The Government has committed to introduce an Exploration Development Incentive to encourage investment in small exploration companies undertaking greenfields mineral exploration in Australia from 1 July 2014.
Treasury has released a paper providing more detail on the operation of the Incentive to provide certainty for small mineral exploration companies and their investors ahead of the release of legislation to give effect to the measure.
Draft legislation will be released in due course.
The Incentive will apply to eligible “greenfields” exploration expenditure incurred in Australia from 1 July 2014.
Companies that choose to participate in the Incentive will notify the ATO after the expenditure year of the lesser of their exploration expenditure and their tax loss from the financial year. The ATO will then advise eligible companies of the proportion of this amount they will be entitled to provide to shareholders as exploration credits. As long as it does not exceed this amount, companies will be able to choose the tax losses to convert into exploration credits at the company tax rate. Further details on the operation of this modulation process will be determined as part of the consultation on draft legislation.
Following modulation, a company that wishes to provide exploration credits to its shareholders will reduce its tax loss that it may carry forward by the amount it wishes to provide to shareholders. The company will then calculate the total credits by multiplying the reduction in losses by the corporate tax rate and provide these exploration credits to its shareholders. Exploration credits must be distributed by the end of the financial year in which modulation occurred.
[LTN 127, 4/7/14]