These new measures apply to transactions to acquire mining rights and information entered into after 7.30pm EST on 14 May 2013.
The background to this legislation was concern expressed by Treasury in recent years that significant immediate deductions were being claimed by resources companies for the cost of acquiring mining rights and information where the consideration paid reflected the value of resources that had already been discovered.
As a result of these provisions, the acquisition costs of mining rights and information will now have a default effective life of 15 years unless:
- a taxpayer can support the effective life of the rights is a lesser period based on the life of a mine or proposed mine to which the rights relate
- a taxpayer chooses for a balancing adjustment event to occur if the budgeted exploration expenditure for a year on a particular tenement does not exceed the minimum required exploration spend.
However, a clawback in the form of a balancing adjustment event will arise if, in a future year, the minimum expenditure spend is exceeded by a taxpayer in respect of a particular tenement.
An immediate deduction is still available for costs associated with acquiring rights and information from an Australian Government agency and for information created by the taxpayer or acquired from a third party supplier of geological data.
As a final note, the draft legislation does not contain specific provisions dealing with farm-out arrangements, however we understand Treasury is in the process of drafting legislation which will codify the income tax treatment of farm-outs. Taxpayers should closely monitor these developments.