2013 Budget – Changes affecting the mining sector

The Federal Government’s 2013-2014 Budget (the Budget) contains a number of changes to existing tax rules some of which are expected to have adverse implications on the mining sector.

Changes to accelerated tax depreciation arrangements

The Federal Government announced immediate changes to Australian tax laws which impact income tax deductions available to mining companies. The changes defer deductions for the cost of acquiring mining rights (e.g. exploration permits or mining leases) and information which is first used in exploration, from an immediate deduction to a deduction spread over:

• 15 years; or
• the life of the mine, whichever is shorter.

Although full details are yet to be released, the following expenditure will continue to be immediately deductable:

• costs of acquiring mining rights and information from government authorities;
• costs incurred in generating new information or improving existing information; and
• mining rights acquired under a recognised “farm-in, farm-out’ arrangement.

The changes apply to taxpayers who start to hold the mining right or information after 14 May 2013.

These changes may significantly impact the acquisition prices of exploration assets and also have the potential to inhibit junior mining companies ability to obtain investment through the sale of prospective interests to investors on a full or partial cash basis.

Practically, there are also a number of issues surrounding the 15 year or life of mine deduction mechanisms which are yet to be clarified.

Reduction in funding for mining and energy initiatives

Funding has also been significantly reduced to the following mining and energy initiatives in the Budget with:

• $500 million withdrawn over three years from the Carbon Capture and Storage Flagships Program;
• $370 million deferred over three years from the Australian Renewable Energy Agency;
• $274 million withdrawn over two years from the Coal Sector Jobs package;
• $88 million withdrawn over two years from the National Low Emissions Coal Initiative; and
• $29 million withdrawn over two years from the Coal Mining Abatement Technology Support package.

For further details, please visit the Federal Government Budget website. 

Environment Protection and Biodiversity Conservation Amendment Bill 2013

The Environment Protection and Biodiversity Conservation Amendment Bill 2013 (the Bill) was introduced into Parliament on 13 March 2013 and proposes to amend the Environment Protection and Biodiversity Conservation Act 1999 (EPBC). The purpose of the Bill is to establish a new matter of national environmental significance (NES) in relation to the impacts coal seam gas and large coal mining development (together, the Developments) have on water resources.

According to the explanatory memorandum, the Bill proposed two major changes by:

• Implementing civil penalties and offence provisions (similar to those that already existing the EPBC for existing NES) for taking an action involving the Developments that has, will have or is likely to have a significant impact on a water resource, without obtaining an approval or an exemption from approval under the EPBC; and
• ensuring the impacts that the Developments have on water resources are assessed at a national level, in accordance with the assessment process under Part 8 of the EPBC.

The type of Developments that will be affected by the Bill are those that include “activities involving extraction”. Consequently, any part of the Developments that do not form part of the extraction process will not fall within the ambit of the Bill. For example, the definition of Coal Seam Gas Development would not generally include infrastructure used to transport coal seam gas, as this does not form part of the extraction process.

A ‘Water Resource’ includes surface water, ground water, a watercourse, lake, wetland or aquifer (whether or not it currently has water in it). A Water Resources includes all aspects of the water resource, including water and organisms.

Should the Bill be passed by Parliament and receive Royal Assent, the new provisions may apply to projects where development assessment or EPBC approval has already commenced. However as much as possible, the transition provisions are designed to minimise disruption to the assessment of existing projects.

The Department of Sustainability, Environment, Water, Population and Communities also intends to develop guidelines which set out the criteria to assist decision makers assessing whether a proposed action will have a significant impact on a matter of national environmental significant and subsequently require assessment and approval under the EPBC. The proposed guidelines will not be legally binding.