Company tax cuts report due

More tax trouble is looming.TENSIONS between miners and Canberra are threatening to flare up again in the coming weeks, as pressure to fund corporate tax cuts puts the industry’s tax breaks under the spotlight.

After company tax cuts were scrapped in this year’s budget due to political opposition, an expert panel appointed by the Treasurer is due to report as soon as this week on how the government could fund company tax cuts in the future.

The Prime Minister, Julia Gillard, has signalled that any company tax reduction would have to be ”revenue neutral”, so the panel is expected to float cutting a wide range of corporate tax perks.

And despite miners’ hostility to any tax rises, it is understood the Business Tax Working Group sees cutting hundreds of millions in tax breaks for mining exploration as one way of freeing up revenue.

Accelerated depreciation rules, which benefit miners and airlines in particular, are also likely to come under scrutiny, as the working group asks big business what it is prepared to give up in exchange for lower taxes.

A source close to the working group said the depreciation rules for mining were especially wide-ranging, and cutting the instant write-offs for explorers would be included as one option in its upcoming report.

”If you’re a mining company and you buy mining rights you get an immediate deduction for that,” the source said. ”You’re getting a right to mine, it lasts a long time, should you write that off over a period?”

Instant asset write-offs for miners are worth about $300 million a year, Treasury says. Accelerated depreciation of equipment such as aircraft, trucks and tractors cost more than $1 billion a year in forgone revenue.

Any removal of mining tax breaks would likely face a bitter reception in the industry, which is being hit by falling commodity prices and weak overseas demand.

When an April report from the working group floated cuts to exploration write-offs in the lead-up to the budget, the mining industry took out anti-tax advertisements in national newspapers.

The Business Tax Working Group, led by Board of Taxation chairman Chris Jordan, has until the end of this year to report on whether company tax cuts are justified and, if so, how to pay for them.

But after Ms Gillard said in June that she had ”no doubt” company taxes should be lower than their current rate of 30 per cent, the working group is set to argue the case this month for corporate tax cuts.

Echoing the Henry review of taxation, the group’s report is expected to say Australia’s relatively high company tax rate of 30 per cent is due to be reduced because it could affect the nation’s ability to attract capital.

The challenge, however, is how to pay for lower company taxes.

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