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I rise to speak in favour of this Bill.
The changes to immediate deductibility that the Bill seeks to enact were committed to by the Gillard Government in March last year and legislated by the Coalition this month as part of a package of bills to restore simplicity, fairness and integrity to the Australian tax system.
This Bill seeks to better target tax deduction on expenditure granted to the taxpayer to ‘genuine exploration activity’ in the procurement of mining exploration rights and information. In order to give my fellow Members background to the concerns which gave rise to the Bill, I quote from a statement by the Gillard Government Treasury on the 14th of May 2013:
“Some taxpayers are claiming an immediate deduction for mining rights and information purchased at a late stage, after natural resources have effectively been discovered. If the purchaser then undertakes some limited additional 'confirmatory' activity, they can claim an immediate deduction for the full purchase price. This means that the immediate deduction is effectively claimed for the value of natural resources that have already been discovered.”
The Gillard Government announced in mid-2013 that it would legislate to revoke immediate deductibility for assets first used in mining exploration (with the exception of mining rights acquired from the Government and farm-out arrangements).
In recent years, concerns have arisen that immediate deductibility was being taken advantage of in cases where no ‘genuine exploration’ is intended, such as the case in which a taxpayer is already aware that a commercial opportunity exists in the area targeted for exploration. The imaginary scenario provided in the previous Government’s proposal paper outlined a situation in which initial mining rights by ‘Explorer Co’ are met with an immediate 10 million dollar deduction after ‘Explorer Co’ carries out significant exploratory work on a site at considerable cost.
However, ‘Explorer Co’ goes on to sell mining rights to the same site to ‘Miner Co’ for 300 million dollars. Now, ‘Miner Co.’ may carry out some minor ‘confirmatory’ exploration work in relation to the same site, which had already been subject to exploration by ‘Explorer Co’, but is essentially already aware that the site contains the resources which are being sought for commercial exploitation.
But Explorer ‘Co’ goes on to claim an immediate deduction of 300 million dollars for the cost of acquiring the mining rights, despite carrying out only cursory ‘confirmatory’ exploration work. This scenario is the essence of the integrity and tax erosion concern that the Government has and provides a clear example of the way in which industry practice is going beyond the original policy intent of the Income Tax Assessment Tax (1997).
To summarise the purpose of this Bill I quote from the Explanatory Memorandum:
“This bill is an integrity measure which is designed to ensure that the immediate deduction for rights and information fulfils its original purpose of encouraging genuine exploration. There was evidence that the immediate deduction was being used to obtain a deduction for the value of resources already discovered rather than for the right to search for yet to be discovered resources. This is outside the policy intent of supporting genuine exploration.”
Therefore, these changes were announced by the previous Government with the aim of protecting the tax base from erosion and restoring integrity in taxpayer’s deductibility claims for the purchase of mining rights and information from another taxpayer. This is an intention to guide tax policy which the Coalition fully supports and is now implementing.
Once the legislation is in effect, expenditure on assets used in exploration by taxpayers will depreciate over the life of the asset or over fifteen years, whichever comes first.
The initial acquisition of mining rights and information from government issuing authorities will not be affected by the changes, as it is industry practice in acquiring exploration rights from other taxpayers that is presenting an integrity concern.
The components of the Bill also still provide immediate deductibility to expenditure incurred following the generation of new mining information or the acquisition of geophysical or geological information data packages.
Furthermore, co-exploration agreements or “farm-in farm-out” arrangements, which often involve small explorers, will not be affected. These arrangements grant third party access to a mineral interest for the purposes of testing, drilling or exploration.
It is also important that the Government will continue to provide immediate deductibility for the costs incurred by a taxpayer themselves in generating new information or improving existing information.
All of these exceptions demonstrate that the Bill does not seek to merely protect the tax base or save money by removing concession measures. Rather, it seeks to provide tax concessions for genuine exploration activity.
There are a number of benefits to the mining sector, the government, and the Australian people which we will gain as a result of passing this legislation.
Firstly, projected revenue in excess of $1 billion over the forward estimates will be credited to the government from reduced or targeted tax concession to the acquisition of mining rights and information.
Secondly, this is an integrity measure, and as such an essential in protecting the tax base from erosion by overuse and misuse of tax concessions. Just as one duty of government is to provide tax concessions to activities and initiatives which benefit the Australian community or take the strain off the public sector, it is an inherent obligation of government to protect the tax base from misuse and to preserve concessional tax measures for the purpose for which they were originally intended. It is only by preserving the tax base that the Government can continue to incentivise those activities which provide significant spill-over benefits to the economy.
Thirdly, by limiting tax concessions to genuine instances of exploration, the government will provide incentive measures for genuine exploration while resolving significant integrity concerns.
By changing concessions to the mining sector from immediate deductibility to depreciation over the shorter of fifteen years or the life of the asset, this Bill ensures that while concessions remain, they will be better targeted to the original intent of the concessional measures.
It also ratifies the original policy intent of the measures, which should always be in mind when Governments amend legislation, and ensures that tax concessions are only granted for activities which legitimately benefit the Australian community and economy, not exploration rights sought for the purposes of deductibility.
Ultimately, the Bill restores and maintains the integrity of the tax system and mining sector interaction with the system.
In legislating in this area, the Government is remembering how important it is to continually re-evaluate how taxpaying bodies interact with tax concession schemes to better target those activities which have spill-over economic benefits for Australia.
A further benefit which was at the forefront of the Government’s mind when introducing this suite of legislation was certainty. When business is met with instability and hesitation in projected legislation, it is afflicted with operational uncertainty.
This was the case in this area of legislation. When the Coalition assumed government last year, we found that as many as 96 measures in the area of taxation and superannuation reform had been announced or proposed and then never legislated. Some of these announcements dated as far back as March 2001, a case of governmental procrastination which had become unacceptable, given the impact that such announcements have on the business community and the decisions it makes about how it is to operate.
Operational uncertainty is one of many consequences of unstable and irresponsible government which paralyses the market. By finally legislating in this area and providing business with certainty as to government policy, the Coalition is providing certainty to businesses and consumers, boosting consumer confidence in a new way.
I want to speak briefly about the Coalition’s appreciation for the mining sector. This is and always will be a pro-Mining Coalition. The Government supports the mining sector because the Government wants to see a strong Australia and a strong economy which produces jobs for Australian workers.
Indeed, the Mining Sector has provided Australia with one of the most significant areas of economic and jobs growth that we’ve seen over the past twenty years. Our minerals and resources sector has been the great wave of growth that our country has ridden into the twenty-first century. It is a cause of great national pride and government should not seek to hinder or clamp down on the productivity of the sector.
However, the Government’s strong pro-Mining and pro-exploration stance does not mean the Government will sit back and relax about tax base erosion or integrity concerns.
It is because we support mining activity to such an extent that we have to safeguard the sustainability of the sort of tax concessions we provide the sector. If we continue to see the sort of tax-base-erosion that has been produced by the increasing number of deductibility claims in this area, the Government will be unable to deliver on its intention to provide tax concessions.
Put simply, threats to Australia’s tax base are ultimately a threat to Australia’s sovereignty. Our aim entering the election period was to restore integrity and fairness to the Australian taxation system, and this Bill is one measure which goes towards fulfilling this aim.
Furthermore, we are resolving the legislative backlog which resulted from years of governmental procrastination and stagnation. Such backlogs produce operational uncertainty in business, in this case within the mining sector.
Ensuring the compatibility of the Australian tax system with a productive private sector, especially in the case of Australia’s signature resource sector, has always been a priority of the Coalition. However, it must be fair and simple, and any amendments must be delivered on with legislation so that we do not cause unrest or uncertainty for business. This commitment is in line with our pledge to provide stable and predictable government.
Restoring integrity to our tax system and resolving the legislation backlog left by our predecessors is an ongoing task. However, the progress on these goals accomplished by this legislation is significant, and this is a Bill worthy of your support.
I commend the Bill to the House.