Recent developments illustrate that the duty implications of farm-in arrangements are not uniform between the States. In July, the Queensland Commissioner issued Revenue Ruling DA000.12.1 to clarify the operation of the government announced farm-in concession, pending an amendment to the Duties Act.
The main points of the ruling are:
- no duty is payable on amounts paid for exploration and development of the tenement, however other consideration will attract duty at rates up to 5.75 percent
- the concession applies to both up-front and deferred farm-in arrangements.
Interestingly, the ruling states that amounts attributable to mining information will attract stamp duty. Although some States specifically impose duty on mining information, the Queensland Duties Act does not. This is likely to remain an issue of dispute with the Queensland Commissioner.
The decision of Zodiac Resources Pty Ltd v Commissioner of State Revenue indicates what can go wrong if a farm-in arrangement is not structured to satisfy a duty concession. The case involved an agreement under which the purchaser acquired an up-front interest in Western Australian mining tenements in consideration for the payment of exploration amounts over 3 years. The WA concession only applies to interests earned after the exploration amounts are expended. Unsurprisingly, it was held that the agreement was not a ‘farm-in’ agreement within the WA duty concession. In contrast, the arrangement would be exempt under the new Queensland ruling.