CPN 032: What are Mineral Royalties?

Purpose

The purpose of this Commissioner’s Practice Notes is to:

1. Outline the various types of royalties payable in New South Wales, including the applicable rates, lodgement frequency, and due dates
2. Explain how the Taxation Administration Act 1996 (“the TAA”) applies to mineral royalties and the consequences of non-compliance, and
3. Inform holders of mining leases about the additional support options that are available.

Background

Mineral royalties are payments made by individuals or companies that extract mineral resources to the owner or rights holders of those resources. In New South Wales (NSW), most mineral resources are owned by the Crown. As the owner, the Crown imposes royalties on publicly owned minerals recovered under mining leases or subleases. These royalties are generally categorised into coal royalties, non-coal mineral royalties, petroleum royalties, and royalties for privately owned minerals.

The Mining Act 1992 (“the Mining Act”) and the Mining Regulation 2016 (“the Regulation”) amongst other things govern the granting, renewal and transfer of exploration licences and assessment and mining leases. The Mining Act also stipulates that royalties must be paid on coal and non-coal minerals extracted by mining leaseholders.

Similarly, the Petroleum (Onshore) Act 1991 (“the Petroleum Act”) governs the payment of royalties for petroleum extraction, requiring the holder of a petroleum title to pay royalties on all petroleum recovered.

Although the royalty frameworks for coal, non-coal minerals, and petroleum vary slightly, the general rule is that the holder of a mining lease, sub-lease, or title is responsible for paying the required royalties.

Mineral royalties are collected on a self-reporting basis, meaning that mining leaseholders are responsible for calculating, paying, and submitting their royalty returns by the due date. Under the TAA¹, the submission of a return or payment does not itself constitute a formal assessment.

In NSW, the management of mineral royalties is overseen by NSW Resources which is a division within the NSW Department of Primary Industries and Regional Development, and Revenue NSW. Revenue NSW handles the collection and auditing of mineral royalties in accordance with the relevant legislation and the TAA.

Unless otherwise noted, words have the same meaning as in the Mining Act, the Regulations, the Value of Coal Recovered Ministerial Determination 2024 (the Determination), and the Petroleum Act.

Commissioner's Practice Note

In NSW, mineral royalties apply to both publicly and privately owned minerals, petroleum, and “coal reject”. It is the responsibility of the holder of a mining lease (or sublease) to pay royalty and lodge a return.

A mining lease is a lease granted under the Mining Act, (which also includes a consolidated mining lease). The lease holder has an exclusive right to mine the land under the mining lease.

A lease holder is defined as the holder of a lease or licence under the Crown Land Management Act 2016 over the land.

The holder of the mining lease may grant a sublease to all or part of the mining area under the mining lease. A mining sublease refers to the temporary or intended transfer of the rights and obligations under a mining lease from the original leaseholder to another party.

The Determination defines a Holder, in relation to a mining lease, as the holder of a mining lease under which the coal is recovered and includes the holder of a mining sublease as defined in the Mining Act.

The holder of the mining lease is liable to pay royalty on publicly owned minerals recovered by the holder under the lease and is also liable to pay royalty on privately owned minerals recovered from the mining area as if those minerals were publicly owned.

The holder of a mining sublease is liable to pay royalty on publicly owned minerals recovered from the sub-lease area only and is also liable to pay royalty on privately owned minerals recovered from the sub-lease as if those minerals are publicly owned.

The rates and frequency of royalty payments vary depending on the type of mineral being extracted. The Regulation² outline the specific rates applicable to each mineral.

There are two methods used to calculate the amount of mineral royalty payable:

1. Ad valorem rate: This method calculates the royalty payable as a percentage of the value of the recovered mineral.
2. Quantum rate: With this method royalty is based on the quantity of minerals recovered. It is calculated by multiplying the quantity of minerals extracted by the applicable rate per unit.

By employing these calculation methods, the NSW mineral royalty regime attempts to ensure that the royalty payments reflect the value or quantity of minerals extracted, providing a compensation framework for the resource owners.

Coal Royalties

Coal royalties are determined by applying the royalty rate to the value of the coal recovered.  The Determination outlines the method for calculating how the recovered coal is to be calculated. This ensures that a consistent approach to valuing coal is used.

The value of coal recovered by a Holder during a royalty period is calculated using the following formula:

V = AR - AD

Where:

• V represents the value of coal recovered,
• AR refers to the total assessable revenue,
• AD represents the total allowable deductions.

Rate of coal royalty

As of 1 July 2024, the base rate of royalty for coal is:

Coal reject

Coal reject is the by-product or waste resulting from coal mining or processing, which either possesses an energy value of less than 16 gigajoules per dry tonne or contains more than 35% ash by dry weight. The Mining Act seeks to encourage the use or sale of coal which is combined with other material (so that there is less energy content). The coal must be utilised or disposed of for energy production purposes.

Coal due dates

Mineral (Non-Coal) Royalties

Mineral (non-coal) royalties refer to royalties for natural resources other than coal and petroleum. The holder of a mining lease is liable to pay royalty to the Crown on publicly owned minerals recovered by the holder. The type of mineral extracted determines whether a quantum or ad-valorem calculation is used to determine the amount of royalty payable.

Minerals subject to Quantam royalty

If the mineral is listed in schedule 6 of the Regulation³ the royalty is levied at a flat rate per tonne.

Minerals - Schedule 6

Minerals subject to Ad valorem royalty

An ad valorem royalty is applied to high value high volume minerals.  The base rate of royalty applicable to ad valorem minerals is 4% of the 'ex-mine' value. The ex-mine value refers to the value of the mineral once it is mined and brought to the surface.

Minerals not included in schedule 6

Mineral (Non-Coal) - Return and Due Date

Petroleum royalties

The Petroleum Act⁴ governs the payment of royalties in relation to petroleum extraction.

The holder of a petroleum title is required to pay a royalty to the Minister for all petroleum recovered within the area specified in the title.

Rate of Petroleum recovered

10% of the value of the petroleum at the well-head.

Petroleum - Return and Due Date

Privately owned minerals

Under the Mining Act⁵ the holder of a mining lease (or mining sublease) is liable to pay royalty to the Crown on privately owned minerals recovered from the mining area as if those minerals were publicly owned. Despite this, the holder of a mining lease remains liable to pay royalty on privately owned minerals recovered from a sublease area only to the extent that the royalty has not been paid by the sublessee.

If royalty (including any interest and penalty tax on royalty) is paid to or recovered by the Chief Commissioner in respect of a privately owned mineral, the Chief Commissioner is to pay to the Minister seven-eighths of the amount paid or recovered. The remaining one-eighth is paid into consolidated revenue.

Retaining records

Pursuant to the Regulation⁶, records must be “… retained by the Holder of the mining lease for a period of at least 7 years after the end of financial year in which the extraction to which the records relate occurred.”

Referral of certain objections

The Mining Act⁷ provides that the Chief Commissioner is to refer objections (that have been lodged under the TAA) about any of the following matters to the Minister, who may make a determination with respect to that matter:

1. the quantity of minerals disposed of or held by the holder of a mining lease,
2. the quantity of coal disposed of by the holder of a mining lease, and
3. whether, and the extent to which, coal was recovered by open cut mining, underground mining, or deep underground mining.

Any determination made by the Minister with respect to the matter is final and binding. A certificate that is signed by the Minister and that states that, on a specified date, the Minister made a determination under this clause is admissible in evidence in any proceedings and is evidence of the fact or facts so certified.

Lodging a Royalty Return

Revenue NSW maintain the Royalty Online Service (ROS). This digital platform serves as a secure means for leaseholders to fulfill their return obligations and submit their royalty returns. It operates on a self-reporting basis, placing the onus on holders of mining leases or titles to calculate, pay, and lodge their returns within the designated timeframe.

By utilising the ROS online portal, holders can efficiently provide the necessary information, including production volumes, sales figures, and any other relevant data, as part of their return submission. This electronic method streamlines the reporting process, allowing for faster and more accurate processing of royalty payments.

It is crucial for holders to ensure compliance with the specified due dates for submitting royalty returns and the accuracy of data as any delays or non-compliance may under the TAA may result in penalties or other enforcement actions.

Additional information on lodging royalty returns can be found at Lodge your return.

Interest and penalties

In accordance with the TAA⁹, where there is evidence of the taxpayer failing to take reasonable care or the taxpayer has shown intentional disregard to the law, the Chief Commissioner may impose additional interest and penalty charges.

Objection and review

The TAA¹⁰ allows customers the right to lodge an objection if they are dissatisfied with a notice of assessment or a decision made under a taxation law. This provision ensures that taxpayers have a mechanism to seek a review of an assessment or decision made by the Chief Commissioner.

A customer must lodge their objection within 60 days of the assessment or decision being made unless the Chief Commissioner approves an extension to this time limit. When lodging an objection, it is crucial to provide all necessary supporting evidence to substantiate the grounds of the objection. These requirements help maintain the integrity and efficiency of the objection process by enabling the Chief Commissioner to thoroughly assess the objection and make an informed decision.

Additional information concerning objections and reviews can at found at Objections and reviews.

Private rulings

Private rulings offer assurance to taxpayers and their representatives in navigating complex tax matters. By seeking and obtaining a private ruling, taxpayers can make informed decisions, mitigate risks, and ensure compliance with the tax laws relevant to their specific circumstances.

Enquiries relating to private rulings can be directed to the Technical Advisory Branch by email on private.ruling@revenue.nsw.gov.au.

Additional information on the status of private rulings and the conditions under which they will be issued can at found at Private rulings.

Contact information

Read more about Royalties.
More information about exploring and mining at the Department of Regional NSW - Paying royalties.
Contact Revenue NSW at mineralroyality@revenue.nsw.gov.au or by phone on 1300 139 817 or 02 7808 6915.

Footnotes

¹ Section 17 of the TAA
² Part 7 and Schedule 6 of the Regulation
³ Schedule 6 of the Regulation
⁴ Part 7 of the Petroleum Act
⁵ Section 284 of the Mining Act
⁶ Section 76 (4) of the Regulation
⁷ Section 291B of the Mining Act
⁸ Part 5 of the TAA
⁹ Part 5 of the TAA
¹⁰ Part 10 of the TAA