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RSPT is not some weird tax invented by Ken Henry

By Bryan Kavanagh - posted Thursday, 3 June 2010

During my time as valuer with the Australian Taxation Office I served a stint valuing hotels. Later, in the Commonwealth Bank, I came to value other forms of “going concerns”, such as service stations, nursing homes, restaurants, etc.

The methods used for hotels were to capitalise either the net rental or the net profit. If a tenant paid an ingoing for a lease, this premium was also rentalised over the term of the lease and added to the rent reserved under the lease.

Rentals obviously bore a relationship to the hotel’s turnover in liquor, meals and accommodation and to the net profit of the business. A capitalisation rate was established by analysis of sales of leased hotels trading at a similar turnover. I’d study the subject hotel’s profit and loss statements over the last few years and make adjustments for any non-recurrent items, trying to ascertain an explanation for any variations in trade during the period in question.


In the case of an owner-occupied hotel, I’d similarly analyse comparable sales evidence and examine the subject’s profit and loss accounts.

I found the net profit of owner-occupied hotels before interest and tax (EBIT) to be approximately double that of hotels where the business was operated by a tenant. If I added back the lessee’s rent, his EBIT plus rent usually equated to the EBIT of an owner-occupied hotel doing similar trade.

Over the years, I came to see this 50/50 approximation applied not only to the valuation of hotels, but to other businesses, including quarries.

Why shouldn’t it? The landlord has leased his freehold and business to a tenant on a partnership of some equality. The owner gets his 50 per cent share of EBIT as rent, and the tenant receives his as business profit.

So, the Henry Review’s recommendations for a 40 per cent Resource Super Profit Tax (RSPT) on mining has impeccable business credentials (even though the Rudd Government has attached some minor, unnecessary considerations to it). The RSPT parallels what occurs in the business world except in the case of mining Australians are the landlords and the miners are the tenants. Australian miners should ReSPecT this relationship and pay the fair rent.

On the other hand, if miners like Clive Palmer, “Twiggy” Forrest and their representative Mitch Hooke want to say that their company tax on top of the proposed RSPT rent is too much, I’d have to agree. In this respect, they are in the same boat as most Australians who pay taxes on the incomes they’ve earned instead of a rent on the land they occupy.


The miners have the wrong end of the stick. We should all be paying our land or resource rents to the public purse, then work to have all arbitrary imposts and taxes removed.

Until Australians learn to appreciate the vast difference between a rent and a tax - and public debate on the issue demonstrates that politicians of all stripes clearly do not yet understand this difference - we’ll continue to have the sort of ridiculous arguments being put against the RSPT by the mining industry and other highly placed but ill-informed personages.

And I wish we’d stop calling it an RSPT or a miners’ “super profit”. It’s a trendy name for a natural resource rent, pure and simple. There are taxes and there are land rents: one can be passed on in prices and the other cannot.

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First published in the author's blog,, on May 30, 2010.

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About the Author

Bryan Kavanagh is a real estate valuer and associate of the Land Values Research Group.

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