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High Court Upholds Mining Tax

By 16 August 2013General Law

The Issue:  Whether the Mineral Resources Rent Tax (MRRT) is constitutional.

The decision in the case of Fortescue Metals Group Limited & Ors v The Commonwealth of Australia [2013] HCA 34, was published on 7 August 2013. Andrew Forrest, the Chairman and the then Chief Executive of Fortescue and the Fortescue Metals Group lodged the application to challenge the Act on constitutional grounds. Fortescue challenged the legality of the MRRT mining tax, claiming that the Mineral Resources Rent Tax (MRRT) is unconstitutional, primarily because it discriminated against States.

Introduced on the 1st of July 2012, the Mineral Resources Rent Tax requires that a mining company pay a tax once their annual profit reaches $75 million. This tax, designed to give back to Australians some of the super profits reaped by mining companies, applies to iron ore and coal mining activities in Australia. The effective MRRT rate is 22.5%. The tax is determined by a simple calculation, MRRT liability = MRRT rate x (Mining profit – MRRT allowances).

The Fortescue Metals Group current Chief Executive, Nev Power, in his statement said, “Fortescue challenged the MRRT because it was an unreasonable intrusion into an area of state responsibility and it was also an unfair, discriminatory and complex tax.”

The legal challenge was later joined by the states of Queensland and Western Australia in support of Fortescue.

The Challenge

Fortescue claimed the MRRT was unconstitutional because:

  • The MRRT is discriminatory between states, contrary to Section 51(ii) of the Commonwealth of Australia Constitution;
  • The MRRT contravenes Section 99 of the Constitution by giving preference to one State over another State;
  • The MRRT is invalid because it will limit the State’s ability to govern itself. The Constitution does not authorise legislation that will either control or create a hindrance to the States in the execution of their governmental functions; and
  • The MRRT is inconsistent with section 91 of the Constitution, which reserves the State’s rights to grant any aid or bounty for the mining metals which it sees fit.

The High Court rejected the claim of Fortescue on the basis that the MRRT complied with Section 51(ii) and Section 99 of the Constitution of the Commonwealth of Australia.


The Ruling

The High Court ruled that the MRRT did not discriminate against the States and was constitutional.

The Court made mention that State discrimination in taxation is where the mere location of a thing is cause for higher taxes, or differential treatment. For example, if a federal income tax imposed a rate of 40% for Western Australia, 30% for Queensland and 15% for New South Wales, that tax is discriminatory between states.

What is not state discrimination is when, as the Commonwealth submitted in this case, a tax differs between states not because of Commonwealth legislation, but because of the laws of several other States interacting with Commonwealth laws. In this case the rate at which the tax is levied is a solid 22.5%, regardless of what State a miner operates in. A miner in effect may pay more (or less) in one State than another, but this is because of State Royalties and not due to a inconsistent treatment by the Commonwealth.