Australia’s proposed 40% “super tax” on the mining industry had investors fleeing the country and forced the prime minister to step down. But under the leadership of new PM Julia Gillard a compromise has been reached.
The decision has been made to replace the Resource Super Profits Tax with a Mineral Resource Rent Tax (MRRT). The MRRT will become effective July 1, 2012, at a rate of 30%. It will be applied only to iron ore and coal resources. The tax will be applied at the mine gate, and credits will be given for mining and processing costs. A 25% extraction allowance deductable from the otherwise taxable profit is included. Amounts paid for MRRT will be an allowable income tax deduction. No MRRT will be assessed for companies with less than A$50 million in resource profits annually.
The change was applauded by the three major mining companies in Australia – BHP Billiton, Rio Tinto and Xstrata. All three companies say there is much to be discussed before the MRRT is implemented a year from now, but both they and the government are talking constructively.
Is there a lesson to be learned from this? Certainly. It is “Don’t ram excessive taxes down the throats of the mining industry unless you want to make it leave your country.” Had the original super tax been applied it would have crippled the Australian mining industry. Thankfully the government has come to its senses.
Let Australian experience also be a lesson to Canadian mining companies. Don’t be complacent. Should our government float the idea of a super tax, our industry must not hesitate to oppose it until a better solution is worked out.