New Exploration Development Incentive from 1 July 2014
What happened?
Last week, the Government released a discussion paper1 on the design of a new Exploration Development Incentive (“EDI”) which is aimed at stimulating investment in junior mineral exploration companies.
It is proposed that from 1 July 2014, eligible companies (broadly Australian exploration companies that have tax losses and exploration expenditure in the same income year) would be able to pass on the economic bene ts of these tax losses to their shareholders in the form of so-called “exploration credits”. These credits will entitle such shareholders to a refundable tax offset (that may reduce the taxable income and lead to a cash refund for the shareholders).
Whilst an incentive for mining companies has been talked about for a number of years and was flagged in last year’s budget, the total cap proposed by the government may serve to reduce its impact.
The incentive is proposed to be capped at a total of $100 million, spread over 3 years. Given total exploration in Australia is substantially in excess of this, a form of ‘scaleback’ will be required which will only serve to increase uncertainty for companies about the total bene t that they are able to pass to their shareholders.
It is also proposed that the incentive will be limited to “greenfields” mineral exploration on projects located in Australia.
What does this mean for you?
In order to access the EDI, companies will need to establish the right internal systems to record eligible expenditure (from 1 July 2014). This will help minimise the time and cost of preparing claims at year end and will ensure they are lodged in a timely fashion before any caps are reached.
Although the proposed EDI is still in consultation phase, we recommend that you begin planning for the scheme’s proposed implementation on 1 July 2014. Boards should also begin to consider how they will communicate the potential benefit to shareholders and potential investors.
How can Nexia help you?
We realise that this proposal is still in its infancy, but given the intention is to launch the scheme from 1 July 2014 we will keep you updated on any new relevant developments in this area. At this stage, we recommend a watching brief for boards of junior explorers.
Please contact your Nexia Advisor if you operate in the mining exploration activity sector and would like to know more about whether this new proposed incentive may be available to you.
Correspondingly, if you are involved in this sector, whether as a junior explorer, or as an investor, we would be pleased to hear your views on the proposed EDI.
1. Discussion paper: Exploration development incentive: Policy design, 13 March 2014
2. $25 million in 2015; $35 million in 2016; $40 million in 2017.
3. Unexplored or incompletely explored areas directed at discovering new resources.
