Super Stupidity

The “Super profits” mining tax is currently a political hot potato for the Rudd Government as it is their silver bullet solution to bring the Budget back into surplus. What is also becoming apparent is that most people have a poor understanding of how it works.
The reality, however, is the way the tax works is quite simple. The 40% tax is set to replace the existing Royalties scheme which is a rent charged to mining companies by our State Governments which accounts for the use of the resources.
The Resource Super Profits Tax (RSPT) proposal allows a mining project to deduct the costs of extracting the resources from the price they sell the resources at. This “super profit” is taxed at the rate described above. For example, if the “Super Profit” is $100 then the new tax will deduct $40 from the net revenue.
But here is the sting as the tail. The Mining Company will still have to pay the Company Tax rate after the RSPT is deducted. That is, a further 30% tax may be deducted. This could be applied to the remaining $60 left over or a further $18. This would result in $58 in tax being paid which is the 58% rate that is being thrown around at the moment (However, keep in mind the Corporate tax rate is reducing to 28%).
But there is a flipside to this, which the government claims will encourage Mining Investment but critics claim will severely increase the downside risk to government expenditure should a mining boom collapse. The flip side is that the government will allow a 40% tax credit to Mining Project losses and this may be carried forward to offset future “super profits”. Each year that this credit is carried forward the Mining Project will be able to increase this credit by 6%. This is the mysterious 6% bond rate that is being discussed as the threshold on which the tax cuts in – which has not been reported correctly.
And that, ladies and gentleman is it! The government rightly points out that the existing system is not quite perfect so after consultation with the miners it is hoped that a compromise can be found to bring confidence back into the mining sector.
Julian McLaren is a Representative of the Shadforth Financial Group (AFS Licence No. 318613) Julian may be contacted on 69317488. This is general advice and readers should seek their own professional advice in regards to their individual circumstances.