Taxation Ruling TR 93/33

What this ruling is about: [Note: This is a consolidated version of this document. Refer to the Tax Office Legal Database (http://law.ato.gov.au) to check its currency and to view the details of all changes.]


Ruling: 9. The principles discussed in this Ruling will apply to other mineral tailings where operations are carried out in a similar way to the gold mining industry. 10. Similarly, the principles discussed in this Ruling will also apply to low grade ore of gold or other minerals. Such ore may be abandoned and later severed from the ground and reprocessed or sold, and may be trading stock of the mine operator or other processor. 11. This Ruling applies to years commencing both before and after its date of issue. However, the Ruling does not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of the Ruling (see paragraphs 21 and 22 of Taxation Ruling TR 92/20). 12. The following definitions of key terms apply for this Ruling : (a)(i) When dealings in gold mining tailings constitute the granting/acquisition of a profit 13. The case of Stow Bardolph Gravel Co Ltd v. Poole (Inspector of Taxes) [1954] 3 All ER 637 involved an agreement to enter upon certain land to excavate sand and gravel. The English Court of Appeal held that the right to win and acquire the sand and gravel was a capital asset, the cost of which was not deductible. The right was the means by which the company supplied itself with the trading stock of its business, rather than an acquisition of the trading stock itself. 14. This example would be most relevant where a tailings processor acquires, for instance, a mining right over a disused mine from the state government. 15. In Mills v. Stokman (1967) 116 CLR 61 the High Court had to consider an entitlement to slate which lay on the land, having been discarded as unwanted from quarrying operations that ended some thirty years earlier. The contract in question purported to be in respect of chattels. The High Court held that because the slate had become re-attached to the land ( even though it had quite clearly been severed from the land at one time) the contract was in fact the grant of a profit and could not be a contract dealing with the sale of chattels (per Barwick CJ at p. 71 and Kitto J at p. 76). 16. A contract dealing with abandoned tailings will therefore be a grant of a profit. Costs incurred in respect of tailings in these circumstances will not be deductible. | (a)(ii) When dealings in gold mining tailings constitute the disposal/acquisition of trading stock: 17. Tailings which have not been abandoned are chattels. Gold mining tailings are usually trading stock of a gold mining operator, but there may be circumstances where they are not trading stock. For example, tailings may simply be treated as waste from a manufacturing process by an operator, who may intend to transport them to a dump after operations are complete. The tailings have clearly not been abandoned in this case. If a person purchases them for reprocessing, they will be trading stock to the purchaser, but they will probably not be trading stock to the vendor. The sale will simply be a disposal of chattels for income. 18. As reprocessing of gold mining tailings is common in the gold mining industry, it will usually be the intention of the operator to reprocess or sell for processing gold mining tailings. Consequently, a sale by a gold mine operator of tailings produced from the mine which are not abandoned will in most cases be a disposal of trading stock of the operator. | (b) When abandoned gold mining tailings become trading stock again: 19. Ore is to be treated as trading stock on hand as soon as it is severed from the land. It becomes part of the stock-in-trade of the gold mining operator when it has been won, excavated and taken into its possession : Stow Bardolph Gravel Co. Ltd v. Poole (Inspector of Taxes). 20. However, ore and tailings may become part of the land again when they have been abandoned: Mills v. Stokman. Where ore and tailings have been abandoned and consequently have become re-attached to the land (even though they had been quite clearly severed from the land at one time) they cannot be trading stock. 21. Accordingly, ore and tailings which have ceased to be trading stock, because they were abandoned and consequently re-attached to the land, will be treated as new trading stock of the gold mining operator or gold tailings processor from the moment they are severed by the operator or processor. 22. X Co. acquires the right to enter upon land owned by Y and to excavate and remove soil and minerals from the property. The rights acquired under the agreement, being rights to enter upon, excavate and remove soil and minerals, constitute a profit and represent a capital asset. That asset is the means by which X Co. will supply itself with the trading stock of its business, rather than trading stock itself. 23. B Co. is a gold mining operator. On its mine is a considerable amount of tailings which has been stockpiled. B Co. enters into an agreement with D Co., a gold tailings processor, whereby D Co. acquires the tailings for an agreed price. B Co. is considered to have disposed of the tailings as trading stock and D Co. is considered to have acquired the tailings as trading stock. 24. A Co. is a gold mining operator who has recently taken over a disused gold mine. On the mining property it finds a large quantity of previously mined ore and tailings which lay on the land, having been abandoned for some time by the previous operator. The ore and tailings, although once severed from the land, have become re-attached to the land and will not constitute the trading stock of A Co. until they have again been severed from the ground. Commissioner of Taxation 14 October 1993 Previously released in draft form as EDR 84




What this Ruling is about | The granting/acquisition of a profit in relation to gold mining tailings | The disposal/acquisition of gold mining tailings as trading stock | Application of Ruling to other mineral tailings and abandoned low grade ores | 2. This Ruling deals with the taxation implications of the acquisition, disposal or reprocessing of gold mining tailings under sections 70-10 and 70-35 of the Income Tax Assessment Act 1997 (ITAA) 1997, and does not deal with any other provisions of the ITAA 1997. | 3. Key terms in this Ruling are defined in paragraph 12. | (a)(i) The granting/acquisition of a profit in relation to gold mining tailings: 4. Where gold mining tailings have been abandoned, it is not possible to deal in them as chattels, but only to grant a profit. The grant of a profit does not constitute a disposal of trading stock. | 5. Correspondingly, the acquisition of a profit over gold mining tailings by a processor is not the acquisition of trading stock under section 28. | (a)(ii) The disposal/acquisition of gold mining tailings as trading stock: 6. Where gold mining tailings have not been abandoned, a disposal of the tailings is a disposal of chattels. The sale by a gold mining operator of gold tailings which have not been abandoned will usually be a disposal of trading stock by the operator. | 7. The purchase of gold mining tailings, which have not been abandoned, by a gold tailings processor will be an acquisition of trading stock by the processor. | 8. If gold mining tailings have been abandoned, they will become trading stock again when they are severed from the ground for the purpose of reprocessing or sale, either by a gold mining operator or by a gold tailings processor. | Consolidated ruling + note


Legislative references: ITAA 1997 70-10 ITAA 1997 70-35
Case references: Stow Bardolph Gravel Co. Ltd v. Poole (Inspector of Taxes) [1954] 3 All ER 637
Subject references: gold mining low grade ore tailings dumps trading stock