The mining and petroleum industry is one of the biggest contributors to Australia’s tax revenue and export trade. There is an emphasis on strong corporate governance, especially in the large mining and petroleum groups.
Special tax concessions are available to mining and petroleum companies in relation to exploration, pooled project expenditure and rehabilitation costs.
Mining groups often have very complex group structures, including joint ventures and offshore operations. There has been a recent trend towards consolidation of mining resources into major corporations, resulting in large scale mergers and acquisitions.
From a tax compliance perspective, one of the key challenges for mining companies is to put in place reliable processes and systems for the capture and analysis of tax and accounting transactions, particular in relation to exploration costs and capital expenditure on mining and quarrying. Mining groups typically have distributed operations with source accounting transactions maintained at mine sites and processed through to head-office finance systems. Mine sites and joint venture operations often use different accounting sub-systems, processes and procedures from the group finance function.
Joint venture interests in mines are often acquired and divested in incremental tranches over time, complicating the tax and accounting computations in relation to capital allowances and mining deductions. The capture and recording of asset costs for book and tax purposes has been further complicated by the transition to tax consolidation.
Under IFRS, large deferred tax assets and liabilities can arise as a result of differences in book and tax balances on capitalised mining and exploration expenditure. Reliable systems and reconciliations are required to ensure the accuracy of tax expense against reported earnings.