The Treasury Laws Amendment (Junior Minerals Exploration Incentive) Bill 2017 was introduced to the House of Representatives on Thursday 19 October 2017 to replace the former Exploration Development Incentive (EDI) with the Junior Minerals Exploration Incentive (JMEI).

As outlined in previous announcements, similar to the EDI, the JMEI provides a tax incentive for Australian resident investors to acquire shares in exploration companies undertaking greenfields mineral exploration in Australia. However, JMEI has a number of significant differences to the EDI including:

  • the allocation of the capped exploration credit will be on a first come first served basis rather than being allocated using the modulation factor that applied to the EDI by the Commissioner;
  • exploration credits can only be issued to investors who participate in a new capital raising rather than to all shareholders;
  • non-corporate investors will be able to claim a tax offset one year earlier under JMEI than under EDI; and
  • For the first three years, any unallocated part of the annual JMEI cap can be carried forward by the Commissioner and added to available credits for the subsequent income years. 

The Bill clarified the following points:

  • The proposed $100 million incentive will be capped at $15 million in 2017-18, $25 million in 2018-19 and $30 million in each of 2019-20 and 2020-21 (excluding any unallocated cap carried forward from a prior year).
  • Companies will need to apply to the Commissioner in June of each year (with the exception of 2017/2018) for an allocation of credits for capital risings they propose to undertake in the following financial year.
  • Application for allocation of credits for 2017-2018 capital raisings will need to be made in February 2018.
  • The capital raising must occur after the Commissioner has made an allocation and before the end of the income year. It should be noted that if a company applies for the credit and subsequently does not conduct a capital raise this may affect the ability to apply for subsequent allocations.
  • An exploration company must have an exploration credit allocation for an income year, or an unused allocation of exploration credits from the immediately prior income year, in order to create exploration credits for an income year. The decision to create credits can only be made once per year.
  • The company is prohibited from allocating credits to investors until it has established its loss and relevant exploration expenditure for the year and lodges its tax return.
  • If a company is unable to spend the capital it raised by the end of the year in which it is raised, the funds can be spent by the end of the following year. In this case, the company would provide any available credit for the additional spend to the early year investor at the end of the following year in preference to investors of that income year. However, the incentive is not available for shares issued or expenditure incurred in income years after 2020-2021, therefore, additional planning may be required for the 2020-2021 year to ensure all funds are spent by the end of that year to ensure full utilisation of credits.
  • The offset is attributed to the income year before the credit is issued by the company (i.e. the year the loss and relevant expenditure is incurred). If the investor has already lodged their tax return by the time the credit is issued, they will need to amend their return to claim the tax offset.
  • Only the original investor will be entitled to the credit and they do not need to hold the shares at the time the credit is issued.
  • Additional integrity measures have been introduced to ensure the maximum allocation per exploration company is 5% of the available credits and the integrity rules around applying an exploration credit tax when excess exploration credits are issued have been extended. The Commissioner will also refuse an application where there is a reasonable possibility that the estimates provided in the application are unlikely to eventuate.

A general overview of the framework and process for eligible companies to apply for allocation of exploration credits from the Commissioner and for the company to create and issue those credits to investors is as follows:

  • In June of each year, an eligible greenfields exploration company may apply to the Commissioner for an allocation of exploration credits for the following financial year. The application for 2017-2018 will need to be completed in February 2018 due to 2017-2018 year having already commenced.
  • The application must:
    • Be lodged electronically; and
    • Be in the approved form; and
    • Include an estimate of:
      • The entity’s greenfields minerals expenditure for the income year; and
      • The entity’s tax loss for the income year; and
      • The entity’s corporate tax rate for the income year.
  • The Commissioner must give the entity:
    • A copy of the determination stating the amount of credits allocated; or
    • If the Commissioner decided to refuse the application, notice of that decision.
  • The Commissioner must consider the application for an income year in the order in which the applications are received and must limit the allocation to the lesser of the estimated loss or the estimated greenfields exploration, multiplied by the estimated corporate tax rate and 5% of the annual exploration cap for the income year (or if another amount is prescribed, that other amount).
  • After receipt of an allocation determination from the Commissioner, the company may:
    • Undertake a capital raising and issue shares entitled to the credits;
    • Incur relevant greenfields exploration expenditure;
    • After year-end lodge the company tax return with actual exploration expenditure and tax loss;
    • Issue credits to relevant investors equal to the lesser of the exploration spend and the tax loss, multiplied by the actual corporate tax rate. However, if the company’s available exploration credits are less than either of these two figures, the maximum amount of credits that can be created is limited to the company’s available credits.
  • Care will need to be taken to ensure that all relevant information is to hand before creating any credits as the decision to create credits is limited to one decision per year and the decision is irrevocable.