Derivative Rights
Derivative Mining Rights
Under the Mining Act 1978, the holder of a mining tenement may authorise others to explore or mine specific minerals on a tenement.
Derivative Ming Rights are also included as land for landholder duty purposes.
A derivative mining right is a right that is defined to mean an authorisation of a kind described in section 118A of the Mining Act 1978 (whether or not the authorisation purports to be made under that section). Duty will apply to:
- the transfer or grant of a derivative mining right, regardless of whether there is consideration for the transaction; and
- the surrender of a derivative mining right if there is consideration for the surrender.
Points to Consider
A tenement may be transferred with the rights existing. Care is needed to ensure that duty is not paid on the re-grant of the right.
A person may acquire a mining tenement where a third party holds derivative mining rights. A direct transfer of a mining tenement can terminate these rights and as such must be re-granted to the person that held them before the transfer.
Duty will not apply to the re-grant of these rights if the person paid duty when the rights were originally acquired. Duty will also not apply to the grant of derivative mining rights to a seller under an agreement for the sale of a tenement where that person is essentially retaining the rights.
There must be an agreement for transfer, rather than solely a transfer, to ensure the condition regarding the grant of the prospective right is genuinely agreed and documented - in order to allow concession as to duty.
(extract from the Explanatory Memorandum Revenue Laws Amendment Bill 2018)
The Grant of the Right will be subject to duty. This can occur on purchase of a tenement with a reciprocal right granted.
Where a tenement is transferred subject to the grant of a derivative mining right to another person, the purchaser will usually only pay for the balance of the rights they are acquiring. However, as the purchaser technically acquires all the rights under the transaction, the consideration will not represent the full value of the tenements. This means the Commissioner must assess duty on the unencumbered value of the tenement including the value of the rights.
To overcome this, the division (legislation) includes specific provisions to ensure the effect of derivative mining rights are taken into account when determining the unencumbered value of the tenements being transferred.
(extract from the Explanatory Memorandum Revenue Laws Amendment Bill 2018)
Legislation includes specific no double duty provisions for certain grants of derivative mining rights where those rights were essentially already owned by the grantee.
Example taken from the Explanatory Memorandum (Revenue Laws Amendment Bill 2018)
Person A holds a mining tenement and agrees to sell the tenement to Person B, subject to person B retaining the rights to explore for and mine gold in the tenement. A pays consideration for the tenement excluding the value of the gold rights.
Section 91E(2) allows the Commissioner to have the tenement valued taking into account the effect of the gold rights. In this case, the consideration paid by C reflects the value of the tenements having regard to the rights. Duty will be assessed on the consideration.
Once the agreement for transfer are duty endorsed, duty will not apply to the grant of gold rights by A to B.
Note: Section 91I provides for a reassessment to be made if the prospective right is not granted as required.
Any agreement for sale should include a clause that provides for the re-grant of a Derivative mining right, otherwise a duty liability could arise to the holder of the right and they not be aware, not being a party to the sale contract.