Explanatory Memorandum
(Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)Chapter 3 Core rules
Outline of chapter
3.1 This chapter explains the framework for calculating how much Minerals Resource Rent Tax (MRRT) a miner must pay for an MRRT year. It also explains some of the basic building blocks of the MRRT, such as 'mining project interest', 'project areas', 'production right', 'Australia' 'taxable resources' and 'valuation point'.
3.2 All legislative references throughout this chapter are to the Minerals Resource Rent Tax Bill 2011 unless otherwise indicated.
Summary of new law
General liability
3.3 An entity that has a mining project interest is a 'miner'.
3.4 The key element in working out a miner's liability for MRRT for a year is to work out the MRRT liability on the mining profits of each of its mining project interests for the year.
3.5 Mining revenue, mining expenditure and MRRT allowances are calculated in respect of each mining project interest that a miner has.
3.6 If there is no mining profit for a mining project interest for a year, the miner will not have an MRRT liability for that mining project interest.
3.7 If there is a mining profit for the mining project interest for the year, that profit may be reduced to nil by MRRT allowances that relate to the interest. MRRT allowances are applied in a particular order. Applying MRRT allowances has the effect of reducing the MRRT liability the miner has for the mining project interest.
3.8 A miner's overall MRRT liability for a year may be reduced to nil by the low profit offset or the rehabilitation tax offset. If there is an excess rehabilitation tax offset, this may result in a refund for the miner.
Mining project interest
3.9 A miner is an entity that has a mining project interest.
3.10 An entity has a mining project interest if it is entitled to a share of taxable resources (or things produced from taxable resources) produced by a mining venture in which the entity is a participant.
3.11 A mining venture is an undertaking a purpose of which is to extract some or all of the taxable resources from an area covered by one or more production rights and to produce an output which includes taxable resources or something produced using taxable resources.
3.12 If a mining venture relates to one or more production rights, participants in that venture have separate mining project interests in relation to each production right.
3.13 Alternatively, if there is no mining venture in relation to the extraction of some of the taxable resources from an area covered by a production right, an entity has a mining project interest to the extent to which it is entitled to extract taxable resources from that area.
Project areas
3.14 The project area for a mining project interest that is an entitlement to share in the output of a mining venture is the area covered by the production right to which the mining venture relates.
3.15 The project area for a mining project interest that is an entitlement to extract resources is so much of the area covered by the production right in respect of which an entity is entitled to extract taxable resources.
Production right
3.16 A production right is an authority or right under Australian law to extract a taxable resource from a particular area in Australia or, if such a right is not required for that area, it is an interest in land that allows a person to extract a taxable resource from the area.
Meaning of Australia
3.17 Australia, when used in a geographical sense, includes all the external Territories (except the Australian Antarctic Territory) and the offshore areas as defined in the Offshore Petroleum and Greenhouse Gas Storage Act 2006 .
Taxable resources
3.18 Taxable resources are quantities of iron ore, coal, gas extracted as a necessary incident of coal mining, and anything produced from the in situ consumption of iron ore or coal.
Valuation point
3.19 For coal and iron ore, the valuation point is just before it leaves the mining project interest's run-of-mine stockpile.
3.20 If there is no run-of-mine stockpile, or if it is bypassed in a particular case, the valuation point is instead immediately before the resources enter their first beneficiation process at the mine site, or immediately after leaving the point of extraction if there is no such process.
3.21 For any gas that is a taxable resource, the valuation point is when it exits the wellhead.
3.22 If there is a supply of the resources before they reach their valuation point, the point of supply becomes the valuation point.
Detailed explanation of new law
A miner's liability for MRRT
3.23 The amount of MRRT a miner must pay is the sum of the miner's MRRT liabilities for each of its mining project interests for an MRRT year, reduced by the low profit offset and the rehabilitation tax offset. [Sections 10-1, 10-15 and 225-25]
3.24 An MRRT year is a 'financial year' as defined in section 995-1 of the ITAA 1997, starting on or after 1 July 2012, adjusted to allow for substituted accounting periods. [Section 10-25]
3.25 A miner's MRRT liability for a mining project interest is worked out by applying the MRRT rate to the mining project interest's mining profit reduced by any MRRT allowances applicable to the mining project interest. MRRT allowances cannot reduce a MRRT liability below nil. [Section 10-5]
3.26 The MRRT rate is a tax rate of 30 per cent, reduced by 25 per cent to recognise the know-how and capital that mining companies bring to mineral extraction. The effective MRRT rate is therefore 22.5 per cent. [Section 300-1, definition of 'MRRT rate', section 4 of the Minerals Resource Rent Tax (Imposition - General) Bill 2011 (MRRT general imposition Bill ); section 4 of the Minerals Resource Rent Tax (Imposition - Customs) Bill 2011 (MRRT customs imposition Bill ); and section 4 of the Minerals Resource Rent Tax (Imposition - Excise) Bill 2011 (MRRT excise imposition Bill)]
3.27 Each of the MRRT allowances are made up of allowance components [section 300-1, definition of 'allowance component'] . For example, a mining loss allowance comprises mining losses, a pre-mining loss allowance comprises pre-mining losses, a royalty allowance comprises royalty credits and a starting base allowance comprises starting base losses.
3.28 The MRRT allowances must be applied in a particular order. Broadly, the principle is that project specific allowances must be applied before allowance components can be transferred from another project. This is consistent with the design of the MRRT as a project-based tax. [Section 10-10]
Example 3.5 : Order of MRRT allowances
Francis Mining Co has a $500 million mining profit in respect of a mining project interest in the 2012-13 MRRT year.
Francis has MRRT allowances totalling $190 million. The allowances are applied in the following order:
- •
- $20 million royalty allowance;
- •
- $10 million pre-mining loss allowance;
- •
- $10 million mining loss allowance; and
- •
- $150 million starting base allowance.
The MRRT allowances are subtracted from the mining profit, reducing the mining profit to $310 million.
Francis' MRRT liability is $69.75 million, worked out as
22.5% x $310m.
3.29 A miner must pay its assessed MRRT for the MRRT year on or before the day on which the assessed MRRT becomes due and payable [section 10-20] . Assessed MRRT for an MRRT year is due and payable on the first day of the sixth month after the end of the MRRT year and extra assessed MRRT is due and payable 21 days after the Commissioner gives the miner notice of the charge [section 50-5] . A miner may also be liable to pay shortfall interest charge and general interest charge [sections 50-10 and 50-15] . A miner must pay instalments towards that assessed MRRT liability on a quarterly basis during the MRRT year [Schedule 1, item 8, to the Minerals Resource Rent Tax (Consequential Amendments and Transitional Provisions) Bill 2011 (MRRT (CA & TP) Bill), Division 115 of Schedule 1 to the Taxation Administration Act 1953] .
3.30 A miner will not be liable to pay MRRT for a year if the miner has elected to use the simplified MRRT method. [Division 200]
Imposing the MRRT
3.31 The MRRT is imposed by three different imposition Bills. One imposes MRRT to the extent that it is a duty of customs [section 3, MRRT customs imposition Bill] ; one imposes MRRT to the extent that it is a duty of excise [section 3, MRRT excise imposition Bill] ; and one imposes MRRT to the extent that it is neither a duty of customs nor one of excise [section 3, MRRT general imposition Bill] . This reflects the constitutional requirement that laws imposing duties of customs shall deal only with duties of customs and that laws imposing duties of excise shall deal only with duties of excise (see section 55 of the Constitution). However, there is only one assessment Act.
3.32 The approach of enacting a single assessment Act with multiple imposition Acts when a tax law could be a duty of customs, a duty of excise, as well as some other type of tax, complies with the Constitution. The same approach was followed for the enactment of the goods and services tax legislation.
3.33 MRRT is not imposed on property belonging to a State. That ensures that the MRRT complies with section 114 of the Constitution, which prohibits the Commonwealth from imposing a tax on any kind of property of a State. In practice, this will only have an effect to the extent that a State mines its own taxable resources. In that case, the State will not be subject to MRRT. [Section 5 of the MRRT customs imposition Bill; section 5 of the MRRT excise imposition Bill and section 5 of the MRRT general imposition Bill]
Mining project interest
Share of a mining venture to extract taxable resources
3.34 An entity has a mining project interest to the extent that the entity is entitled to share in the output produced by a mining venture in which the entity participates. [Subsection 15-5(1)]
3.35 An undertaking is a mining venture if it is an undertaking or endeavour whereby the entity, alone or together with other entities, actively or otherwise, extracts, or plans to extract, taxable resources from a particular area covered by one or more production rights, with a view to producing a commodity which the entity and the other participants in the undertaking can each enjoy. [Subsection 15-5(3)]
3.36 If the mining venture in which the entity participates covers more than one production right, then the entity will have a separate mining project interest in relation to each of the production rights to which the venture relates. [Subsection 15-5(2)]
3.37 The kinds of commodities that might be the output of such a mining venture include iron ore and coal (produced in different forms and to different grades to meet customer specifications), gas, or products made from iron ore, gas, and coal, such as steel and electricity.
3.38 The existence and extent of a mining venture is a question of fact. That question should be determined having regard to:
- •
- the areas from which taxable resources are extracted;
- •
- the nature of the extraction and production activities carried out;
- •
- the degree to which these activities are conducted and operated as financially and technically interdependent business units;
- •
- relevant contractual arrangements; and
- •
- the commodities that are produced.
3.39 Most typically, but not necessarily, a mining venture will be a joint venture to extract and produce resource commodities.
Example 3.6 : A vanilla joint venture
ExplorerCo enters into a joint venture with DiggerCo (the joint venturers) to produce coal from an area in Australia. The joint venturers hold a production right in equal shares and are entitled to an equal share of the resources extracted from the project area.
The joint venture is a mining venture. Each of the joint venturers is a participant in that mining venture and each of them has a mining project interest for which they will be liable to MRRT.
3.40 The same participants may be engaged in separate mining ventures.
3.41 Usually a participant in a mining venture would risk money, property or skills in the venture in exchange for a right to share in the commodity produced by the venture. It is possible, however, that a participant may be gifted, or otherwise transferred, a right to share in the output of the venture.
3.42 An entity is not required to have a production right to be a participant in a mining venture.
Example 3.7 : Non-vanilla joint venture
ExplorerCo holds a production right over a project area, from which it is entitled to extract iron ore.
ExplorerCo does not have the required expertise to extract the iron ore, so it enters into a joint venture with DiggerCo to extract the resources. In return for venturing its extraction expertise, DiggerCo receives 50 per cent of the resources extracted from the project area. ExplorerCo takes the other 50 per cent of the iron ore as its return on its production right.
DiggerCo and ExplorerCo are participants in a mining venture. They each have mining project interests and both will be liable for MRRT.
3.43 An entity that merely provides a service or accommodation to a mining venture would not itself be a participant in the venture. To be a participant in a mining venture the entity must share the risks of extracting the resources.
Example 3.8 : Finance arrangement
DiggerCo obtains a production right over an area rich in iron ore and commences to extract the ore using funds borrowed from Big Bank.
The terms of the loan are calculated on the usual terms for a loan of that nature, including a commercial rate of interest. Big Bank does not share the risks of extracting the resources and is not itself a participant in DiggerCo's mining venture. BigBank does not therefore have a mining project interest.
This would remain the case if, instead of paying cash, DiggerCo chose to discharge its loan obligations to Big Bank by delivering to Big Bank ore equal in value to its loan obligations.Example 3.9 : Mining services
MinerCo holds a right to extract coal from a production right area, but it does not have the required expertise to undertake the extraction activities.
MinerCo enters into a contractual arrangement with DiggerCo whereby DiggerCo agrees to extract the resources for MinerCo in return for a commercial fee calculated as a fixed rate per tonne of coal it extracts for MinerCo.
DiggerCo does not share the risks of extracting the resource and is not itself a participant in MinerCo's mining venture. DiggerCo does not therefore have a mining project interest.
This would remain the case if, instead of paying cash, MinerCo discharged its fee to DiggerCo by delivering to DiggerCo coal equal in value to the fee.
3.44 An entity is not entitled to an output of a mining venture merely because it is entitled to a royalty for the taxable resources extracted by the mining venture or to a private mining royalty comprising a share of the profits of the mining venture. [Subsection 15-5(6)]
Example 3.10 : Profit sharing
DiggerCo has a mining venture comprising the extraction and production of coal from an area covered by a production right it acquired from ExplorerCo. When DiggerCo acquired the production right from ExplorerCo it undertook to pay ExplorerCo 10 per cent of the net profits it makes from selling coal extracted from the production right area.
DiggerCo has a mining project interest and will be liable for MRRT. ExplorerCo does not share in the output of the venture and does not have a mining project interest.
More than one mining venture
3.45 There may be more than one mining venture to extract taxable resources in relation to a single production right.
Example 3.11 : Multiple mining ventures
DiggerCo and CrusherCo have a joint venture to extract coal from a particular area within a larger area covered by a production right they jointly hold. They are each entitled to take an equal share of the resources which they extract. DiggerCo and CrusherCo are participants in a mining venture and each has a mining project interest.
CrusherCo also has a separate undertaking to mine another part of the area covered by the production right (DiggerCo takes the view that mining in that area would be too risky).
CrusherCo would be viewed as having a second mining venture and would have a second mining project interest comprising its right to the output of that separate venture.
Residual mining project interests
3.46 To the extent to which there is no mining venture to extract certain taxable resources from the area covered by a production right, an entity that has the right to extract the taxable resources from the area would have a mining project interest, to the extent of its entitlement. [Subsection 15-5(4)]
3.47 Mining project interests of this kind are a form of 'residual' interest. They do not exist to the extent to which the entitlement to extract relates to resources in respect of which there is a mining venture.
3.48 Typically, the owners of a production right will have the residual mining project interests (if any) for particular production right areas. It is possible, however, that such interests may be transferred or split to one or more other entities (for example, under a sublease). Transfers and splits are discussed in Chapter 10.
Example 3.12 : No mining ventures to extract resources<
ExplorerCo holds a production right over an area but it does not have any immediate plans to commence extraction activities in that area because it has insufficient capital to conduct such an operation. It is currently searching for potential equity participants.
Explorer Co would have a residual mining project interest.
3.49 The start of a mining venture relating to the extraction of taxable resources in respect of which an entity has a residual mining project interest will be treated as a mining project transfer (if the venture relates to all of the resources), or otherwise a mining project split. These situations are discussed in Chapter 10. [Sections 120-25 and 125-35]
Acquiring a further share in a mining project interest
3.50 If an entity that has a mining project interest because it participates in and shares in the output of a mining venture acquires an additional right to share in the output of the venture, it will have a separate mining project interest that corresponds to that further entitlement. [Subsection 15-5(5)]
Example 3.13 : Acquiring a further share
DiggerCo and CrusherCo are participants in a mining venture with each other. They have rights to receive and dispose of 60 and 40 per cent respectively of the resources extracted under a production right that they jointly hold.
Subsequently, DiggerCo decides not to continue mining in the project area and sells its share of the venture to CrusherCo.
By acquiring DiggerCo's share of the venture CrusherCo acquires a separate mining project interest.
3.51 Similarly, if an entity that has a mining project interest because it has an entitlement to extract taxable resources from a particular area (a residual interest) acquires an additional right to extract taxable resources from that area, it will have a separate mining project interest that corresponds to that further entitlement. [Subsection 15-5(5)]
Special rules for mining project interests
3.52 There are circumstances in which it is possible to combine, transfer or split mining project interests. Combinations are discussed in Chapter 9 and transfers and splits are discussed in Chapter 10. [Divisions 115, 120 and 125]
3.53 There are also special rules to deal with the winding down of mining project interests and the ending of mining project interests. The winding down and ending of mining project interest are discussed in Chapter 11. [Divisions 130 and 135]
Mining project interests to be kept separate
3.54 A mining project interest cannot relate to both iron ore and coal. Mining project interests that would otherwise relate to both iron ore and coal constitute separate mining project interests. [Section 15-10]
Production right
3.55 A production right is any authority, license, permit or right under an Australian Law granted by the Commonwealth, a State or a Territory (or, in some instances, a private land owner) that permits an entity to extract taxable resources from a particular area in Australia [subsection 15-15(1)] . It does not matter that the right to extract is issued subject to environmental approval.
3.56 In deciding whether an entity has been granted the right to extract taxable resources from an area, the term 'extract' should not be construed narrowly. To extract taxable resources means to extract them by any means and would include recovering them from the surface of the place where they occur. [Section 300-1]
3.57 The various State and Territory Acts use different terms to describe a 'production right', including 'mining leases' and 'mining licences'.
3.58 A production right should be distinguished from an authority, license, permit or other right to prospect or explore for minerals in a particular area or to examine the feasibility of mining in an area. These rights are often described as 'prospecting permits', 'exploration licences', 'mineral development licences' or 'retention leases'. A 'production right' does not include rights of this kind. [Subsection 15-15(2)]
3.59 For the purposes of the MRRT, interests in these other rights are 'pre-mining project interests'. [Section 70-25]
Project area
3.60 A production right authorises the extraction of taxable resources from a particular area in Australia.
3.61 The project area for a mining project interest that is an entitlement to share in the output of a mining venture is the area covered by the production right to which the mining venture relates. [Paragraph 15-20(a)]
3.62 If the mining venture relates to more than one production right there will be a separate mining project interest in relation to each production right. The project area for each of those interests will be so much of the area covered by each of the production rights to which the mining venture relates. [Subsection 15-5(2) and paragraph 15-20(a)]
3.63 The project area for a residual mining project interest that is an entitlement to extract taxable resources from an area covered by a production right in respect of which there is no mining venture, is so much of the area covered by the production right in respect of which an entity is entitled to extract taxable resources. [Paragraph 15-20(b)]
Definition of Australia
3.64 A production right that is issued in respect of an area in Australia will result in a mining project interest.
3.65 Australia , when used in a geographical sense, includes:
- •
- all the external Territories (except the Australian Antarctic Territory); and
- •
- 'offshore areas' as defined in the Offshore Petroleum and Greenhouse Gas Storage Act 2006 .
[Section 300-1, definition of 'Australia']
External territories
3.66 Australia has seven external territories:
- •
- Christmas Island;
- •
- Cocos (Keeling) Islands;
- •
- Norfolk Island;
- •
- Coral Sea Islands;
- •
- Ashmore and Cartier Islands;
- •
- Heard Island and McDonald Islands; and
- •
- the Australian Antarctic Territory.
3.67 The Australia Antarctic Territory is excluded from the MRRT definition of Australia as no Australian law allows for production rights to be issued in respect of this area. This is consistent with Australia's international obligations under the Protocol on Environmental Protection to the Antarctic Treaty (The Madrid Protocol), which prohibits mining within Antarctica.
Offshore areas
3.68 The Offshore Minerals Act 1994 provides for production rights to be granted in respect of minerals in offshore areas. To ensure mining in such areas is covered by the MRRT, the MRRT aligns with the definition of 'offshore areas' relevant for that Act.
3.69 The Offshore Minerals Act 1994 relies on the definition of 'offshore areas' in the Offshore Petroleum and Greenhouse Gas Storage Act 2006 . Such offshore areas generally extend to the outer limits of the continental shelf. The continental shelf, which takes its meaning from paragraph 1 of Article 76 of the United Nations Convention on the Law of the Sea, is either the outer edge of the continental margin or 200 nautical miles where the continental margin does not extend out to that distance.
3.70 Such offshore areas do not include the Joint Petroleum Development Area [1] or the offshore areas of the Australian Antarctic Territory.
Taxable resources
3.71 The MRRT is a tax on profits a miner makes from extracting certain non-renewable resources. Those non-renewable resources are called 'taxable resources'.
3.72 The taxable resources for the MRRT are quantities of:
- •
- iron ore;
- •
- coal;
- •
- anything produced by the in situ consumption of coal or iron ore; and
- •
- coal seam gas extracted as a necessary incident of coal mining.
[Subsection 20-5(1)]
3.73 The terms 'iron ore' and 'coal' take their ordinary meanings. Iron ore is rock or soil from which metallic iron can be economically extracted. Coal is a combustible carbonaceous material formed from deposited layers of decomposed or decomposing vegetation.
3.74 Every form of iron ore and coal is a taxable resource. The legislation makes no distinction, for example, between hematite and magnetite or between black coal and brown coal.
3.75 In deciding whether something is a taxable resource, no regard is to be had to the use to which it will be put or what will be produced from it. [Subsection 20-5(2)]
3.76 This ensures that definitions provided by some dictionaries are not read in an inappropriately narrow way. For example, the Macquarie Dictionary's definition of iron ore, which suggests that it usually occurs as hematite deposits, should not be used to limit iron ore to hematite. Similarly, when it suggests that coal is something used as a fuel, it should not mean that coal is not coal simply because the miner or its customers intend to use it for something other than a fuel (for example, in making detergent).
3.77 Although 'taxable resource' is defined as a quantity of iron ore, coal, etc., it is not necessary for the quantity to be measured (or even measurable). So long as it is some quantity, it will be a taxable resource. [Subsection 20-5(3)]
The MRRT and gases
3.78 Most petroleum gases are not taxable resources under the MRRT. Instead, most of them are taxed under the Petroleum Resource Rent Tax Assessment Act 1987 . However, there are two cases where such a gas is a taxable resource under the MRRT. In those cases, the gas is excluded from taxation under the Petroleum Resource Rent Tax (PRRT).
3.79 The first case is when it is necessary to extract the gas as an incident of a coal mining operation or in relation to a proposed mine (say prior to construction of an underground mine). In theory, it would be possible to tax the gas under the PRRT regime and the coal under the MRRT regime but that would increase the miner's compliance costs for no significant difference in outcome. To prevent those unnecessary compliance costs, the gas is taxed under the MRRT, which already applies to the main (coal mining) part of the operation. [Paragraph 20-5(1)(d)]
3.80 The most common reason why it might be necessary to extract gas as an incident of a coal mining operation is mine safety: the presence of coal seam gas makes a mining operation inherently more dangerous. But there could be other reasons, such as State legislation or environmental requirements.
3.81 Sometimes coal seam gas is drained from a potential coal mine as a pre-mining activity. Where that drainage occurs as a preliminary step in the actual or proposed construction of a coal mine, then it will be a MRRT taxable resource. However, where that gas extraction is a self-sustaining activity in its own right, it is not an incident of coal mining or proposed coal mining, but a separate gas extraction operation. Such gas would not be a taxable resource under the MRRT and would be taxed under the PRRT regime instead.
3.82 The second case involves turning coal into gas by consuming the coal in the ground, typically by a controlled burning of the coal (usually coal that it is not economic to mine conventionally). This is sometimes referred to as 'underground coal gasification'.
3.83 That gas is included under the MRRT, instead of the PRRT, to avoid subjecting coal that is mined and then converted into gas to a different tax regime from coal that is converted into gas before extraction. Such a difference could distort commercial behaviour. [Paragraph 20-5(1)(c)]
3.84 This second case is drafted widely enough to cover more than gas derived from the in situ conversion of coal ; it covers any in situ consumption of coal or iron ore. While consuming coal to produce gas is the only currently known operation of this type, the legislation is intended to cover possible future developments.
Valuation point
3.85 The valuation point is the point in the mining process that sets the form and location of the taxable resources used for working out what part of the proceeds of selling the resources is included in mining revenue. The valuation point also separates upstream activities (expenditure on which is deductible in working out the mining profit) from the downstream activities (expenditure on which is not deductible, although it may be relevant to working out how much of the sale price of the resources is mining revenue).
Normal valuation point for coal and iron ore
3.86 The usual valuation point for coal and iron ore is immediately before it leaves the run-of-mine stockpile. [Subsection 40-5(1)]
3.87 This means that expenditure on moving the resources to the stockpile, and expenditure on managing and maintaining the stockpile, is upstream of the valuation point and so will be mining expenditure recognised in working out the mining profit. Expenditure on moving the resources away from the stockpile will not be mining expenditure (although it may be relevant to working out how much of the sale price of the resources is mining revenue).
3.88 'Run-of-mine stockpile' is not defined in the legislation but is a well understood term in the mining industry. Most mines have such a stockpile. Synonymous terms include 'run-of-mine pad', 'run-of-the-mine stockpile', 'ROM stockpile' and 'ROM pad'.
3.89 The run-of-mine stockpile is the place where the coal or iron ore, largely in the form in which it is extracted, is stored. Although it may have undergone preliminary crushing for the purpose of moving it to the run-of-mine stockpile, it will not have been subject to any beneficiation processes.
Valuation point for coal and iron ore with no stockpile
3.90 In some cases, coal or iron ore mines may have no run-of-mine stockpile. The coal or iron ore might go straight into a beneficiation process or, in the case of coal, be transported directly to a power station. Even if the mine does have a run-of-mine stockpile, an occasional quantity of coal or iron ore might bypass the stockpile.
3.91 In those cases, the valuation point is immediately before the coal or iron ore enters the first mine site beneficiation process [paragraph 40-5(2)(a)] . If there is no beneficiation process at the mine site, the valuation point is instead when the resource leaves the point of extraction [paragraph 40-5(2)(b)] .
3.92 The legislation does not define 'beneficiation' but it is another term well understood within the mining industry. It relates to the processes by which the raw coal or iron ore is made more suitable for sale, export or use, usually by separating it from waste material, regulating its size, and improving its quality. It includes processes such as crushing, washing, screening, separating and pelletising. However, it would not include the preliminary crushing that is done for the purpose of facilitating transportation of the coal or iron ore.
Valuation point for gases
3.93 The MRRT taxes profits from gas that is produced by consuming coal in situ . It also taxes profits from gas that is extracted as a necessary incident of coal mining.
3.94 The valuation point for those gases is when they exit the wellhead. [Subsection 40-5(3)]
3.95 'Wellhead' is not defined in the legislation but is a well understood term in the gas and petroleum industries. It is the point at which the gas reaches the surface and enters storage facilities or pipes for transfer elsewhere. The wellhead typically incorporates equipment for controlling pressure in, and regulating the flow from, the well. Because the valuation point is when the gas exits the wellhead, expenditure on the wellhead is upstream of the valuation point and is therefore deductible.
Valuation point for earlier supplies
3.96 In all these cases, it is possible (although unusual) that the resource will be supplied to someone not involved in the mining undertaking before it reaches its normal valuation point. If that happens, the valuation point is immediately before that supply. [Subsection 40-5(4)]