A royalty penalty will be automatically imposed when any of the following happens:
- a royalty return is not lodged for a return period and we make an assessment of royalty liability (a default assessment)
- we make a reassessment and the first assessment was a default assessment
- we make a reassessment that increases the royalty liability compared to an earlier assessment or reassessment, and the first assessment was not a default assessment.
The penalty is 75% of the understated royalty, or of the liability assessed on a default assessment. However, we have the discretion to fully or partially remit it. Read the royalty ruling on remission of royalty penalty (ROY003) for more information.
The penalty can be increased by up to 20% if a resource permit holder hinders or stops us from becoming aware of the holder's true royalty liability.
Calculating the royalty penalty
The royalty penalty will be calculated in the following cases.
|Default assessment||75% of the royalty as assessed|
|Reassessment where first assessment was a default assessment||75% of the royalty as reassessed|
|Other reassessment that increases royalty liability||
If the royalty liability on the reassessment is greater than the royalty liability on the first assessment, the penalty is 75% of the difference.|
Otherwise, the penalty is 75% of the difference between the reassessed royalty and the lowest royalty assessed on an earlier reassessment
The following examples show how the penalty is applied.
Example 1 - default assessment when return not lodged
XYZ Co. has a royalty liability for the April-June quarter, but does not lodge a royalty return. Based on information from other sources, we make a default assessment for $8,000,000.
A royalty penalty of $6,000,000 (i.e. 75% of the $8,000,000) is imposed.
Example 2 - reassessment following overstated liability
Consider the same facts as example 1, but we then find, during a subsequent investigation, that XYZ Co.'s actual royalty liability for the quarter is $7,500,000. We reassess the liability to reduce the primary royalty amount.
As the first assessment of liability was a default assessment, the total royalty penalty imposed is $5,625,000 (i.e. 75% of $7,500,000).
Example 3 - reassessment following understated liability
XYZ Co. has a royalty liability of $7,500,000 for the April-June quarter, but lodges a royalty return for the period stating that the royalty payable was $5,000,000. We discover the understatement of their royalty liability during a subsequent investigation.
We reassess XYZ Co.'s liability, and a royalty penalty of $1,875,000 (i.e. 75% of the $2,500,000 increase) is imposed.
Example 4 - penalty following 2 reassessments
XYZ Co. has a royalty liability of $7,500,000 for the April-June quarter, but lodges a royalty return for the period stating that the royalty payable was $8,000,000, which is the value we use for the assessment.
XYZ Co. then tells us that the royalty liability for the period should have been $7,000,000. We accept this based on the evidence provided, and reassess the royalty liability using the new value.
However, during a subsequent investigation, we find that the actual liability for the period is $7,500,000.
We reassess XYZ Co.'s liability, and a royalty penalty of $375,000 - that is, 75% of the difference between $7,500,000 (the reassessed royalty) and $7,000,000 (the lowest royalty assessed on an earlier reassessment) - is imposed.
Increases or decreases in royalty penalty
The penalty can be increased by up to 20% if we believe that the resource permit holder has hindered or stopped us from knowing their true liability.
We can remit a royalty penalty amount in part or in full. When deciding this, we will consider the reasons for the understatement of the liability and to what extent the resource permit holder is responsible.
Prosecution and the royalty penalty
If a royalty penalty is imposed on you, you cannot also be prosecuted for a corresponding offence. Because a royalty penalty is an alternative to proceedings for particular offences, any royalty penalty is remitted in full if proceedings for the particular offence commence.
Understated royalty or no royalty return lodged
The royalty penalty will apply for all default assessments and reassessments that increase your royalty liability, regardless of when the royalty liability was first payable.
A penalty amnesty for voluntary disclosures of understated mineral royalty liabilities ended on 29 January 2016. A similar amnesty for understated petroleum royalty liabilities ended on 29 April 2016.