of time and money to diversify this country's economy away from mining. I support the government taxing the miners so that we can sustainably manage the economy.

If the government chooses not to invest the proceeds of the mining tax well, that's another matter altogether.

Anonymous said...

so when they say that the new tax will mean an effective tax rate of 57% what they really mean is 55% since they are(by their own admission) paying less than 28% and therefore when the rate drops to 28% they will be paying less than 26%

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