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Australian Mineral Resource Rent Tax

The Australian government today announces a new mineral resources rent tax (MRRT) after

reaching a compromise with the miners on the controversial tax proposed by government,which fueled an intense rivalry between the government and the private mining companies.

The MRRT (wef July 1, 2012) will only be applicable to iron ore, coal and oil and gas to come

under the purview of petroleum resource rent tax, thus reducing the number of companiesimpacted to 320 (from 2,500) under the new tax structure. Companies with small amounts

of MRRT assessable profits (i.e. $50 million per annum) will not be covered under thepurview of MRRT.

Important amendments in the structure are as follows:

New tax structure Old tax structure Implications/Comment

Only iron ore and coal

under the purview ofMRRT, PRRT to be

extended to oil and gas

All commodities were to

be taxed

MRRT will be @ 30% All commodities to be

taxed @ standard rateof 40%

Companies can claim

100% deduction fornew investments

Companies were to

claim depreciation @13%

Project to be liable to pay MRRT only

after it pays back the new investment

Threshold rate raised to10 year government

bond yield plus 7%

Threshold rate was just10 year government

bond yield

With profits to kick in at higher rate(~12%) than earlier decided rate of 6%,

miners would be able to cover cost ofcapital

Revised transitional

provisions: MRRTcapital base for existing

projects at marketvalue to be written off

over 25 years, howeverthe starting base will

not be increased by thethreshold rate

((government bondyield plus 7%)

Earlier book value of the

projects was consideredto be RSPT capital base

for existing projectswith accelerated

depreciation over 5years, starting base can

be raised by thethreshold rate

(government bond yieldplus 7%)

Both options are available for companies

under new MRRT. Company can chooseeither of them.

Full credit of state

royalties paid, unusedroyalties can be carried

forward and increasedby the threshold rate

Full credit of state

royalties paid, unusedroyalties not allowed to

be set off

However, unused credits from one

project is no transferrable or refundable

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Extraction allowance of

25% to be allowed to

be deducted fromMRRT liability

Na Effectively taxing profits @ 22.5%

Loss from one project

can be offset againstthe MRRT liability fromanother of its projects

Na Company to pay tax on a company wide

basis and not on project basis

Australian Petroleum Resource Rent Tax - UpdateThe government extends PRRT to cover all Australian offshore and onshore oil and gasprojects (including North West Shelf). The headline tax rate is to be at 40%. The other

features are:

immediate expensing is available for all expenditure;

all state and federal resource taxes will be creditable against current and future PRRTliabilities from a project; and

transition provisions will also be provided for oil and gas projects moving into the PRRT,

including a generous starting base using either market value or written down book

values.

The following indicative timeline is developed to achieve the 1 July 2012 implementation

date:

The Policy Transition Group will be established to oversee the development of the

detailed design parameters and implementation;

The Governments proposed public release of the Exposure Draft Legislation by June

2011 for public comment;

Proposed introduction of legislation into Parliament in the latter half of 2011; and The anticipated passage of the legislation in early 2012.