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NT Supreme Court digs into meaning of ‘operating costs’
NT Supreme Court digs into meaning of ‘operating costs’
Angela Wood, Annemarie Wilmore, Daniel Osvath & George Hempenstall review a recent decision which considers whether three heads of expenditure incurred in relation to mining activities were deductible for the purposes of calculating mineral royalty liability.
The recent decision of the Northern Territory Supreme Court in Groote Eylandt Mining Company Pty Ltd v Secretary for Mineral Royalties (NT) [2019] NTSC 58 considers whether three heads of expenditure incurred in relation to mining activities were deductible for the purposes of calculating mineral royalty liability under section 10 of the Mineral Royalty Act 1982 (NT) (“MRA”). To be deductible, the expenditure must be an “operating cost” as defined in the MRA.
Overview
The Court considered three heads of expenditure.
The first two heads of expenditure concerned payments required by the Mining Management Act 2001 (NT) as statutory preconditions for receiving authorisation from the Northern Territory government to carry out mining activities:
- An annual mining security levy payable was found to be an “operating cost” and therefore deductible within the meaning of the MRA. The Court distinguished the levy from specific exclusions in the legislation on the basis that it was essential for the conduct of mining activity and production of the saleable mineral commodity.
- A mining security guarantee fee was found also found to be an “operating cost” and therefore deductible within the meaning of the MRA. As with the levy, there was a direct causal nexus between the requirement to provide the security and the production of the production unit.
The third head of expenditure considered was intra-group costs incurred in respect of access to and use of software for human resources, accounting, supply maintenance and other purposes. These costs were also found to be “operating costs”, however were non-deductible by virtue of a specific “fees for management” exclusion within the MRA. The appellant was unable to discharge its onus of establishing that the charges were not fees for management services given that the software was integral to the control and decision making processes of both the appellant and the broader corporate group (rather than only the appellant).
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