There are both stamp duty and GST implications when investing in Australian mining projects, but by factoring these costs into the acquisition and ensuring transactions are structured appropriately, investors can manage the impact of these taxes.
The issue of whether stamp duty applies to a mining transaction is not simple. It depends on the precise nature of the transaction and interests acquired.
Each Australian state and territory imposes duty on transfers of interests in land and goods transferred with land. Duty can also be imposed on transfers of certain mining tenements and other business assets. The types of property subject to duty, the rates of duty and the exemptions available differ between the jurisdictions.
Duty is imposed on a sliding scale of rates. These can be as high as 7.25 percent of the greater of the GST-inclusive consideration for the transfer, and the unencumbered value of the dutiable assets.
To determine the duty implications of an acquisition of an interest in mining assets, it is necessary to identify the particular assets and tenements being acquired, their location and their value. It is also important to consider any exemptions or concessions which may be available when structuring a transaction. For example, where an investor proposes to acquire an interest in an exploration tenement by entering into exploration and development expenditure commitments, a farm-in concession or exemption may be available if the transaction is structured properly.
Each state or territory also imposes landholder duty on certain acquisitions of interests in unlisted and listed companies and trusts holding interests in land (whether directly or indirectly) with a certain threshold value. Landholder duty is imposed at rates up to 7.25 percent of the unencumbered value of all landholdings in the particular jurisdiction and also on goods in certain jurisdictions. A concessional rate of 10 percent of the general rate applies in certain jurisdictions if the landholder is listed there.
Critical to the application of the landholder duty provisions is the concept of land, which is defined differently in each jurisdiction. In most jurisdictions, mining tenements are included as land and in some jurisdictions land includes anything fixed to land, regardless of whether it is a fixture at law.
Where an investor proposes to acquire an interest in an entity which directly or indirectly has mining interests in Australia, a detailed analysis of the underlying land assets and mining tenements and their value is required to determine whether the landholder duty provisions will apply.
As many mining transactions are of high value, complex and varied, there are a number of GST issues which need to be considered, particularly where overseas investors are involved, in particular:
- whether the transaction is ‘connected with Australia’ and therefore falls within the scope of Australian GST
- what each party is supplying and for what consideration (including non-monetary consideration such as obligations to incur exploration expenditure)
- registration for GST in Australia for any entities for which a GST liability or credit entitlement arises
- where there are multiple supplies, when is the GST liability likely to arise and can the transaction be structured to improve the cash flow impact of these supplies
- whether the parties to the transaction should be considered a GST joint venture or a tax law partnership
- the appropriate issue of tax invoices (including in whose name), especially in the context of a joint venture
- whether any supplies could be treated as a GST-free supply of a going concern
- ensuring appropriate GST clauses in the transaction documents, such as:
- warranties and indemnities covering off penalties and interest where a GST-free supply of a going concern is made, but later ruled to be taxable
- special clauses where a private ruling might be sought from the Australian Taxation Office (ATO) on the GST treatment of the transaction.
The ATO has issued public rulings on the income tax and GST implications of immediate and deferred farm-in/farm-out arrangements, which aim to provide some guidance to investors.
As interest in Australian mining projects continues to increase, there are opportunities and risks around the stamp duty and GST implications of these transactions; risks which can be proactively managed by prospective overseas investors.