Australia

Details

  • Service: Tax, Corporate Tax
  • Industry: Energy & Natural Resources
  • Type: Regulatory update
  • Date: 2/04/2014

Tax Insights

KPMG's analysis of tax issues and developments.

Craig Yaxley

Craig Yaxley
Partner, Direct Tax

+61 8 9263 7127

cyaxley@kpmg.com.au

Exploration Development Incentive – A step in the right direction 

by Craig Yaxley, ENR Specialist

After years of lobbying and backflips by political parties the Coalition Government has released its discussion paper in support of the introduction of an Exploration Development Incentive (EDI).

The EDI is seeking to incentivise greenfields mineral exploration in Australia through providing investors in junior explorers with exploration tax credits where a company renounces its tax losses arising from eligible exploration expenditure. While it is based on the Canadian Flow Through Share Scheme model, a key difference is the timing of the tax benefit to investors – tax credits are received over time after a company has incurred exploration expenditure, rather than an upfront deduction at the time of investment.

 

The salient features of the EDI include:

  • commencement date 1 July 2014
  • exploration company must incur eligible 'greenfields' expenditure and satisfy a 'non-taxable income' test for the year
  • scheme is capped at $100m (of tax credits) over the forward estimates period as follows:
    • 2014/15 $25m
    • 2015/16 $35m
    • 2016/17 $40m
  • resident shareholders claim refundable tax offsets in their tax returns in the year of receipt of the exploration credits
  • foreign resident shareholders will not be able to claim exploration credits
  • exploration credits will flow through trusts and partnerships.


Some of the key issues still being resolved include:

  • do exploration credits apply to all shareholders or only to holders of 'new shares' (i.e. capital raisings)?
  • what is 'eligible exploration expenditure' and what is meant by 'greenfields'?
  • as the scheme is capped at $100m over the forward estimates period, what modulation process should be used to determine the quantum of available exploration credits for an exploration company?

 

The closing date for submissions is 4 April 2014.

 

Please contact your KPMG Tax Partner if you would like further clarification.

 

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