Issue
Does subsections 85-5(1) of the Minerals Resource Rent Tax Act 2012 (MRRTA) and 117-20(2) of Schedule 1 to the Taxation Administration Act 1953 (TAA) apply to a starting base asset that was held in relation to a mining project interest for part of the MRRT year by the entity even though the entity does not hold that asset at the time that the starting base return is lodged?
Decision
Yes. Subsections 85-5(1) of the MRRTA and 117-20(2) of Schedule 1 to the TAA apply to the starting base asset even though the entity does not hold that asset at the time that the starting base return is lodged as the entity held the asset and had the mining project interest to which the asset relates on 1 July 2012.
Facts
The entity had a mining project interest and held starting base assets relating to the interest on 1 July 2012. The entity disposed of one of the starting base assets, a truck, on 1 August 2012. The entity chooses to use the market valuation approach to apply to the starting base assets in relation to the mining project interest under section 85-5 of the MRRTA and lodges its starting base return relating to the interest. The entity does not hold that truck at the time that the choice of valuation approaches is made and the starting base return is lodged.
Reasons for Decision
All references are to the MRRTA unless otherwise stated.
The choice of valuation approaches made under section 85-5 determines the initial base value of a starting base asset (sections 90-25 and 90-40). Under subsection 85-5(1), an entity may choose a valuation approach to apply to all starting base assets, or assets expected to be starting base assets after the start time (expected starting base assets), that the entity holds that relate to a mining project interest that it has (or a pre-mining project interest that it holds).
Subsections 117-20(1) and (2) of Schedule 1 to the TAA provide that the entity needs to lodge a starting base return if it makes a choice under section 85-5. The return must relate to all starting base assets and all expected starting base assets that the entity holds that relate to the mining or pre-mining project interest to which that choice relates.
The MRRT meaning of 'hold' broadly adopts the income tax definition for capital allowances purposes (see section 40-40 of the Income Tax Assessment Act 1997 (ITAA 1997)) which generally refers to the legal owner of the asset. As subsection 117-20(2) of Schedule 1 to the TAA and subsection 85-5(1) specify that the valuation approach choice and the starting base return applies and relates respectively to all starting base assets, or expected starting base assets, that the entity holds in relation to the mining project interest, or pre-mining project interest, a question arises whether these provisions should be read to mean the entity must hold the relevant asset at the time of making the choice and lodging the return. Such an interpretation would mean that the starting base asset disposed of by the entity on 1 August 2012 cannot be covered by the valuation approach choice it makes and the starting base return it lodges.
The alternative interpretation is that subsection 117-20(2) of Schedule 1 to the TAA and subsection 85-5(1) do not require the entity to hold the relevant asset at the time of making the choice and lodging the return. Rather, the words 'hold/holds in relation to the mining project interest' refer to a relationship between the mining project interest and the starting base assets relating to the interest. This relationship is satisfied if: • for a mining project interest, an entity has the mining project interest and holds the starting base asset relating to the interest on 1 July 2012 or • for a pre-mining project interest, an entity holds the pre-mining project interest and the expected starting base asset relating to the interest on 1 July 2012.
The consequence of this interpretation is that so long as the entity that has the mining project interest, or holds the pre-mining project interest, also holds the relevant asset on 1 July 2012, the valuation approach choice and starting base return will cover that asset. This means that the starting base asset disposed of by the entity on 1 August 2012 is covered by the valuation approach choice and the starting base return because the entity has the mining project interest and also holds the starting base asset on 1 July 2012.
Section 15AA of the Acts Interpretation Act 1901 (Cth) as amended provides that 'In interpreting a provision of an Act, the interpretation that would best achieve the purpose or object of the Act (whether or not that purpose or object is expressly stated in the Act) is to be preferred to each other interpretation'.
Therefore, the interpretation of subsection 117-20(2) of Schedule 1 to the TAA and subsection 85-5(1) needs to be considered in light of the objects of the starting base allowances provisions and the provisions under Part 3-5 as a whole.
Broadly, the MRRT recognises certain investment made before 2 May 2010 at book or market value through the application of a starting base allowance. The amount of starting base allowance is determined, among other things, by the amount of starting base loss available.
So far as is relevant here, subsection 80-20(1) provides that a starting base loss arises for a mining project interest for an MRRT year if at the same time during the year, the same entity has the mining project interest and holds a starting base asset relating to the mining project interest.
Subsection 80-40(1) then provides that the amount of the starting base loss is the sum of the declines in value of all the starting base assets that: (a) relate to the mining project interest for which the starting base loss arises, and (b) were held, for any time during the year, by a miner that had the mining project interest during the year.
Both subsections focus on the relationship between the mining project interest and the starting base assets relating to the interest. In particular, they focus on whether the asset and the interest have been held by the same entity for any time during the MRRT year. As long as there has been such a relationship between the relevant interest and the asset, a starting base loss in respect of the asset will arise and an amount can be worked out (by reference to the period when such a relationship exists). This is the case even if the identity of the entity has changed from time to time during the year.
Further, both subsections apply only to starting base assets. An asset will not be a starting base asset if, among other things, the entity did not hold the asset and had the relevant mining project interest or the pre-mining project interest at the same time just before 1 July 2012 (subparagraph 80-25(3)(b)(iii)).
As the MRRTA commenced on 1 July 2012 (section 1-5), it is apparent that the policy intent of subsections 80-20(1) and 80-40(1) is to apply to assets that existed at 1 July 2012 where the entity that held the asset also had the relevant mining project interest or held the relevant pre-mining project interest at that time. Moreover, a starting base loss can arise under these subsections for starting base assets that are disposed of during an MRRT year.
Therefore, having regard to these provisions, the interpretation that would best achieve the purpose or object of the starting base allowances provisions is that subsection 117-20(2) of the TAA and subsection 85-5(1) apply to a starting base asset or expected starting base asset if the entity that held the asset on 1 July 2012 also had the mining project interest or held the pre-mining project interest, to which the asset relates at that time. That is subsection 117-20(2) of Schedule 1 to the TAA and subsection 85-5(1) do not require the entity to hold the starting base asset or expected starting base asset at the time of making the choice and lodging the return.
It follows that subsection 117-20(2) of Schedule 1 to the TAA and subsection 85-5(1) apply to the starting base asset that was disposed of by the entity on 1 August 2012. The entity is able to make a valuation approach choice and lodge a starting base return for the mining project interest that covers the asset. Note : broadly, no starting base loss will ever arise for an expected starting base asset if the asset is disposed of before the mining project interest that originated from the pre-mining project interest to which the asset related commences commercial production. This is because such an asset will never become a starting base asset. This is the case even if the asset is included in the starting base return .