The options will require depreciating assets to be written off over five years or longer instead of the current situation where they apply immediately, effectively reducing the current value of the deductions over time.
The group was formed after the federal government’s tax forum in 2011 and says in its discussion paper that it is considering longer term reform options for the business tax system.
Preliminary estimates by Treasury show a reduction of the company tax rate from 30% to 25% will cost the government $A26 billion over four years.
However the terms of reference call on the group to make recommendations and to determine whether it is possible to fully fund a reduction in the company tax “by further broadening of the business tax base”
In other words industry will be expected to fund any cut to the company tax rate by giving up other tax concessions.
Option B.7 headed Remove or reduce the ‘first use’ exploration deduction would remove or reduce the immediate deduction for depreciating assets first used in exploration or prospecting by miners.
Option B.8 headed First use exploration deduction – intangibles would remove or reduce “the immediate deduction for interests in exploration ‘tenements’ which confer upon the owner a right to engage in this activity. Instead deductions would be available over five years or the effective life of the asset”
However, the paper points out that the reduction or removal of exploration concessions would be expected to increase marginal effective tax rates for explorers, reduce the scale of exploration in Australia and encourage some investors to transfer their activities overseas.
Option B.10 headed Removal of immediate deduction for exploration expenditure by large companies would also require capital expenditure incurred in exploration or prospecting to be deducted over five years and would only apply to companies, or other entities, with a turnover of more than $500 million.
Option B.11 headed Exclude feasibility studies from exploration expenditures would remove feasibility studies from the definition of exploration and prospecting expenditure from being deductible immediately to five years.
The Minerals Council of Australia said it remained to be convinced that the discussion paper was anything other than a second-rate process of supposed tax reform.
“By its design, it is a game of ‘winners’ and ‘losers’ in the business community, one that appears slanted towards increasing the tax burden on the resources industry,” it said.
“The minerals resources sector is already among the highest taxed industries in Australia. In the last decade, the combined tax take from company tax and royalties alone has risen more than four fold.
“According to Deloitte Access Economics, the effective tax rate of the minerals resources industry (measured on a base of taxable income) has remained relatively stable in excess of 40 per cent. Official statistics confirm that the mining industry has a net corporate tax rate (after refunds and credits) above the average of total industries.
“Given the government accepted all recommendations of the Policy Transition Group only last year, including the extension of immediate deductibility for exploration expenditure to the geothermal energy sector, any move to scrap existing arrangements will only heighten concerns among investors in the resources sector about government chopping and changing tax laws.”