Measures to encourage exploration critical, yet absent

Federal Budget 2013

Legislative change to the deductibility of exploration expenditure was widely expected in this year’s budget. The ATO has recently been undertaking a project to review the deductibility of exploration expenditure and the manner in which mining and exploration companies have been treating expenditure of that nature. Their belief is that companies are extending their periods of “exploration” into what should more appropriately be “mine development”, and thus obtaining an up-front deduction for expenditure that should be claimed over the life of the mine.

“The announcement that expenditure on mining rights and information will no longer qualify as an immediate deduction, but will be depreciated over the shorter of 15 years or their effective lives, is a clear indication that the current Government has realised that the concession needs to be scaled back due to the impact on revenue,” said Peter Hills, Tax Partner in Grant Thornton Australia’s Energy and Resources team.

“It is difficult to contemplate how the effective life of a mine can be determined during the exploration stage and prior to undertaking feasibility studies. Of some comfort are the stated exclusions that unsuccessful exploration will still be immediately deductible, as will the mining rights acquired by a farmer under a recognised “farm-in, farm-out” arrangement as commonly used by “junior explorers”.”

“The industry was looking for the Government to encourage exploration expenditure through the introduction of a tax credit system that allows companies to voluntarily pass to shareholders a credit for losses created on exploration.”

“Encouraging exploration is critical for the industry at a time when greenfield exploration is at an all-time low due to commodity prices and a lack of new capital injection, combined with a number of larger resource companies abandoning proposed expansion. Unfortunately, no such measures were provided for in this year’s budget.”

For more information, please contact:

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Helina Lilley
National Public Relations Manager
T  +61 2 8297 2421
M  0437 725 520
E helina.lilley@au.gt.com

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