Determination of Net Income from Mining
19.13. A mining company's capital resources are expended in a number of different activities, commencing with exploration and leading up to the actual production of the mining product. Of necessity there is a very considerable time-lag between certain of these expenditures and the receipt of income from the sale of the mined product. It is therefore exceedingly difficult to match relevant costs with specific revenue or to charge them against a specific accounting period. Some costs may not produce any revenue at all and costs incurred in one period may be relevant to revenue derived over several future periods. As the production proceeds, the natural resource becomes progressively exhausted unless further exploration and development reveal the existence of additional quantities capable of being profitably mined in the same area. This is frequently a continuing process. If the total quantity of the natural resource capable of being mined in the area could be definitely ascertained during exploration or, perhaps, at the stage of initial development, and if the total costs of the mining company to be incurred in exploration, development, extraction and sale of the mining product were to remain constant throughout the whole of the company's operations, an exact rateable proportion of cost might be allocated to each quantity of the natural resource extracted and sold. Under those conditions the mining company could show what was a true net profit for taxation purposes at each annual balancing date. Even if it were possible to do so, the expense of determining conclusively at such an early stage the total quantity of the natural resource in any large-scale operation would be prohibitive. Hence further development must be undertaken simultaneously with the work of production then taking place in already developed parts of the mine. Costs do not remain constant. In these circumstances it is a practical impossibility to identify with precision in the receipts obtained from time to time from the sale of the product a portion properly attributable to income and a portion required to recoup capital expended on assets used up in producing the receipts.
19.14. The imposition of taxation upon its sales revenues from mining operations without recognition of the fact that they constitute in part a recoupment of capital would throw a burden upon a mining company which could not be borne without considerable financial stress. There is a diversity of accounting write-off practices followed by the industry in relation to the recoupment of capital expenditure.
19.15. The methods adopted to arrive at a true net income for the purposes of mining income tax legislation must be arbitrary in varying degrees. The taxation systems of other countries also adopt different methods in order to arrive at a true net income; but each attempts to impose taxation in a way that achieves a fair result in an industry which, by its very nature, is compelled to operate in an exceptional way.
19.16. Industries other than mining are given individual fiscal treatment for their own particular problems. Provisions
adapted to the special needs of the mining industry are not to be regarded as concessions merely because they are not
available to other industries, unless it be demonstrated that they are unnecessary for the effective conduct of the
mining industry on a basis which is not improperly favoured. Having regard to the circumstances in which a mining
company must operate, such provisions ought to do no more than ensure in a practical way that the net income
annually
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brought to charge is a fair and reasonable figure for the measurement of its income tax
liabilities. The special provisions that apply to the taxation of the mining industry in Australia can now be very
briefly referred to. A detailed analysis of these provisions is contained in Appendix A to this chapter, coupled with
references to comparable legislation in the United Kingdom, Canada, the United States, South Africa and New
Zealand.