The duffer’s guide to the Resources Super Profits Tax
The Government says the old tax system has failed to keep pace with the spiralling profits generated by the big miners. The miners believe the new tax is not a tax on “super profits” but on very mild profits.
This is how the tax would work.
Under the current system, mining companies pay 5 per cent of annual income to the state where they operate as royalties.
A company earning $300 million in revenue would pay royalties of $15 million.
It then pays federal company tax. This is calculated by deducting operating expenses of say $100 million, another $95 million for depreciation of equipment and $5 million for interest on money borrowed to pay for day-to-day running of the business.
It also subtracts the $15 million royalty paid to the state. That gives a figure of $85 million which is taxed at 30 per cent – a total of roughly $26 million.
When added to royalties it leaves a total tax bill of $41 million, (41 per cent tax.) Under the proposed super profits tax, companies still pay the same amount for royalties.
The super tax kicks in after a company earns more than the government long-term bond rate (currently 5.7 per cent).
To calculate the super tax on $300 million a company deducts the $100 million operating expenses, $95 million for depreciation and a capital allowance from the Government to offset set-up expenses of about $5 million.
That leaves a total of $100 million, taxed at 40 per cent – or $40 million. The royalty already paid is then deducted, leaving a total of $25 million.
Company tax at the new lower rate of 28 per cent is then calculated using the existing equation, except the $25 million super tax is also deducted, leaving a total of $60 million to be taxed.
That would mean the company owed $17 million.
When the royalty, super tax and company tax are combined it comes to $57 million – or an effective tax rate of 57 per cent.
If a company fails to turn a profit, the government would reimburse 40 per cent of its initial investment.
Lowering the company tax rate to 28 per cent means miners who make a small profit will pay less tax.
The tax is retrospective and will be applied to projects already underway. The Government will reap upwards of $12 billion in the first two years, with a third going to a scheme to lift superannuation levies from 9 per cent to 12 per cent.