Super profits or extraction tax?

THE Rudd government might further explain its resources super-profits tax over the next few months but resource industry accounting specialists from BDO and Deloitte are already cutting through the spin.
Super profits or extraction tax? Super profits or extraction tax? Super profits or extraction tax? Super profits or extraction tax? Super profits or extraction tax?

BDO partner Larras Moore.

Blair Price

Sunrise host and Kevin Rudd pal David Koch is labelling the budget as boring and stingy but BDO tax manager Larras Moore isn’t fooled.

“To say it was a no frills budget, I think you really got to say, ‘well what happened over the last two weeks’,” he said.

Moore, who previously held corporate tax roles with Xstrata Coal and Rio Tinto, said the RSPT was a totally new tax regime.

A key issue is when the tax actually kicks in. Moore noted it was not the end point of selling to the customer but was related to profits associated with extraction activities.

“So if you have an integrated aluminium producer for instance, that goes bauxite, alumina, aluminium – well it stops at bauxite.

“So you have to determine a value to that point, and costs up to that point.”

While the new tax was partly adopted from the Henry review which aimed to simplify tax matters, the uncertainty about how it will be implemented is another blow for major miners.

“Not only are you going to get taxed more, but again we can’t even figure out how much it is for us because we don’t know any of the particulars yet,” Moore said.

Deloitte resources tax partner Darren Lee has concerns about how the tax is being sold.

“I do have difficulties with the term ‘super profit’ tax because it is, effectively, in my view, an extraction profit tax, which is almost akin to a royalty,” he said.

Lee said the tax would look at the value of the minerals or resources taken out of the ground and only allow a deduction on the extraction costs.

He also said there were implications for the financial reporting front.

“Because it is a profits-based tax, my initial views are it is akin to an income tax.

“So it is going to be like an income tax expense on your financial reporting, and you’re going to have lots of ... deferred tax calculations. I think that is going to add a level of complexity there.”

If and when the RSPT comes into effect, Lee said it remained to be seen whether there would be a need to record separate tax balances in respect to the resources tax as well as for income tax.

Moore said the budget and the Henry review response documents showed the coal industry would be taxed more and there would be a more complicated form of taxation if it kept its current form.

He expects the major mining houses will need more resources and expertise in some areas, which will ultimately cost more money.

“It’s going to be harder to do, over the period from now to July 2012, certainty is going to be a hard thing to obtain.

“Because the government has quite a long consultation process, I don’t think we actually see the exposure draft legislation until the end of next year some time.”

Lee noted the Rudd government was banking on the current level of projects going ahead as the resources in the ground were immobile.

He said his clients were trying to assess the impact of the RSPT and expected a lot of other Australian resource players to be doing the same.

“Doing that will bring out a lot of issues which can be discussed and ironed out over the next 12-18 months consultation process the government is proposing,” Lee said.

Moore said the larger players would contribute the major part of the RSPT and would also have the most ability to pursue mining outside of Australia.

At the recent RIU conference in Sydney, Moore also noted that no positive comments had been made about the tax reforms despite the potential benefits for explorers.

Even though the RSPT might be a better outcome for new small-margin mines as they avoid paying royalties under the scheme, many juniors are aiming for big-profit margins in the realm of 50%, especially with gold and coking coal plays.

Moore said many people were taking a longer term view on the reforms, including the exploration rebate.

“Yeah, you get the cash flow benefit now but you can be blindsided in five or six years time,” he said.

From Moore’s experience with the consultation process for the Carbon Pollution Reduction Scheme, he has recommended that miners make an early submission to the government on the RSPT.

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