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Should the MRRT result in profits being recorded?


18 July 2011: Professional services firm Deloitte believes that the application of Australian Accounting Standards Board (AASB) Interpretation 1003 which is likely to classify the Minerals Resource Rent Tax (MRRT) as an ‘income tax’ for accounting purposes could substantially increase the after tax profits of some mining companies in the year of implementation, even if they aren’t liable to pay the MRRT.

National Mining Leader, Tim Richards, said “We could see some companies never pay a cent in MRRT but, because they still have to account for it as an income tax, their overall tax expense will be distorted, particularly in the first year when the future tax benefit is recorded.”

“That’s because where a company elects the market value option it will record an initial ‘up front tax gain’ arising from the excess of the market value over the book value at transition. This deferred tax asset then reverses over the life of the mine, which significantly impacts profitability,” Mr Richards said.

“It’s a counterintuitive outcome that begs the questions how it’s possible for them to make an after tax accounting gain from being subjected to a new tax,” he said.

Mr Richards said the Australian interpretation of the MRRT as an ‘income tax’ was out of step with international accounting conventions and was likely to disadvantage our companies internationally.

“Even though the MRRT may mimic an income tax in some respects, the reality is that companies are being asked to pay an economic rent– an amount which has no consistent link with accounting profits, because of the unpredictability of many factors such as commodity prices and interest rates.”

“In our view, the International Financial Reporting Standards (IFRS) provides companies with a choice to interpret conceptually similar taxes as royalties and account for them accordingly. Given the potentially negative impact of choosing to interpret similar taxes as an income tax, you would have to question why any company would do so if given the choice not to,” he said.

“Australian resource entities are competing for capital on a world stage and the current interpretation issued by the AASB would force them to account for the MRRT in a potentially damaging way that comparable international companies are not subject to.”

“The easiest way to overcome many of the accounting issues relating to the MRRT is for the AASB to consider withdrawing Interpretation 1003 as soon as possible.”

Last Updated: 


Eileen Kerrigan
Job Title:
Corporate Affairs & Communications
Tel: +61 3 9671 6910, Mobile: 0412 499 683
Tim Richards
Deloitte Australia
Job Title:
Partner, Clients & Markets
Tel: +61 8 9365 7248




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