Mr Jac Nasser chairman of BHP Billiton has written a letter to shareholders outlining the announcement made by the Australian Government to replace the proposed Resource Super Profits Tax with a proposed Minerals Resource Rent Tax and its implications for BHP Billiton and the minerals industry.
Mr Nasser in the letter dated July 6th 2010 said that the Australian Government’s decision to replace the proposed Resource Super Profits Tax with a proposed Minerals Resource Rent Tax on mined iron ore and coal. Key features are below
1. It applies only to iron ore and coal.
2. It will be calculated on the profit of a mine, based on the value of the resource at the ‘mine gate’ less all costs to that point. It will not apply to downstream processing or infrastructure.
3. The rate of tax is 30%.
4. There is a 25% extraction allowance’ that results in only 75% of otherwise taxable profits being subject to the MRRT.
5. Any royalties paid to State governments are credited against any MRRT liability and the MRRT paid is itself a deductible expense for income tax purposes.
6. There is the option to have as the starting base the market value of the project (not the previously proposed book value). This is particularly important for our iron ore and coal operations which have been in existence for many years.
7. New expenditure is to be immediately deductible in full.
8. Losses will be able to be transferred to offset profits such that only net profits from projects are subject to the new tax. Any MRRT losses and/or unused credits for State royalty payments will be able to be carried forward at the Long Term Government Bond Rate plus 7 per cent.
Prime Minister Gillard also announced the establishment of a Policy Transition Group led by former BHP Billiton Chairman, Mr Don Argus AC and Resources Minister Martin Ferguson AM that will oversee the development of more detailed technical design aspects. This Transition Group has the objective of ensuring the announced tax becomes effective legislation in accordance with the proposed design intent and in a commercial, practical manner.
