• Service: Tax, Topics, Federal Budget
  • Industry: Energy & Natural Resources
  • Type: Business and industry issue
  • Date: 31/05/2013

Tax Insights

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Bill Sfikas

Bill Sfikas
Partner, Tax

+61 2 9335 8268

Removal of immediate deductions for exploration rights and information 

 by Bill Sfikas, ENR Specialist

In the recent Federal Budget it was announced that the immediate deduction for the cost mining, quarrying or prospecting rights or information first used for exploration will be removed (subject to some limited exceptions), and instead the deduction will be spread over the shorter of 15 years or their effective life. These measures will take effect from 14 May 2013, unless the taxpayer has committed to the acquisition of the right or information before that time, or are taken to already hold the right or information before that time.

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.


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