Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Scott Morrison MP)APPENDIX A
Overview of the Junior Minerals Exploration Incentive tax offset
The Junior Minerals Exploration Incentive tax offset (JMEI) will enable junior exploration companies undertaking greenfields minerals exploration to distribute their tax losses as a refundable tax offset to initial investors. The scheme will be open for four years from 1 July 2017 until 30 June 2021.
Who will be eligible?
The scheme will be open to companies with no taxable income in an income year. To ensure the scheme is confined to junior explorers, the scheme will exclude companies that have commenced resources production and companies connected or affiliated with an entity that has commenced resources production.
To ensure the integrity of the scheme and keep compliance costs to a minimum, the JMEI will only be available to disclosing entities under section 111AC of the Corporations Act 2001.
Participation in the scheme will be voluntary, eligible companies do not need to participate.
How will exploration credits be provided to investors?
The scheme only applies to new capital raisings and only Australian resident shareholders will be entitled to claim a credit through their tax return. If the shareholder is a private company, it is not entitled to receive the refundable offset but can get a franking credit equal to the amount of exploration credits received. The credit must be claimed in the year of issue and is non-transferable.
Credits will be attached to the investors who first acquire newly issued shares in a capital raising. If the shares are subsequently traded, the credit is retained by the initial investor because it attaches to the investor, not the share.
The credit that can be issued to the investor is limited to the amount of capital contributed from the new share raising. This does not increase, for example, in the event that a company has a lower capital raising than expected but manages to attract funding from other sources.
If a company is not able to spend the capital it raised before the end of the first year (the year in which it issued shares), the company has the ability to spend the remaining capital in the subsequent year and provide exploration credits to its first year investors.
Credits will be issued on a proportionate basis after the end of the first year (for that year) with remaining credits issued after the end of the second year.
How will the incentive be capped?
The cost of the scheme is capped at $100 million. Exploration credits are capped at $15 million for exploration expenditure incurred in 2017-18, $25 million for exploration expenditure incurred in 2018-19, $30 million for exploration expenditure incurred in 2019-20 and $30 million for exploration expenditure incurred in 2020-21.
Any unallocated credits in the first three years of the scheme will be rolled-over and added to the available credits that can be allocated by the ATO in the subsequent year. Excess credits cannot be carried forward after the fourth year.
The JMEI will be capped using a first-in, first-served approach. Eligible companies must apply to the ATO to receive an exploration credit allocation for an income year and satisfy the integrity requirements around what is reasonably possible in terms of their application.
To guard against one company securing access to all available credits in a given year simply by virtue of being the first applicant, the amount of credits that a company is able to receive will be capped. As the amount of available credits will vary in each year of the scheme, the cap will be set at a maximum percentage of the available credits in the relevant year.
How will exploration credits be treated?
Exploration companies will only be able to issue credits once they have finalised their tax return and confirmed their tax loss and expenditure for the year. If companies wish to accelerate the availability of credits, they will need to finalise their tax affairs swiftly.
Australian resident shareholders will be entitled to refundable tax offsets equal to the exploration credits they receive. These will be claimed in their tax returns for the year they receive the exploration credits.
Corporate shareholders will be treated under the rules that apply to franking credits.
If a company is late in issuing the credits, investors that have already submitted their tax return would need to request an amended assessment.
