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Overview of the Mineral Royalty Scheme
The mineral royalty scheme
The Mineral Royalty Act levies a royalty on recovery
of mineral commodities from a mining tenement in the Northern Territory. It is
not a tax but a charge for resource usage and is payable by the holder of a
mining tenement to the Government as owner of the site or the mineral rights
over the site. The overall objective of the Act is to maximise the contribution
of the mining industry to the long-term welfare of the Northern Territory.
The Act is a profit based royalty regime that uses the Net Value of a mine’s
production to calculate royalty instead of production value or tonnage. This
approach results in a far more equitable regime than value and tonnage based
royalties, which do not adequately allow for the fluctuating fortunes of the
mining industry. Furthermore, other regimes generally do not allow for the high
costs of remote deposits and low grade or hard-to-mine ore. The Northern
Territory mining industry benefits from this system in several ways:
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Both prices and mining costs are taken into account in royalty
calculations. If production costs rise or fall, royalty may decline or increase
accordingly. |
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Royalty will generally be payable in years when ability to pay is the
greatest. |
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Mines operating in isolated locations or with high costs of extraction may pay less royalty than mines in good locations or with simple operations. |
If it is more costly to extract ore from deeper sections of an ore-body, less
royalty will be paid. If low-grade core results in less production and less
sales, then less royalty will be payable.
Minerals and mines that the scheme applies to
The Mineral Royalty Act applies to most mines and
mineral commodities in the Northern Territory with the exception of quarries for
extractive minerals, uranium mines (which have been exempted until the ownership
of uranium is transferred from the Commonwealth to the Territory) and mines
operating under specific royalty agreements.
Rate, calculation and payment of royalties
The Mineral Royalty Act levies royalty at a rate of 18
per cent of the Net Value of mineral commodities sold or removed from a
production unit, regardless of the type of mineral commodity or whether the mine
is situated on Crown, freehold, leasehold or aboriginal land. Net Value is
calculated as follows:
Net Value = GR – (OC + CRD + EEE + AD)
where –
GR is the gross realisation from the production unit;
OC represents the operating costs of the production
unit for the royalty year;
CRD is the Capital Recognition Deduction on eligible
capital assets expenditure;
EEE is any eligible exploration expenditure; and
AD represents additional deduction as approved by the
Minister.
A "production unit" is a mining tenement or two or more mining tenements
operating as part of an integrated operation. It also extends to other
facilities (whether or not adjacent to the mining tenements) that are essential
for the production of a saleable mineral commodity.
Net value for royalty is thus defined as the value of
minerals sold or removed without sale plus an adjustment for assets disposed of,
less
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All operating costs directly attributable to the production of saleable
mineral commodity including certain marketing and administration costs, except
income tax, royalty and royalty-like payments; |
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An allowance for capital investments called Capital Recognition Deduction
(CRD). CRD is akin to depreciation and incorporates an interest rate factor
(based on the Australian Federal Securities long term bond rate plus 2 per
cent) over a CRD life category life category of 3, 5 or 10 years. The CRD life
category is based on the period over which depreciation is allowed for income
tax purposes. [Click here] for CRD factors. |
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Eligible Exploration Expenditure; |
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Approved negative Net Value from previous years, which can be carried
forward provided the production unit continues to operate, if approved by the
Department; and |
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Any additional deductions under section 4CA of the Act. |
Furthermore, the first $50 000 of Net Value is not liable to
royalty. This exempts a number of small mines from royalty payment entirely.
Royalty is payable by six monthly provisional payments. An
annual return detailing the actual royalty payable together with payment for any
additional liability must be lodged within three months after the end of each
royalty year. Penalties apply if the sum of the provisional payments is less
than 80 per cent of the actual royalty payable.
Eligible Exploration Expenditure (EEE)
Royalty payers may reduce up to 25 per cent of the royalty payable ("the
deduction cap") by claiming eligible exploration expenditure (EEE) incurred on
exploration work, whether performed in or outside of the Territory, on mining
tenements that form part of their production unit. Expenditure incurred under an
exploration retention lease that the tenement was derived from can also be
claimed.
From 1 July 2003, EEE incurred in a royalty year that exceeds the deduction
cap, or could not be claimed because of a negative Net Value position, can be
carried forward and claimed in future royalty returns. Previously, excess or
unused EEE (except that represented by an Eligible Exploration Certificate - see
below) could not be carried forward.
Eligible Exploration Certificate (EEC) Scheme
Prior to 1 July 2003, miners and explorers that incurred EEE
for work actually performed in the Northern Territory, whether on a mining
tenement or an exploration licence could make application to Territory Revenue
Management for
an EEC. The certificate represented proof of the EEE incurred, which could then
be claimed by, or traded to, a miner to reduce their royalty liability. There
was no limitation on the period that a certificate could be used to reduce a
royalty liability.
As from 1 July 2002, the EEC scheme was abolished with
transitional arrangements to allow for certificates issued for worked performed
up to that date to be claimed to reduce a royalty liability until 30 June 2010.
However, miners that continue to incur such expenditure on their production unit
can continue to claim such expenditure as detailed above.