On Wed 13.6.2018, the ATO issued Draft Taxation Determination TD 2018/D2 on what constitutes a “use” (and potentially first use) of a mining, quarrying or prospecting right. An outright deduction is available for the cost of such a right if the requirements in s40-80(1) ITAA97 are satisfied. A key requirement is that the first use of the asset must be for exploration or prospecting for minerals or quarry materials obtainable by mining and quarrying operations.
The draft provides that the holder of a mining, quarrying or prospecting right will “use” the right if the holder or an authorised agent “does something” that the right permits or authorises. This will generally involve a permitted or authorised activity in the area over which the right is granted. In the ATO’s view, the following do not amount to the use of a mining, quarrying or prospecting right for s 40-80(1) purposes:
- merely holding, or meeting the conditions to hold, the right;
- an activity that is neither permitted nor authorised by the right;
- an activity that can be undertaken without holding the right, such as an aerial survey (see example 2);
- a trivial act, such as driving across the tenement in order to reach an adjacent tenement (see example 3).
DATE OF EFFECT: When the Draft Determination is finalised, it will apply both before and after its date of issue.
COMMENTS are due by 13 July 2018.
FJM 13.6.18
[ATO website: TD2018/D2; LTN 111, 13/6/18; Tax Month – June 2018]
Study questions (answers available)
- Does s40-80(1) allow a 100% write-off of the cost of acquiring the mining, quarrying or prospecting right?
- Is this write-off allowed when commencing to ‘use’ the right?
- Is ‘use’ when you are doing something permitted by the right.
- Does this include driving across the land?
- Does happen as soon as you ‘hold’ the right?
