1000 taxandresourcestaxationinaustralia darrenballchinabusinessteamtimluchinapractice english

0 © 2012 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.

Tax and Resource Taxation in Australia

Darren Ball, SA Leader China Practice, KPMG Australia Tim Lu, National Director China Practice, KPMG Australia 12 July 2012


Agenda * Australia Tax Overview * Mineral Resources Rent Tax * Petroleum Resources Rent Tax * Overview of State Royalty * R&D Tax Incentives in Mining & Energy * KPMG Australia’s China Practice


Key consideration for Chinese investors

FIRB and other regulatory approval Investment structure Tax planning Approach to the deal Ongoing operation and management


Key Regulators

Foreign Investment Review Board (FIRB)

Australian Securities & Investments Commission (ASIC)

Australian Taxation Office (ATO)

State Revenue Office (SRO)

Australian Customs Services (ACS)

Department of Primary Industries (DPI)


Australian business number (ABN) Goods and services tax (GST) Pay as you go withholding (PAYG withholding) Fringe benefit tax (FBT) Tax file number (TFN) Payroll tax Fuel Tax credits

Starting a business Registration – ATO


Federal tax – ATO 1. Income tax 2. GST 3. Excise duties 4. Employee-related tax

•PAYG withholding •Superannuation guarantee •Fringe benefit tax

State tax – SRO 1. Land tax 2. Rates 3. Stamp duty 4. Payroll tax

Running a Business Tax Obligations


Australian and China tax overview

China

Australia

Corporate tax

25% 30%

Goods and Services Tax

17% 10%

Business tax

3% - 20% NIL

Stamp duty

0.005% ~ 0.1% Normally between 4.5%- 5.5%

Payroll Tax

NIL 4.75% - 6%

Fringe Benefits Tax

NIL 46.5%

Individual Income Tax

45% (from RMB1,200,000)

45% (from A$180,000)


Federal & State Revenue

132,650

57,100 3,600

35,456

7,090 45,779

840 Federal Tax Personal incometaxCompany tax

FBT

Excise and otherindirect taxesSuperannuationtaxes

Note: 2010/11 Figures

16,887

5,565 9,534 691

5,028

4,505

6,458

1,770 State Tax

Payroll tax

Land tax

Stamp duty on conveyances

Stamp duties / levies on othertransactionsGambling taxes


Resource taxation in Australia

Resource taxation in Australia

Income tax MRRT / PRRT

proposals

PRRT on petroleum projects in offshore / Federal waters (except NWS)

Excise on North West Shelf (NWS)

State royalties across many commodities


Review of Australian taxation – Henry review

• The Henry review made numerous recommendations to reform the Australian tax system

• One of the recommendations was to reform the way resources are taxed in Australia

• After much political debate and industry lobbying, the Government introduced:

• Expansion of the existing Petroleum Resource Rent Tax (PRRT) • Introduction of a Minerals Resource Rent Tax (MRRT) • PRRT and MRRT are profit-based taxed and project specific, rather than

production based (which is the basis of royalties) and company specific (which is the basis for income tax).


Status of the MRRT – Assume 31 December year-end

• Applies to coal and iron ore mining project interests • Commencement date: 1 July 2012. 31 December companies will have a short

MRRT first year of 1 July 2012 – 31 December 2012 • First MRRT instalment due: 21 October 2012

1 July 2012 21 October 2012

31 December 2012 1 June 2013

Commencement date of MRRT

Due date for first MRRT (assuming a 31

December SAP)

First MRRT instalment

Consider accounting implications for financial close


MRRT method statement

= less Mining Profit

Pre-mining loss

Mining loss

Starting base

Transferred royalty

Royalty

Transferred pre-mining loss

Transferred mining loss

Mining expenditure (upstream costs)

less

=

MRRT Profit

MRRT rate of 22.5%

MRRT liability (tax deductible for corporate

income tax)

x

= Low profit offset for miners with mining profit less than $75 million with a ‘phase

out’ for profits between $75 million and $125 million

Mining revenue (at valuation point)

Ord

erin

g

Allowances


Mining profit

• Mining expenditure includes both capital and revenue items. However, some exclusions for “indirect expenditure”, such as financing costs, hire purchase agreements and hedging / foreign exchange losses

• Determined by reference to ‘mining project interests’

Valuation point Downstream Upstream

Mining profit for a mining project

interest

Mining revenue (at the valuation

point)

Mining expenditure

(upstream costs) less


Valuation point

• The valuation point is just before the taxable resource is removed from the run-of-mine (ROM) stockpile on which it is stored

• If there is no ROM stockpile, it is where the resource enters the first beneficiation process or is first moved from the immediate point of extraction

• If the resource is sold prior to the above, it is the point just before first supply of the taxable resource

Extract ROM Stockpile Crushing Blending Loading Transport – Rail and Port

Valuation point

Upstream activities Downstream activities


What are your concerns on MRRT?

• What is my MRRT liability? • Will I have to pay this tax? What are the forecasted losses / tax payments? • KPMG MRRT modelling tool to provide you with illustrative scenarios

• What are my Accounting implications? • Impact on financial reporting • Deferred tax assets of starting base • Disclosure required

• How will this change my Business processes? • Can my accounting systems and tax management procedures provide sufficient

information for MRRT


Overview of the PRRT

What is PRRT? • PRRT is applied to taxable profit of a petroleum project. • Rate of PRRT is 40%. Deductible for corporate income tax. • PRRT is considered an income tax under AASB 112, and tax effected.

Extension of PRRT • Recent amendments have expanded the coverage of PRRT to include onshore

petroleum projects. • Date of effect of extension is 1 July 2012 • Applies only to 30 June financial year ends (no substituted accounting period) • Credit for state and federal royalties paid

Petroleum Project • Definition of Petroleum is the same as under the Offshore Petroleum and Greenhouse

Gas Storage Act 2006, which is broadly any naturally occurring hydrocarbon or naturally occurring mixture of occurring hydrocarbons, whether gaseous, liquid or solid state.

• This definition will cover coals seam gas (CSG) • New law specifically extends PRRT to oil shale.


PRRT method statement

= Assessable receipts

General project expenditure

Transferred exploration expenditure

Closing down expenditure

Exploration expenditure

Starting base (PRRT extension)

less

=

Taxable profit

PRRT rate of 40%

PRRT liability (tax deductible for corporate

income tax)

x

=

Petroleum receipts, including sales proceeds prior to becoming a marketable commodity, e.g. Gas used as feedstock

Ord

erin

g

Deductible expenditure


Key PRRT issues

• Assessable receipts • Sale of project natural gas – i.e., sale of CSG (possibly between related parties)

from several projects to “the aggregator” before a “marketable petroleum commodity” is produced. Regulations will be introduced to enable calculating the “gas transfer price”

• Assessable receipts (sale of carbon units) and deduction (purchase of units) in respect of carbon units following Clean Energy Act

• General project expenditure (Development expenditure) • Expenditure directly related to petroleum project. • Indirect expenditure not deductible • General project expenditure is not transferrable to other projects • Unused expenditure is uplifted`


Key PRRT issues (cont.)

• Undeducted PRRT exploration expenditure • Can transfer undeducted exploration expenditure between projects and between group

companies • Unused exploration expenditure is uplifted • Cut-off date as to when exploration “ceases” and development commences. No rules in

the law, question of fact • Certain requirements to have ownership for the entire year to be eligible for transfers • Inherited exploration expenditure (i.e. acquired losses) are ineligible for transfer • If permit expires or is surrendered, any PRRT loss balance, if not yet transferred, would

be forfeited

• Closing down expenditure • Unused expenditure / credit can be applied against other liabilities owning to the

Commonwealth under an Act administered by the Commissioner of Taxation.


Overview of the state royalty regimes

Royalty rates (coal)

State MethodQLD 7% where the value of the coal produced does not exceed $100/tonne

10% on the value of the coal exceeding $100/tonneWA If exported - 7.5% of the royalty value

If not exported - $1/tonne (CPI Indexed) - currently around $2.50 / tonneNSW Open cut mining 8.2% of value

Underground mining 7.2% of valueDeep underground mining 6.2% of value

SA $0.027 per GJ (CPI indexed)NT 18 % of the Net Value of mineral commodities VIC Brown Coal - $0.0588 per GJ (CPI Indexed)

Other than Brown Coal 2.75% of the valueTAS 1.6% of Net Sales plus profit

Maximum of 5% of net sales



Royalty rates (Iron ore)

State MethodQLD If the average price of iron ore is $100 or less - $1.25 per tonne,

2.5% of the value per tonne thereafterWA Beneficiated Ore 5% of royalty value

Fine Ore 5.625% of royalty valueLump Ore 7.5% of royalty value

NSW 4% of ex mine valueSA $0.027 per GJ (CPI indexed)NT 18 % of the Net Value of mineral commodities Vic 2.75% of valueTas 1.6% of Net Sales plus profit

Maximum of 5% of net sales



Royalty rates (petroleum)

State MethodQLD 10% of well head valueWA 10% of well head value for primary licence

11-12.5% for secondary licencesNSW 0% for first 5 years

Increases from 6-10% in years 6-10SA 10% of well head valueNT 10% of well head valueVic 10% of well head valueTas 12% of well head value


R&D Tax Incentive - overview

Key aspects include:

■ New R&D Tax Incentive from 1 July 2011, with an increase in base rate benefit

■ Entitlement and self-assessment program with a broad definition of R&D

■ Modified definition of R&D (under the new regime), which may limit some mining claims relating to production of resources

■ Companies in losses – eg exploration companies and junior miners – can cash out up to 45% of R&D spend

■ Mining and energy claims account for circa 45% of total R&D claims in Australia

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…… …… …… ……

……

…… …… ……

ENERGY EFFICIENCY

WATER EFFICIENCY

NEW EXPLORATION TECHNIQUES

FLOW SHEET DESIGN

INNOVATIVE MINING METHODS

CREATION OF NEW KNOWLEDGE

RENEWABLE ENERGY

UNCONVENTIONAL GAS

NEW EQUIPMENT DESIGN


R&D Tax Incentive – what is the benefit?

Higher benefits now exist…

■ Refundable 45% tax credit for companies with less than $20m group turnover

■ 15% permanent tax saving, double current benefit

■ Tax loss companies able to ‘cash out’ the credit with no cap on spend

■ Non-refundable 40% Tax Credit for companies with over $20m group turnover

■ 10% permanent tax saving up from 7.5%

27

Company Size Benefit R&D Group turnover <$20m, in losses $450,000 cash

R&D Group turnover <$20m, paying tax $150,000 incentive to tax payable

R&D Group turnover >$20m $100,000 incentive to tax payable

For example, if a company incurs $1,000,000 R&D expenditure:


R&D Tax Incentive – what is ‘R&D’?

Definition of Research & Development…

■ Experimental activities, outcome cannot be known (technical risk)

■ Established science - Hypothesis, experiment, observation

■ The purpose of generating new knowledge (innovation)

■ Including – new or improved materials, products, devices, processes or services

It is important to be able to

■ Demonstrate current knowledge and experience

■ Evaluate what tasks form part of experimental activities

■ Demonstrate the new knowledge

■ Document purpose and process

28

Still somewhat uncertain how this definition will be applied to mining


© 2010 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International Cooperative ("KPMG International"). Liability limited by a scheme approved under Professional Standards Legislation.

R&D Tax Incentive – application to mining and energy

New mines - Categories of R&D will include:

1. Exploration techniques

2. Metallurgy studies

3. Design of processing plants – including flowsheet

4. Mining methods

5. Environmental issues

Mature mines - Typically R&D can be identified within all

of the technical disciplines found on site, eg:

1. Geology

2. Engineering

3. Mining

4. Metallurgical/processing

5. Waste areas (tailings dams and waste rock dumps)

Oil and Gas

- New drilling and exploration techniques

- New equipment design and development

- Unconventional gas eg shale and coal seam

- LNG project development

Renewable energy

- Solar, wind, geothermal, wave, bio projects

- Hybrid and off-grid solutions

Power and Utilities

- Plant performance, design and efficiency projects

- Grid connection projects

- Transmission efficiency and infrastructure design

- Process design, control and efficiency

Typical Mining R&D Focus Areas Typical Energy R&D Focus Areas

29


Grant funding – background

What is available for the mining and energy sectors?

■ The Federal and State Governments have traditionally provided a range of grant funding programs across various sectors

■ Focus areas: R&D and innovation, environment and sustainability, infrastructure, regional development, social and community etc

■ However, standard mining and energy projects have not been focused on

■ Primary opportunities are in renewable energy, clean technology, regional and off-grid infrastructure, environmental initiatives etc

30

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31

Opportunities under the Carbon Price

Expanded Enhanced Centralised New funding New programs

The Federal Government has announced a number of policies to deliver its climate change aspirations

■ What will the impact be on the mining and energy sectors?

■ Most funding earmarked for renewable energy and clean technology


Key points

Where are the best opportunities?

■ Innovative junior miners and explorers – particularly for the refundable R&D Tax Incentive

■ Developers of alternative and clean energy technology and projects – both for grants and the R&D Tax Incentive

■ Large mining companies developing innovative technologies, exploration techniques, mining and production processes etc

■ All companies seeking to reduce emissions

What is the bottom line?

■ Australia has a strong R&D Tax Incentive regime in place, which clearly benefits the mining and energy sectors

■ Any existing uncertainty about the new regime will dissipate over the next 12 months

■ Numerous grant opportunities are and will continue to be available for various sectors, focusing largely on regional and environmental projects

32


KPMG Australia

Overview as of FY2011 - 5000 professionals - 13 offices - FY2011 revenue A$1.064 billion

-Audit A$377 million -Tax A$214 million -Advisory A$473 million

Darwin

Wollongong

Sunshine Coast

Brisbane Gold Coast

Sydney

Cairns

Canberra

Albury Melbourne

Hobart

Launceston

Perth Adelaide

China Practice Operates in 6 offices 300 Chinese speakers


KPMG Excellence in Energy & Resources


Contact us Darren Ball State Leader, China Practice in SA KPMG Australia Tel +61 8 8236 3197 [email protected]

Tim Lu National Director, China Practice KPMG Australia Tel +61 3 9288 5255 [email protected]

mailto:[email protected]

mailto:[email protected]

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