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.