2013

LEGISLATIVE ASSEMBLY OF THE
NORTHERN TERRITORY

TREASURER

REVENUE LEGISLATION AMENDMENT BILL 2013
SERIAL NO. 28

EXPLANATORY STATEMENT

GENERAL OUTLINE

This Bill amends the Mineral Royalty Act and the Payroll Tax Act. The changes made by the Bill form part of the 2013-14 Budget and take effect from 1 July 2013.

The Mineral Royalty Act is amended to:

·	cap the amount a royalty payer can claim as a transfer pricing factor or margin to a maximum of 5.5 per cent of the value of the relevant mineral, except where the royalty payer has a relevant transfer pricing arrangement in place with the Australian Taxation Office under Commonwealth income tax legislation or there has been a satisfactory ATO audit;

·	limit the deductibility of office expenses, management fees and labour costs to those costs incurred by an office located, or for work performed, in the Northern Territory in relation to the relevant production unit;

·	clarify that the Commonwealth’s minerals resource rent tax and carbon tax, imposed as a unit shortfall charge, are not deductible as operating costs; and

·	enable the mineral royalty Secretary and Territory employees to share information with the Commonwealth on royalty matters incidental to uranium mining.
 
The Payroll Tax Act is amended to align the payroll tax formulae with intended practice for the calculation of payroll tax liabilities.

NOTES ON CLAUSES

PART 1 – PRELIMINARY MATTERS

Clause 1.	Short title

This is a formal clause which provides for the citation of the Act. When passed, the Act may be referred to as the Revenue Legislation Amendment Act 2013.

Clause 2.	Commencement

Clause 2 provides that the Revenue Legislation Amendment Act 2013 will commence on 1 July 2013.

PART 2 – AMENDMENT OF MINERAL ROYALTY ACT

Clause 3.	Act amended

Clause 3 provides that this Part of the Bill amends the Mineral Royalty Act.

Clause 4.	Section 4A amended

Clause 4 amends section 4A(3)(c) of the Mineral Royalty Act to provide that where saleable mineral commodities are removed from a production unit without sale, and these mineral commodities are not valued in accordance with a relevant guideline issued pursuant to section 4E of the Mineral Royalty Act, or in conformity with an opinion of the Secretary under section 4F of the Mineral Royalty Act, the value is to be determined in accordance with new section 4AAA.

Clause 5.	Sections 4AAA and 4AAB inserted

Clause 5 inserts new sections 4AAA and 4AAB into the Mineral Royalty Act, which are to be applied by the royalty payer where there are no relevant guidelines or Secretary’s opinion to ascertain the specific value of a mineral commodity that is removed without sale from a production unit. 

New section 4AAA prescribes the method to be used to determine the gross value of saleable mineral commodities for the purpose of section 4A. 

New section 4AAA(1) provides that the gross value of the saleable mineral commodity that is removed from a production unit without sale is to be determined in accordance with section 4AAA where new section 4A(3)(c) applies. Section 4A(3)(c) applies where the value of the mineral commodity cannot be ascertained under the current provisions in sections 4A(3)(a) and 4A(3)(b) of the Mineral Royalty Act.

New section 4AAA(2) continues the operation of section 4A(3)(c) prior to the commencement of the Revenue Legislation Amendment Act 2013 in relation to a saleable mineral commodity, regardless of whether or not the commodity is subject to transfer pricing.

New section 4AAA(2)(a) provides that the gross value of a saleable mineral commodity that is removed from a production unit without sale is the open market price for the mineral commodity at the time it was removed from the production unit. New section 4AAA(2)(a) is based on section 4A(3)(c)(i) of the Mineral Royalty Act, which is being omitted by clause 4 of the Bill.

In line with the Secretary’s current practice, as set out in a guideline promulgated under section 4E of the Mineral Royalty Act, the contemporary and well-established meaning of the term “open market price” applies. 

Generally, the “open market price” is the price that would be negotiated in an open, unrestricted, competitive market between parties acting at arm’s length. For example, the price published by a well recognised commodities exchange or the price received from comparable arm’s length sales would fairly represent the open market price.

Rather than the “open market price”, new section 4AAA(2)(b) provides that the gross value of the mineral commodity may be the “alternative value” as established and substantiated by the royalty payer. This is consistent with section 4A(3)(c)(ii) of the Mineral Royalty Act, which is being omitted by clause 4 of the Bill.

This recognises that, in some instances, applying the open market price for a mineral commodity may not be equitable or appropriate. The onus remains with the royalty payer to establish and substantiate their claim as to the value of the commodity.

New sections 4AAA(3)(a) and 4AAA(3)(b) provide that where a saleable mineral commodity is dealt with by the royalty payer in a manner that involves transfer pricing, then the alternative value is to be determined: 

·	where the royalty payer has been satisfactorily audited by the Australian Taxation Office, in accordance with the transfer pricing methodology and figures that have been accepted by the ATO; or

·	where the royalty payer has an “advance pricing arrangement” with the Commonwealth, in accordance with the transfer pricing methodology contained in that arrangement.

The term “transfer pricing” is not defined in the Bill. Instead, the contemporary and well-established meaning of the terms “transfer pricing” and “transfer pricing methodology” apply. Furthermore, the concept of transfer pricing and its connection with value will be explained in greater detail in a guideline promulgated by the Secretary under section 4E of the Mineral Royalty Act. 

New section 4AAA(3)(c) provides that, if the royalty payer has not been satisfactorily audited by the ATO and if no advance pricing arrangement applies in relation to the royalty payer’s dealings with the commodity, the alternative value of a mineral commodity subject to transfer pricing must be calculated in accordance with new section 4AAB.

New section 4AAA(4) defines the term “satisfactorily audited by the ATO”, for the purposes of section 4AAA(3)(a), to mean audited by the ATO for the purposes of ensuring compliance with the Commonwealth’s income tax legislation, with the audit having considered and accepted the transfer pricing methodology and figures used by the royalty payer in preparing its income tax return as being appropriate and correct for the purposes of the “ITAA”.

New section 4AAA(5) defines:

·	“advance pricing arrangement”, for the purposes of new section 4AAA(3)(b), to mean an arrangement between the ATO and the royalty payer (whether unilateral, bilateral or multilateral) under which the parties agree on a transfer pricing methodology to be used by the royalty payer in accounting for the royalty payer’s dealings with saleable mineral commodities for the purposes of the ITAA. The ATO’s Practice Statement Law Administration PS LA 2011/1 currently explains the policies and procedures of its Advance Pricing Arrangement Program. 

·	“ATO” to mean the Commonwealth Commissioner of Taxation. 

·	“income tax return” to mean the return lodged with the ATO under the ITAA, together with any subsequent adjustments made and information lodged prior to the relevant ATO audit.

·	“ITAA” to mean either or both of the Income Tax Assessment Acts 1936 and 1997 of the Commonwealth.

New section 4AAB provides for the calculation of the alternative value of a mineral commodity where its sale is subject to transfer pricing and where the alternative value cannot be determined in accordance with new section 4AAA(3)(a) or (b) because the royalty payer has not been satisfactorily audited by the ATO and no advance pricing arrangement exists, respectively.

New section 4AAB(1) provides that the section applies to determine the alternative value for the saleable mineral commodity dealt with by the royalty payer in a manner that involves transfer pricing for the purpose of section 4AAA(2)(b) and where section 4AAA(3)(c) requires that the alternative value be determined under this section.

New section 4AAB(2) sets out the formula for calculating the alternative value for the saleable mineral commodity. The formula provides that the alternative value for the saleable mineral commodity (“A”) is equal to the “final value” for the saleable mineral commodity (“V”) multiplied by an amount equal to one minus the “substantiated TPF” (“T”). 

New section 4AAB(2) also caps the substantiated TPF to a maximum of 0.055, or 5.5 per cent. The cap limits the transfer pricing discount royalty payers are able to apply to the final value when calculating the alternative value of the saleable mineral commodity. 

It does not provide all royalty payers who engage in transfer pricing with the entire 5.5 per cent discount. Royalty payers will be required to establish and substantiate an appropriate transfer pricing factor to be used in the formula in accordance with new section 4AAB(4).

New section 4AAB(3) defines the “final value” of the saleable mineral commodity used in the formula prescribed in section 4AAB(2) to determine the alternative value of the saleable mineral commodity. 

New section 4AAB(3)(a) provides that the final value of the saleable mineral commodity is taken to be the price for which the mineral commodity was first sold in an arm’s length transaction between unrelated parties. 

New section 4AAB(3)(b) provides that where a saleable mineral commodity has not been sold to an unrelated party, the sale was not at arm’s length or for some other reason, the royalty payer may establish and substantiate another amount to be the final value of the saleable mineral commodity.

New section 4AAB(4) defines “substantiated TPF” as the amount established and substantiated by the royalty payer as the transfer pricing factor expressed as a percentage of the final value of the saleable mineral commodity.

Clause 6.	Section 4B amended

Clause 6 amends section 4B of the Mineral Royalty Act to limit allowable operating costs in the nature of labour costs, office expenses and fees for management services to costs incurred by an office located in the Territory and for work or services performed solely in the Territory. Labour costs, office expenses and fees for management services are deductible operating costs pursuant to sections 4B(1)(f), 4B(1)(g) and 4B(1)(h) respectively.

Subclause (1) omits section 4B(1)(f) and inserts new section 4(B)(1)(f) to limit the deductibility of labour costs to costs for work performed solely in the Territory during a pay period. Subclause (1) also clarifies the existing nexus with the production unit by ensuring that labour costs must be directly attributable to the operation of the production unit. 

Subclause (1) also omits section 4B(1)(g) and inserts new section 4B(1)(g) to limit the deductibility of office expenses to expenses that are incurred by an office that is located in the Territory and for work or services that are performed solely in the Territory. Subclause (1) also clarifies the existing nexus with the production unit by ensuring that office expenses must be directly attributable to the operation of the production unit.

Subclause (1) also omits section 4B(1)(h) and inserts new section 4B(1)(h) to limit fees for management services to fees for services performed solely in the Territory. Subclause (1) also clarifies the existing nexus with the production unit by ensuring that fees for management services must be directly attributable to the operation of the production unit. 

Subclause (2) inserts new sections 4B(1)(ra) and (rb) into the Mineral Royalty Act to clarify and maintain the existing position that the minerals resource rent tax, as defined in the Minerals Resource Rent Tax Act 2012 (Cth), and the carbon tax, imposed as a unit shortfall charge, as provided for by the Clean Energy Act 2011 (Cth), are excluded from being deductible operating costs.   

New section 4B(1)(rb) does not limit section 4B(1)(r) relating to taxes with respect to taxes on income or profits from “registered emissions units”.

Subclause (3) makes a minor consequential amendment to section 4B(1)(y) as a result of the insertion of new section 4B(1)(z). 

Subclause (4) inserts new sections 4B(1)(z), (1)(za) and (1)(zb) into the Mineral Royalty Act to ensure that expenditure that would ordinarily be classified by the Secretary (as is explained by the Secretary by way of guideline) as a labour cost, office expense or fee for management services, but do not meet the geographical nexus with the Territory contained in new paragraphs (f)(i), (g)(i) and (iii) and (h)(i), cannot be allowable as an operating cost under another item of expenditure listed in another paragraph contained in section 4B(1).

Clause 7.	Section 14 amended

Clause 7 makes consequential amendments to section 14 of the Mineral Royalty Act to ensure that the administrative information gathering powers of an authorized person to enter premises and inspect documents are extended to include information or documents relating to transfer pricing. The Secretary appoints authorized persons pursuant to section 13 of the Mineral Royalty Act.

Subclause (1) omits existing section 14(1)(c) and inserts new section 14(1)(c). New section 14(1)(c)(i) retains the current position regarding the power of an authorized person to enter premises where the person reasonably believes are kept documents relating to the operation of the production unit and production of the saleable mineral commodity. New section 14(1)(c)(ii) ensures that an authorized person may enter premises where the person reasonably believes transfer pricing documents of a kind that a royalty payer is required to retain under new section 17A are kept.  

Subclause (2) omits and inserts new section 14(1)(f) to ensure that an authorized person can inspect documents of a kind identified in amended section 14(1)(c). 

Clause 8.	Section 15 amended

Clause 8 makes a consequential amendment to section 15 of the Mineral Royalty Act to ensure that the Secretary and authorized persons can require responsible persons appointed for the production unit under section 10A to answer questions and produce documents relating to transfer pricing.

Clause 9.	Section 17 amended

Clause 9 makes consequential amendments to sections 17(1) and 17(2) of the Mineral Royalty Act to modernise and update the penalties imposed for non-compliance with the record keeping requirements contained in those sections. The new penalties are in line with the Government’s penalty policy for offences of this nature.

The penalties for these offences have not been updated since 1982 and no longer reflect contemporary values. The amendments made by clause 9 are necessary to align the penalties for offences in section 17 with those contained in new section 17A, which contains offences of the same kind and category. Amendments updating penalties are limited to section 17 to ensure consistency with new section 17A. Other penalties in the Mineral Royalty Act are unaffected by the amendments. 

Notwithstanding section 38C of the Interpretation Act, subclause (1) clarifies that the penalty provided for at the foot of section 17 applies to offences contained in both section 17(1) and section 17(2). This amendment reflects contemporary drafting practice whereby penalties are provided for after each offence rather than at the foot of the relevant section. Subclause (1) also increases the penalty for an offence in relation to section 17(1) from 40 penalty units to 200 penalty units to reflect contemporary values and bring the penalty in line with new section 17A.

Subclause (2) increases the penalty for offences in relation to section 17(2) from 40 penalty units to 200 penalty units to reflect contemporary values and bring the penalty in line with new section 17A.

Clause 10.	Section 17A inserted

Clause 10 inserts new section 17A into the Mineral Royalty Act to confirm that the record keeping requirements contained in section 17 also applies to documents that relate to transfer pricing. The record keeping requirements under new section 17A also ensure that royalty payers are able to comply with amended sections 14 and 15.

New section 17A(1) ensures that where saleable mineral commodities are removed from the production unit without sale in a manner that involves transfer pricing, royalty payers must comply with the requirements prescribed by new section 17A(2). 

New section 17A(2) provides that a royalty payer must retain certain documents where those documents are created by or come into the possession of the royalty payer. The documents required to be retained are those documents that are relevant for determining the gross value of the saleable mineral commodity. Consistent with the record keeping requirements contained in existing section 17, the documents must be retained at the production unit or some other place in Australia as agreed between the royalty payer and the Secretary, or in the absence of such an agreement, a place as determined by the Secretary. 

Non-compliance with this section may result in a maximum penalty of 200 penalty units, which is in line with the Government’s penalty policy for offences of this nature.

New section 17A(3) provides a non-exhaustive list of documents which are considered to be relevant for determining the gross value of the saleable mineral commodity and which the royalty payer must retain pursuant to new section 17A(2).

Clause 11.	Section 50 amended

Clause 11 amends section 50 of the Mineral Royalty Act to enable Territory employees to share information with other Territory employees and the Commonwealth on certain royalty matters incidental to uranium mining without breaching the secrecy provisions contained in section 50(1).

Subclause (1) makes a minor consequential amendment to section 50(2)(e) as a result of the insertion of new sections 50(2)(ea) and 50(2)(eb). 

Subclause (2) inserts new sections 50(2)(ea) and 50(2)(eb) to allow the communication of information or the production of a document by a Territory employee to another Territory employee or to the Commonwealth for the purposes of performing a power, duty or function under the Uranium Royalty (Northern Territory) Act 2009 (Cth).

The new paragraphs have been numbered (ea) and (eb) to account for the “applied law” as provided for by the Uranium Royalty (Northern Territory) Act 2009 (Cth), which includes paragraphs (f) and (g) in section 50(2) of the Mineral Royalty Act for the purposes of uranium royalties. These paragraphs provide for a Territory employee communicating information to the Commonwealth in certain instances.

Clause 12.	Part IX inserted

Clause 12 inserts into the Mineral Royalty Act new Part IX which provides for the transitional matters for the Revenue Legislation Amendment Act 2013. 

New section 56 ensures that the new transfer pricing provisions do not apply to the determination of the gross value of a saleable mineral commodity that was sold or removed without sale from the production unit prior to 1 July 2013.

New section 57 ensures that the amended operating cost provisions outlined in section 4B does not apply to the calculation of operating costs for a production unit for a “royalty year” that ends prior to 1 July 2013.  

The term “royalty year” is defined in section 4 of the Mineral Royalty Act.

New section 58 prescribes the process for determining the operating costs for a production unit for a royalty year where that year commences prior to 1 July 2013 and ends on or after 1 July 2013. 

New section 58(2) provides that the operating costs for the royalty year are the aggregate of:

·	the operating costs of the production unit incurred prior to 1 July 2013 and determined in accordance with the Mineral Royalty Act as in force prior to the commencement of the Revenue Legislation Amendment Act 2013; and

·	the operating costs of the production unit incurred on or after 1 July 2013 and determined in accordance with the Mineral Royalty Act as amended by the Revenue Legislation Amendment Act 2013.

New section 58(3) provides that where expenditure relates to a period prior to 1 July 2013 and a period on or after 1 July 2013, the expenditure is to be apportioned between those periods in a manner agreed between the royalty payer and the Secretary on or before 31 December 2013, or where no agreement has been reached, as determined by the Secretary.

New section 58(4) clarifies that an apportionment made under new section 58(3) may mean apportioning a whole amount to one period and none to the other period.

PART 3 – AMENDMENT OF PAYROLL TAX ACT

Clause 13.	Act amended

This clause provides that this Part of the Bill amends the Payroll Tax Act.

Clause 14.	Schedule 1 amended

Clause 14 amends the formulae in Schedule 1 to the Payroll Tax Act to ensure that the payroll tax annual deduction is calculated accurately for employers who change status during a financial year, such as employers that pay taxable wages or interstate wages for a part year only, or employers who join or leave a payroll tax group. 

The amendment provides that the employer’s threshold amount is adjusted prior to the annual deduction being determined.

Subclauses (1) and (2) make minor amendments to the definitions in clause 1 of Schedule 1 to the Payroll Tax Act by expanding the definitions of “employer’s threshold amount” to signpost the use of the acronym “ETA” and “group threshold amount” to signpost the use of the acronym “GTA”, as used in the amended formulae.

Subclause (3) omits the existing definition of “AD or annual deduction” in clause 3 of Schedule 1 to the Payroll Tax Act and inserts a replacement definition. This amends the formula in paragraph (b) of the definition of “AD or annual deduction” and replaces the reference to “TA” (meaning the threshold amount) with “ETA” (meaning the employer’s threshold amount, as defined in clause 4 of Schedule 1 to the Payroll Tax Act).

This calculation of “AD or annual deduction” is utilised in the formula in clause 5 of Schedule 1 to the Payroll Tax Act which calculates the payroll tax liability of an employer who is not a member of a group.

Subclause (4) amends clause 5 of Schedule 1 to the Payroll Tax Act by omitting and replacing the formula. This makes a minor adjustment to the formula by removing the part year adjustment (that part of the formula previously containing “C/FY”) as this calculation is now utilised in determining the annual deduction amount. 

Subclause (5) amends clause 7 of Schedule 1 to the Payroll Tax Act by omitting and inserting a new definition for “AD or annual deduction”. This amends the formula in paragraph (b) of the definition of “AD or annual deduction” by replacing the reference to “TA” (meaning the threshold amount) with “GTA” (meaning the “group threshold amount”, as defined in clause 8 of Schedule 1 to the Payroll Tax Act).

The calculation of the annual deduction, or AD, is utilised in the formula in clause 9(2) of Schedule 1 to the Payroll Tax Act. 

Subclause (6) amends clause 9(2) of Schedule 1 to the Payroll Tax Act by omitting and replacing the formula. This makes a minor adjustment to the formula by removing the reference to the part year adjustment (that part of the formula previously containing “C/FY”) as this calculation is now incorporated in determining the annual deduction amount. 

The formula in subclause (6) calculates the payroll tax liability of a designated group employer of a group who pays wages above the threshold amount and who has obtained the Commissioner’s approval to calculate payroll tax under this clause rather than the method under clause 14 of Schedule 2 to the Act.

Clause 15.	Schedule 2 amended

New clause 15 amends the formulae in Schedule 2 to the Payroll Tax Act to ensure that the payroll tax annual deduction is calculated accurately for groups who change status during a financial year.  A minor amendment to the formulae provides that a group’s threshold amount is adjusted prior to the annual deduction being determined.

Subclause (1) amends clause 14(2) of Schedule 2 to the Payroll Tax Act by omitting and replacing the formula. This amendment makes a minor adjustment to the formula by removing the part year adjustment (that part of the formula previously containing “C/FY”), as this calculation is now incorporated in determining the annual deduction amount.

This formula calculates the payroll tax liability of a designated group employer of a group who pays wages above the threshold amount and who does not have the Commissioner’s approval to calculate payroll tax under clause 9 of Schedule 1 to the Payroll Tax Act.

Subclause (2) amends clause 14(3) of Schedule 2 to the Payroll Tax Act by omitting the current clause 14(3) and inserting a replacement clause 14(3). This means that former definitions for “C” and “FY” have been omitted as these no longer appear in Part 3 of Schedule 2 to the Payroll Tax Act.

Subclause (2) also provides an amended definition for “AD or annual deduction”. This amends the formula in paragraph (b) of the definition of AD to replace the reference to “TA” (meaning the threshold amount) with “GTA” (meaning the group threshold amount, as defined in clause 8 of Schedule 1 to the Payroll Tax Act). 

This calculation of the “AD or annual deduction” is utilised in the formula in clause 14(2) of Schedule 2 to the Payroll Tax Act.