Importantly, these changes will impact business and investment decisions going forward, some of which include:
- for both asset and share acquisition transactions entered into from 14 May 2013 involving the acquisition of affected rights and information, companies should factor the proposed changes into their valuation / financial modelling and tax effect accounting.
- it will be necessary to categorise the various expenditure incurred on rights and information to ascertain whether the current treatment is retained or subject to the proposed changes.; For example, the cost of rights acquired from a relevant government authority or by a farmee under a recognised ‘farm-in, farm-out’ arrangement will continue to be immediately deductible. Additionally, if exploration is unsuccessful, the remaining value of the right / information can be written off when this is established.
- it is anticipated that junior explorers will be impacted greatly as they stand to receive a lower price for the rights and information they generate and sell to larger operators. The market value is likely to be reduced, as the price will factor in the loss of the immediate deduction benefit.
Treasury released a proposal paper Targeting The Immediate Deduction For Mining Rights and Information First Used For Exploration seeking feedback on the proposed measures, with submissions due by 12 July 2013.