Expenditure on mining rights and information will no longer qualify for an immediate deduction. According to the Government, this change will address situations where an immediate deduction is being claimed for the costs of acquiring an interest in natural resources that have effectively already been discovered.
Mining rights and information first used for exploration will be depreciated over 15 years, or their effective lives, whichever is shorter. The effective life of a mining right and associated exploration information will be the life of the mine that it leads to. The Government will consult on options to make it easier to identify the life of a future mine.
If the exploration is unsuccessful, any remaining undepreciated value will be immediately deductible.
The following will continue to be immediately deductible (ie the measure will not apply to):
- the costs of mining rights from a relevant government issuing authority;
- the costs of mining information from a relevant government authority;
- the costs incurred by a taxpayer itself in generating new information or improving existing information; and
- the mining rights acquired by a farmer under a recognised “farm-in, farm-out” arrangement (these are often used by small explorers and do not represent a base erosion concern).
Date of effect: This measure applies to taxpayers who start to hold the mining right or information after 7.30pm (AEST) on 14 May 2013 unless:
- the taxpayer has committed to the acquisition of the right or information (either directly or through the acquisition of an entity holding the asset) before that time; or
- they are taken by tax law to already hold the right or information before that time.
Any commitment will need to be objectively verifiable.
The Government understands that there is an industry practice to swap exploration or retention lease tenements with other companies to consolidate holdings and facilitate better infrastructure development. The Government said that it will consult further with the industry to identify any circumstances in which an interest acquired through an exchange of mining rights should receive concessional tax treatment because the transaction does not give rise to integrity concerns.
Source: Budget Paper No 2 [pp 36-37]; Assistant Treasurer’s press release, 14 May 2013
[WTB 20, 14/5/13]