Public Ruling MRA003.1 Determination of royalty for certain minerals

A public ruling, when issued, is the published view of the Commissioner of State Revenue (the Commissioner) on the particular topic to which it relates. It therefore replaces and overrides any existing private rulings, memoranda, manuals and advice provided by the Commissioner in respect of the issue(s) it addresses.

Where a change in legislation or case law (the law) affects the content of a public ruling, the change in the law overrides the public ruling—that is, the Commissioner will determine the tax liability or eligibility for a concession, grant or exemption, as the case may be, in accordance with the law.

What this ruling is about

  1. The purpose of this public ruling is to provide guidance on the calculation of royalty for all minerals subject to royalty under the Mineral Resources Act 1989 (Mineral Resources Act) for a return period, other than:
    1. coal1
    2. cobalt, copper, gold, lead, nickel, silver and zinc (prescribed minerals)2
    3. iron ore, manganese, molybdenum, tantalum and tungsten (specified minerals)3
    4. uranium
    5. coal seam gas.4
  2. The Mineral Resources Act requires a person (a producer) to pay royalty as prescribed in respect of that mineral, if the person is:
    1. the holder of a mining claim, mining lease or other authority (authority) who mines or allows to be mined mineral from the area of that authority5

    or

    1. a person who mines mineral from land other than under an authority.6
  3. Under the Mineral Resources Regulation 2013 (Mineral Resources Regulation), for minerals other than coal seam gas, royalty is payable at the rate prescribed in the Mineral Resources Regulation in respect of all minerals sold, disposed of or used in a return period.7
  4. The Mineral Resources Regulation prescribes different royalty rates for different minerals. Generally, the rate is either:
    1. a percentage of the value of mineral sold, disposed of or used in a return period

    or

    1. a flat rate per tonne of mineral sold, disposed of or used in a return period.

Ruling and explanation

Mineral subject to royalty

  1. For minerals other than coal seam gas, the royalty payable in relation to a particular mining operation8 for a return period is determined by reference to minerals sourced from that operation that are sold, disposed of or used in the return period.9 This is the case irrespective of whether the minerals were:
    1. extracted before or during the return period
    2. extracted by the producer or by some other person
    3. sold, disposed of or used by the producer or by some other person.
  2. Royalty must be calculated separately for each mining operation for which the producer is liable to pay royalty.
  3. Royalty is payable in relation to mineral sold during a return period, irrespective of when (or if) the producer receives full or partial payment for the sales. That is, royalty is not calculated on a cash receipts basis.
  4. For the purposes of calculating royalty, mineral that is transferred from one of the producer’s mining operations to another will be deemed to have been sold or disposed of by the first operation (depending on whether the second operation pays for the mineral).10

Royalty rate

  1. Attachment 1 sets out the royalty rate prescribed by the Mineral Resources Regulation for the minerals to which this ruling applies, and whether the mineral is one for which royalty is imposed on the basis of:
    1. the value of the mineral sold, disposed of or used (a value-based mineral)
    2. the weight of the mineral sold, disposed of or used (a weight-based mineral).
  2. The royalty payable for mineral sold, disposed of or used in a return period is calculated by multiplying the royalty rate by the value or the weight of such mineral, as applicable.11
  3. The royalty rate for bauxite must be calculated:
    1. separately for each mining operation for which the producer is liable to pay royalty
    2. separately for bauxite mined for consumption within Queensland (domestic bauxite) and mined for consumption outside Queensland (export bauxite)12 sourced from each mining operation
    3. where the producer is paid on the basis of the number of dry metric tonnes sold (rather than the actual number of tonnes physically sold)—with reference to the number of dry metric tonnes sold.
  4. The royalty rate for phosphate rock must be calculated:
    1. separately for each mining operation for which the producer is liable to pay royalty
    2. with reference to the average phosphorus pentoxide (P2O5) content of the rock sold, disposed of or used during the return period13, calculated by dividing the total P2O5 tonnes by the total phosphate rock tonnes for the period where (subject to paragraph 12(c)):
      1. the total P2O5 tonnes is the total number of tonnes of phosphorus pentoxide contained in the phosphate rock sold, disposed of or used during the period
      2. the total phosphate rock tonnes is the total number of tonnes of phosphate rock sold, disposed of or used during the period

    and

    1. where the producer is paid on the basis of the number of dry metric tonnes sold (rather than the actual number of tonnes physically sold)—with reference to the number of dry metric tonnes sold.

Weight-based minerals

  1. Where a producer sells a weight-based mineral and is paid on the basis of the number of dry metric tonnes sold (rather than the actual number of tonnes physically sold), the royalty payable in respect of that sale should be calculated with reference to the number of dry metric tonnes sold.

Value-based minerals

Calculation

  1. The value of a value-based mineral is calculated14 by:
    1. determining the gross value of the mineral15
    2. subject to paragraph 15, adding any increase in value as a result of a change in the exchange rate from the time the mineral is sold to the time any payment for the sale is received16

    and

    1. subtracting:
      1. subject to paragraph 15, any decrease in value as a result of a change in the exchange rate from the time the mineral is sold to the time any payment for the sale is received17
      2. a freight or insurance cost payable by the producer relating to the transport of the mineral (or oil processed from oil shale, in the case of processed oil shale) by water to a port outside Queensland18
      3. any other cost payable by the producer that the Commissioner has decided, on reasonable grounds, is a type of cost that should be subtracted from the gross value.19
  2. Where mineral is the subject of a gross value royalty decision20 the increase or decrease in value referred to in paragraph 14(b) or 14(c)(i) should be calculated by reference to the gross value of the mineral under that decision rather than any revenue actually billed.
  3. For the purposes of paragraph 14(c), an expense is ‘payable’ if there is a presently existing liability to pay it, even if payment is not due until a future date (e.g. the producer has received an invoice from a service provider, which is payable 30 days after the date of issue).
  4. For the purposes of paragraph 14(c)(ii), only freight or insurance costs attributable to activities occurring, or risks arising, after mineral is loaded on a vessel may be deducted. Accordingly, any other freight or insurance-related costs payable by the producer may not be deducted, including but not limited to costs associated with:
    1. transporting the mineral to the point of loading, or insuring the mineral before that point
    2. preparing the mineral for loading (e.g. containerisation) or loading the mineral onto a vessel.
  5. All calculations involving the conversion of foreign currency into Australian dollars for a particular period should use an exchange rate for the appropriate date21 obtained from a consistent, reasonable external source. Examples of an exchange rate that is considered reasonable include the hedge settlement rate22, the WM/Reuters Australian Dollar Fix 4.00pm rate, or a rate published by a major Australian commercial bank or financial institution.
  6. The value of a mineral must be calculated exclusive of the goods and services tax (GST)—that is, reflecting the net revenue or expense.
  7. The value of a mineral must be calculated separately:
    1. for each mining operation for which the producer is liable to pay royalty
    2. in the case of bauxite—for domestic bauxite and export bauxite sourced from each mining operation.

Gross value

  1. Subject to the adjustments set out below, the gross value of a value-based mineral is the amount set out in the following table.

 

Scenario Description Gross value
1
  • Mineral is sold or disposed of to, or used by, a relevant entity23 of the producer.
  • The relevant entity is involved in the marketing or reselling of the mineral, or in the production of a commodity using the mineral.

For example:

  • Company A mines and sells corundum to Company B (a subsidiary of Company A), and Company B uses the corundum in manufacturing sandpaper.
  • Company A mines and sells gemstones to Company B (a subsidiary of Company A), and Company B sells the gemstones to another person in an arms-length transaction.
The sum of:

  • the amount decided by the Commissioner in a gross value royalty decision24
    and
  • any amount recovered from the buyer of the mineral in relation to the royalty payable for the mineral.25
2
  •  Mineral is sold or disposed of to, or used by, a person (whether or not that person is a relevant entity of the producer).
  • The producer receives a non-financial benefit from the sale, disposal or use (whether or not a financial benefit is also received).

For example, Company A mines and sells rutile to Company B (an arms-length third party) in exchange for a cash payment and a transfer of mining equipment from Company B.

The sum of:

  • the amount decided by the Commissioner in a gross value royalty decision26
    and
  • any amount recovered from the buyer of the mineral in relation to the royalty payable for the mineral.27
3
  • Neither of the above scenarios apply.
  • Mineral is sold at:
    • the price listed for the mineral in a recognised listing28 (listed price) at the time of sale
      or
    • a price worked out by averaging the prices listed for the mineral in a recognised listing over a period of not longer than three months (average listed price).
The sum of:

  • the amount for which the mineral is sold29
    and
  • any amount recovered from the buyer of the mineral in relation to the royalty payable for the mineral.30
4
  • None of the above scenarios apply.
  • Mineral is disposed of or used.
  • A market value for the mineral may be established by reference to a listed price or an average listed price for the mineral.
The sum of:

  • the market value established for the mineral by reference to a listed price or average listed price for the mineral31
    and
  • any amount recovered from the buyer of the mineral in relation to the royalty payable for the mineral.32
5
  • None of the above scenarios apply.
  • Mineral is sold by the producer in an arms-length transaction to a person other than a relevant entity of the producer.
  • The producer has sold a mineral of the same kind in an arms-length transaction to a person other than a relevant entity of the producer in the previous two years.
The sum of:

  • the amount for which the mineral is sold33
    and
  • any amount recovered from the buyer of the mineral in relation to the royalty payable for the mineral.34
6
  • None of the above scenarios applies.
  • The producer entered into an agreement (before or as soon as practicable after the mineral was mined) to sell the mineral in an arms-length transaction to a person other than a relevant entity of the producer.
The sum of:

  • the amount for which the mineral is sold35
    and
  • any amount recovered from the buyer of the mineral in relation to the royalty payable for the mineral.36
7
  • None of the above scenarios apply.
The sum of:

  • the amount decided by the Commissioner in a gross value royalty decision37
    and
  • any amount recovered from the buyer of the mineral in relation to the royalty payable for the mineral.38
  1. Subject to paragraph 23, the amount for which a mineral is sold includes all amounts paid or payable by the buyer in relation to the sale (including, but not limited to, production or other costs of the producer that are explicitly recovered from the buyer in addition to the stated sales price). This is the case even if such amounts are invoiced separately.
  2. Amounts paid by a buyer to a producer on account of the following will not be included when determining the amount for which a mineral is sold:
    1. recovery of the producer’s liability for GST on taxable supplies39 made by the producer to the buyer
    2. an amount representing interest received where a mineral is sold on an extended credit basis.
  3. Neither the gross value nor the value of a mineral are reduced by any amount:
    1. payable by the producer to the buyer of that mineral, irrespective of whether the parties agree to offset such amounts against the amount payable to the producer for the mineral
    2. invoiced by the producer to a buyer but not recovered from the buyer (i.e. a bad debt).

Example 1

During a return period, XYZ Pty Ltd (XYZ) sells a total of 300 tonnes of corundum to an unrelated party, ABC Pty Ltd (ABC), for $900 a tonne (i.e. $270,000). A gross value royalty decision does not apply to these sales.

During the period, XYZ and ABC settle an existing commercial dispute on the basis that XYZ will pay ABC $50,000.

XYZ and ABC agree to offset the $50,000 settlement payment by XYZ against the $270,000 payable by ABC—that is, ABC will only pay XYZ $220,000 for the corundum purchased during the period.

ABC ultimately only pays XYZ $150,000 before ABC is wound up.

Despite the settlement agreement and the underpayment by ABC, the gross value of the corundum for royalty purposes is $270,000.

  1. Where a gross value royalty decision is required, s.62 of the Mineral Resources Regulation sets out a non-exhaustive list of matters which may be considered in making the decision.

Royalty-free threshold

  1. Subject to paragraph 27, no royalty is payable on the first $100,000 of the combined value of the following minerals (threshold minerals), mined under a mining operation, that are sold, disposed of or used in a financial year40:
    1. a prescribed mineral
    2. a specified mineral (other than iron ore)
    3. corundum
    4. a gemstone
    5. a precious stone
    6. a rare earth
    7. uranium
    8. a mineral mentioned in Schedule 3, Part 2, s.14 of the Mineral Resources Regulation.41
  2. Where, in a particular financial year, a producer sells, disposes of or uses:
    1. only one type of threshold mineral:
      1. no royalty is payable on the first $100,000 of the total value of that mineral sold, disposed or used during the financial year42
      2. the producer must claim the exemption in the relevant royalty returns
    2. two or more types of threshold mineral:
      1. the producer must nominate one of the threshold minerals (the nominated mineral) to which the exemption will apply43
      2. no royalty is payable on the first $100,000 of the total value of the nominated mineral sold, disposed of or used during the financial year44
      3. where less than $100,000 value of the nominated mineral is sold, disposed of or used during a financial year, the process in paragraphs 27(b)(i) and 27(b)(ii) may be repeated until the combined value of threshold minerals nominated by the producer reaches $100,00045
      4. the producer must claim the exemption in the relevant royalty returns.46
  3. The exemption is for the first $100,000 of combined value for a financial year, not the first $100,000 of royalty on threshold minerals.
  4. Producers who lodge royalty returns on a quarterly basis must claim the exemption in the return periods in which the cumulative total value of the relevant threshold minerals for the financial year is less than or equal to $100,000, not on a pro-rated basis (i.e. $25,000 per quarter).

Date of effect

  1. This public ruling reflects the Commissioner’s existing interpretation and practices as at the date of issue.

 

Mark Jackson
Commissioner of State Revenue
Date of issue: 1 October 2020

References

 Public Ruling Issued  Dates of effect
From To
MRA003.1 1 October 2020 1 October 2020 Current

Attachment 1

Royalty rates

The following table summarises the royalty rate applicable to various minerals, and indicates for each mineral:

  • whether royalty is imposed on the basis of the value or the weight of the mineral sold, disposed of or used
  • whether the mineral attracts the royalty-free threshold (see paragraphs 26 to 29)
  • the relevant section of Schedule 3 of the Mineral Resources Regulation.

The information in this table is by way of summary only, and producers should read the table in conjunction with the Mineral Resources Regulation to determine their royalty liability.

Mineral Royalty rate Value-based Weight-based Royalty-free threshold Legislative reference
(Mineral Resources Regulation, Schedule 3)
Anatase 5% of value Section 9
Bauxite Export47

The higher of:

  • 10% of value
    or
  • $2.00 per tonne

Domestic48

  • Where export bauxite has also been sold, disposed of or used during the period, the higher of:
    • 75% of the rate per tonne for export bauxite
      or
    • $1.50 per tonne.
  • Otherwise, $1.50 per tonne
Section 4
Bentonite $1.80 per tonne Section 3
Calcite $1.00 per tonne Section 3
Clay shale $0.50 per tonne Section 3
Clay used for fired clay products $0.50 per tonne Section 3
Corundum 2.5% of value Section 6
Diatomite $1.50 per tonne Section 3
Dolomite $1.00 per tonne Section 3
Feldspar $0.75 per tonne Section 3
Gemstones 2.5% of value Section 6
Gypsum $0.50 per tonne Section 3
Ilmenite 5% of value Section 9
Kaolin $1.00 per tonne Section 3
Leucoxene 5% of value Section 9
Lime, earth $0.50 per tonne Section 3
Limestone $0.75 per tonne Section 3
Magnesite $1.50 per tonne Section 3
Marble $1.00 per tonne Section 3
Mica $1.50 per tonne Section 3
Mineral sand (other than anatase, ilmenite, leucoxene, monazite, rutile or zircon) 5% of value Section 9
Monazite 5% of value Section 9
Perlite $1.00 per tonne Section 3
Phosphate rock The higher of:

  • $0.80 per tonne
    or
  • the rate per tonne calculated in accordance with the formula in Schedule 3, part 2, section 10 of the Mineral Resources Regulation
Section 10
Precious stones (other than corundum and gemstones) 2.5% of value Section 6
Processed oil shale The lesser of:

  • 10% of the value of the oil processed from the oil shale
    or
  • the percentage of value calculated in accordance with the formula in Schedule 3, part 2, section 11 of the Mineral Resources Regulation
Section 11
Rare earths 2.7% of value Section 8
Rock mined in block or slab form for building or monumental purposes $1.00 per tonne Section 3
Rutile 5% of value Section 9
Salt $1.50 per tonne Section 3
Sand, gravel and rock (other than rock mined in block or slab form for building or monumental purposes) $0.50 per tonne Section 3
Silica $0.90 per tonne Section 3
Wollastonite $0.75 per tonne Section 3
Zircon 5% of value Section 9
Other mineral not listed in this table, apart from:

  • coal
  • coal seam gas
  • cobalt
  • copper
  • gold
  • iron ore
  • lead
  • manganese
  • molybdenum
  • nickel
  • silver
  • tantalum
  • tungsten
  • uranium
  • zinc
2.5% of value Section 14

Footnotes

  1. See Public Ruling MRA001—Determination of coal royalty.
  2. See Public Ruling MRA002—Determination of royalty for prescribed and specified minerals.
  3. See Public Ruling MRA002.
  4. Although royalty on coal seam gas extracted from an authority is payable under the Mineral Resources Act, the royalty is calculated in the same way as petroleum royalty is calculated for the Petroleum and Gas (Production and Safety) Act 2004. See s.46(2) and Schedule 3, part 2, s.7 of the Mineral Resources Regulation.
  5. Section 320(1) of the Mineral Resources Act
  6. Section 320(7) of the Mineral Resources Act
  7. Section 46(1) of the Mineral Resources Regulation
  8. See definition of ‘mining operation’ in Schedule 2 Dictionary to the Mineral Resources Act.
  9. Section 46(1) of the Mineral Resources Regulation
  10. A gross value royalty decision will be required in these circumstances; see paragraph 21.
  11. Section 46(1) of the Mineral Resources Regulation
  12. Schedule 3, part 2, s.4 of the Mineral Resources Regulation
  13. Schedule 3, part 2, s.10(1)(b) of the Mineral Resources Regulation
  14. Section 54(1) of the Mineral Resources Regulation
  15. Section 54(1)(a) of the Mineral Resources Regulation. See also paragraphs 21 to 25.
  16. Section 54(3) of the Mineral Resources Regulation
  17. Section 54(3) of the Mineral Resources Regulation
  18. Section 54(1)(b)(i) and (4) of the Mineral Resources Regulation
  19. Section 54(1)(b)(iii) of the Mineral Resources Regulation. There are currently no such costs determined by the Commissioner.
  20. See paragraph 21 for the circumstances in which a gross value royalty decision is required.
  21. The appropriate dates are the invoice date and the date of payment for the sale, irrespective of the date on which such amounts are actually converted into Australian dollars (if at all). Similar principles apply for expenses transacted in a foreign currency.
  22. The WM/Reuters Australia Fix 10.00am rate for the particular day; Schedule 6 of the Mineral Resources Regulation, definition of ‘hedge settlement rate’.
  23. ‘Relevant entity’ is defined in s.32 of the Mineral Resources Regulation as:
    1. for a company—an associated entity of the company (within the meaning of s.50AAA of the Corporations Act 2001 (Cwlth)), a related entity of the company (within the meaning of s.9 of the Corporations Act) or a related party of the company (within the meaning of s.228 of the Corporations Act)
    2. for an individual—a related person of the individual within the meaning of s.61 of the Duties Act 2001 (other than s.61(1)(d)).
  24. Sections 57(2)(a) and 59(a) of the Mineral Resources Regulation. Section 60 of the Mineral Resources Regulation sets out a producer’s obligation to apply for a gross value royalty decision if a mineral is not a market value mineral under s.57.
  25. Section 59(b) of the Mineral Resources Regulation
  26. Sections 57(2)(b) and 59(a) of the Mineral Resources Regulation
  27. Section 59(b) of the Mineral Resources Regulation
  28. A list of quoted or published prices of minerals:
    1. on a recognised international mineral exchange or market (e.g. the London Metal Exchange or the London Bullion Market)
    2. in a publication recognised for quoting or publishing prices of minerals in an international market (e.g. Metal Bulletin); s.56 of the Mineral Resources Regulation.
  29. Sections 57(1)(a) and 58(2)(a) of the Mineral Resources Regulation. See also paragraph 22.
  30. Section 58(3) of the Mineral Resources Regulation
  31. Sections 57(1)(b) and 58(2)(b) of the Mineral Resources Regulation
  32. Section 58(3) of the Mineral Resources Regulation
  33. Sections 57(1)(c) and 58(2)(a) of the Mineral Resources Regulation. See also paragraph 22.
  34. Section 58(3) of the Mineral Resources Regulation
  35. Sections 57(1)(d) and 58(2)(a) of the Mineral Resources Regulation. See also paragraph 22.
  36. Section 58(3) of the Mineral Resources Regulation
  37. Section 59 of the Mineral Resources Regulation
  38. Section 59(b) of the Mineral Resources Regulation
  39. See s.9-5 A New Tax System (Goods and Services Tax) Act 1999 (Cwlth).
  40. A period of 1 year beginning on 1 July; definition of ‘financial year’, Schedule 1 Acts Interpretation Act 1954 (Qld).
  41. Section 50(1) and (5) of the Mineral Resources Regulation
  42. Section 50(1) of the Mineral Resources Regulation
  43. Section 50(2)(a) of the Mineral Resources Regulation
  44. Section 50(2)(b) of the Mineral Resources Regulation
  45. Section 50(3) of the Mineral Resources Regulation
  46. Section 50(4) of the Mineral Resources Regulation
  47. See paragraph 11.
  48. See paragraph 11.