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Proposed changes to mining companies' tax regime may appear to remove "concessions" unavailable to other companies, but in reality, taxes will not necessarily be paid much earlier if mines are in development phase.
Instead of holding a "stock" of losses from accelerated tax deductions from development expenses, to later offset tax liabilities, the value of each tax deduction would have to be taken, incrementally, into account annually.
However, whether under the existing tax regime, or the new proposed regime, no tax is paid anyway until a mine produces, for example, gold.
Under the Government-proposed changes to mining company taxes, in tandem with a separate royalty rates review, the Income Tax Act includes a special regime for the taxation of 50 "specified minerals", associate director of tax at Deloitte in Dunedin, Phil Stevenson said.
"The specified mineral regime is one of the last examples of `low hanging fruit' in the tax system, ripe for picking," he said.
While the reforms, proposed in a Taxation of Specified Mineral Mining paper, are not a revenue-raising measure for the Government, they will result in some money going to Government coffers earlier.
"The major effect will be on existing operators who don't have any tax losses and have a development programme under way. They will get no [tax] shelter," Mr Stevenson said.
The special regime includes gold, ironsand and silver, while oil, gas and coal are not specified minerals and are excluded, he said.
"Businesses operating in this regime are subject to these special rules, which are generally considered to be very concessionary," Mr Stevenson said.
Some of the key concessions at present include immediate tax deductions for expenditure, which would normally be capitalised and depreciated over the useful life of the mine.
Also, there are tax deductions for money set aside for mining exploration, or mine development, which will be applied for those purposes within two years, Mr Stevenson said.
"For example, a miner extracting specified minerals may claim immediate deductions for expenditure on land, plant or machinery, production facilities and preparing the site for mining operations," he said.
At present an existing gold mining company, installing $6 million of production equipment and announcing a separate $8 million drilling programme, can immediately build up $14 million "stock" of tax losses and carry that over, indefinitely, through several financial years.
Once the mining area in question becomes productive, and the company begins paying tax, the $14 million of tax losses can be used to dilute the amount of tax owed on production.
"The overall effect of the [current] specified mineral tax rules is that a miner's income tax liability can be deferred for significant periods of time," Mr Stevenson said.
Under the proposed new rules, it appeared companies who have tax losses from accelerated deductions under the current rules; such as the $14 million example, would be able to continue to carry forward those tax losses and use them against income in future years, as they do at present, Mr Stevenson said.
Mr Stevenson said for companies with existing mining operations it would be "difficult if not impossible" to recast tax positions taken in prior years, but fortunately it appears the new rules apply to new expenditure only, meaning the impact would be minimal on existing miners.
"It appears that the new rules will apply to new expenditure only and there is no adjustment required on transition to the new rules," he said.
For the existing miner developing a new area, who is paying tax on existing gold production, they would not claim the tax deductions until the new area produced gold, but they would have to track spending on assets under both the old rules and new rules.
"This proposal is an `easy sell' politically. The Government will not be seen as grabbing [more tax] revenue, while also seen to be reviewing and correcting a perceived bias within the tax system," Mr Stevenson said.
He cautioned that the mining-specific tax changes could however have wider implications later, if for example they migrated to other tax regimes, which covered farmers or foresters.
Should farmers build a fence for example, they could at present write off the entire cost immediately, but under any similar changes to their regime they would have claimed that cost back over time.
Mr Stevenson noted that the mining and production of ore was "hard on all its equipment" and the Government would have to make allowances for that when considering depreciation rates.