Are you involved with a mining company? At a glance: The ATO ( Australian Tax Office ) is warning mining companies about entering into arrangements that allow them to claim an immediate deduction for future mining rehabilitation's.
In a recent Taxpayer Alert, the Tax Office has warned mining companies about schemes which aim to bring forward tax deductions for mining rehabilitation.
According to the Tax Office, the schemes operate as follows: - The mining company has a future obligation to rehabilitate the mine site after mining ceases; - The mining company pays for and enters into an arrangement with an offshore entity which agrees to carry out rehabilitation of the mine site in the future; - The mining company then claims an immediate tax deduction for the payment while the offshore entity does not declare the payment as assessable income in the financial year it receives it.
In some cases, the offshore entity may be an intermediary or related party of the mining company usually located in a tax haven.
The Tax Office has warned that such arrangements may result in various taxation issues including: - whether the arrangements are shams; - whether the mining company is entitled to the deduction; - whether the deduction may be reduced as a non-arms length transaction; - whether the income received by the offshore entity is assessable Australian sourced income; and - whether other provisions of the tax legislation apply; such as the transfer pricing and controlled foreign company provisions.
Remember: Ensure you are aware of the ATO's warning about mining rehabilitation schemes.
Visit the Australian Taxation Office website for more information about the mining rehabilitation schemes.