Whilst there were no mining specific measures in the Federal Budget several announcements will impact mining companies, especially multinationals.
Proposed measures of note for mining companies include:
- Reduction in the corporate tax rate to 25% by 2026,
- Introduction of a Diverted Profits Tax (see below),
- Establishment of a Tax Avoidance Taskforce within the Australian Taxation Office (ATO) – expected to raise approximately $4bn, and
- Establishment of a voluntary tax transparency code.
The Diverted Profits Tax (DPT) follows the UK lead and targets both foreign owned and Australian owned multinationals that have arrangements which shift profit offshore. The proposal significantly shifts the goal posts in favour of the ATO. In summary, the DPT will:
- Impose a penal tax rate of 40% on profits transferred offshore through related party transactions with insufficient economic substance that reduce the tax paid on profits generated in Australia by more than 20%,
- Apply where it is reasonable to conclude based on the information available to the ATO at the time that the arrangement is designed to reduce Australian tax liability,
- Impose a liability when the ATO issues an assessment,
- Require that any DPT liability be paid up front,
- Only allow the taxpayer to object or appeal at a much later stage, and
- Put the onus on taxpayers to provide relevant and timely information on offshore related party transactions to the ATO to prove why the DPT should not apply.
Labor does not support the reduction in the corporate tax rate for larger companies. In addition, whilst it broadly supports a tougher approach on multinational tax avoidance it has its own policies - the centrepiece being a change to the thin capitalisation rules which would curtail the use of related party finance to reduce profits in Australia.
Most of the State and Territory Budgets have now also been handed down. The good news story is NSW who have confirmed a previous announcement to narrow its stamp duty base from 1 July 2016. In particular:
- It will no longer impose mortgage stamp duty – it was the last State to do so – this will obviously assist in financing mining projects in that State, and
- It will no longer impose stamp duty on the transfer of statutory licences – this means a transfer of a NSW exploration title will no longer attract stamp duty in NSW (other titles - eg mining leases - will continue to attract duty as they are covered by the definition of land).
SA still leads the way, however, with its Budget last year announcing a one third cut in the rate of stamp duty on transfers of mining tenements to take effect on 1 July 2016, with stamp duty on mining tenements abolished all together from 1 July 2018.
The contents of this publication are for reference purposes only and may not be current as at the date of accessing this publication. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication.
© Herbert Smith Freehills 2021