House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Scott Morrison MP)

General outline and financial impact

Junior Minerals Exploration Incentive

Schedule 1 to the Bill amends the tax law to replace the former EDI with the JMEI.

Like the EDI, the JMEI provides a tax incentive to invest in small minerals exploration companies undertaking greenfields minerals exploration in Australia. Australian resident investors of these companies receive a tax incentive where the companies choose to give up a portion of their tax losses relating to their exploration expenditure in an income year.

Unlike the EDI, under the JMEI:

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eligibility for the incentive is limited to investors that purchase newly issued shares; and

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the incentive is allocated between eligible exploration companies on a first come, first served process (subject to integrity requirements).

The total value of the tax incentives available to taxpayers in respect of acquisition of eligible shares in an income year is restricted to $15 million in 2017-18, $25 million for 2018-19, $30 million for 2019-20 and $30 million for 2020-21. If part of the cap is unallocated it is carried over to a subsequent income year for which allocations can be made.

The incentive is not available for shares issued or expenditure incurred in income years after the 2020-21 income year.

Date of effect: The JMEI applies to expenditure incurred in the 2017-18, 2018-19, 2019-20 and 2020-21 income years.

Proposal announced: The JMEI was announced by the Prime Minister and Deputy Prime Minister on 2 September 2017, in a joint press release titled, 'Investing in the future strength of the Australian resources sector'.

Financial impact: This measure is estimated to result in a cost to revenue of $100 million over the forward estimates period:

Human rights implications: The Bill does not raise any human rights issues. See Statement of Compatibility with Human Rights, Chapter 2 paragraphs 2.1 to 2.5.

Compliance cost impact: The introduction of the JMEI results in a small increase in compliance costs for small minerals exploration companies that choose to participate.

Summary of regulation impact statement

Regulation impact on business

Impact: Small

Main points:

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Small exploration companies can find it difficult to attract capital to undertake greenfields minerals exploration and this has led to concerns about the impact on the Australian resources sector in the medium to longer term.

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Small exploration companies, with little income to offset against their deductible exploration expenditure, can face a tax disadvantage relative to larger mining and exploration companies. They are also subject to significant risks and potentially long delays from exploration activity to discovery.

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The measure is expected to encourage additional investment in small exploration companies undertaking greenfields minerals exploration in Australia.

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Exploration companies that choose to participate in the JMEI will face small additional compliance costs, noting that the scheme is voluntary and most of the information required to participate is broadly similar to that already reported by eligible companies.