Income Tax Assessment Act 1997

Div 418 inserted by No 21 of 2015, s 3 and Sch 6 item 2, applicable from the 2017-18 to 2021-25 income years, allowing a distribution in those years. The Exploration Development Incentive (EDI) applied from the 2014-15 to 2016-17 years of income, replaced by the Junior Minerals Exploration Incentive (JMEI), of broadly similar operation, applicable for an initial period from the 2017-18 to 2020-21 years of income, extended for a further 4 years, for the 2021-22 to 2024-25 years of income, by Act No 72 of 2021, Sch 2.

Subdiv 418-D substituted by No 15 of 2018, s 3 and Sch 1 item 2, effective 1 April 2018. For application and transitional provisions, see note under Subdiv 418-DA heading. Subdiv 418-D formerly read:

Subdivision 418-D - Creating exploration credits

SECTION 418-70 Entities that may create exploration credits  
418-70(1)
An entity may create exploration credits for an income year if:

(a) the entity was a *greenfields minerals explorer in the previous income year; and

(b) on or before 30 September in the *financial year corresponding to the income year, the entity has given to the Commissioner, in the *approved form, a declaration stating:

(i) their estimated *tax loss for the previous income year; and

(ii) their estimated *greenfields minerals expenditure, for the previous income year.

418-70(2)
However, the entity cannot create the exploration credits:

(a) before the legislative instrument under section 418-90 declaring the modulation factor for the income year has been registered under the Legislation Act 2003 ; or

(b) for the 2018-19 income year or a later income year.

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S 418-70(2) amended by No 93 of 2017, s 3 and Sch 2 item 10, by substituting " the Legislation Act 2003 " for " Division 2 of Part 4 of the Legislative Instruments Act 2003 " in para (a), effective 20 September 2017.

418-70(3)
A failure to comply with subsection (1) or paragraph (2)(a) does not invalidate the creation of an *exploration credit.

418-70(4)
An *exploration credit is to be expressed as a monetary amount.

418-70(5)
The entity cannot make more than one decision to create *exploration credits for an income year, and the decision is final and irrevocable.
SECTION 418-75 Meaning of greenfields minerals explorer  
418-75(1)
An entity is a greenfields minerals explorer in an income year if:

(a) the entity has *greenfields minerals expenditure for the income year; and

(b) during the income year, the entity is a disclosing entity (within the meaning of section 111AC of the Corporations Act 2001 ); and

(c) during the income year, the entity is a *constitutional corporation; and

(d) during the income year, and during the immediately preceding income year, neither:

(i) the entity; nor

(ii) any other entity that is *connected with or is an *affiliate of the entity;

carried on any mining operations on a mining property for extracting *minerals (except *petroleum) from their natural site, for the *purpose of producing assessable income.

418-75(2)
However, an entity is not a greenfields minerals explorer in an income year in which either or both of the following happens, or in any subsequent income year:

(a) the entity fails to comply with a request of the Commissioner under subsection 418-80(5);

(b) a determination under section 418-185 has effect.

Note 1:

Under subsection 418-80(5), the Commissioner may request a report on an area in relation to which an entity has greenfields minerals expenditure.

Note 2:

Under section 418-185, the Commissioner may determine that an entity that is, or has been, liable to excess exploration credit tax is not to be treated as a greenfields minerals explorer.

SECTION 418-80 Meaning of greenfields minerals expenditure  
418-80(1)
An entity ' s greenfields minerals expenditure for an income year is the sum of:

(a) the amounts of any deductions to which the entity is entitled under section 40-25 for that income year in relation to declines in value that:

(i) are declines in value of *depreciating assets used for *exploration or prospecting for *minerals in an area to which subsection (3) of this section applies; and

(ii) are worked out under subsection 40-80(1); and

(b) the amounts of any deductions for that income year to which the entity is entitled in relation to expenditure:

(i) that is of a kind referred to in subsection 40-730(1); and

(ii) in relation to which the entity satisfies one or more of paragraphs 40-730(1)(a) to (c); and

(iii) that is expenditure on exploration or prospecting for minerals in an area to which subsection (3) of this section applies.

418-80(2)
For the purposes of subsection (1), disregard a deduction to the extent that it relates to:

(a) matters other than:

(i) declines in value of *depreciating assets used for; or

(ii) expenditure on;

*exploration or prospecting for *minerals in an area to which subsection (3) of this section applies; or

(b) exploration or prospecting for *petroleum or oil shale; or

[ CCH Note: No 21 of 2015, s 3 and Sch 6 item 21 provides for the substitution of s 418-80(2)(b)(ii) for s 418-80(2)(b)(ii) and (iii). This amendment is described as a contingent amendment to take into account changes proposed by the Treasury Legislation Amendment (Repeal Day) Bill 2014 that became No 2 of 2015, however that Act does not contain an amendment to s 418-80 that allows for the contingent amendment by No 21 of 2015 to be applied.]

(c) activities (such as feasibility studies) undertaken to identify the viability of a mineral resource rather than its existence.

418-80(3)
This subsection applies to an area:

(a) that is in Australia; and

(b) in relation to which the entity *holds a *mining, quarrying or prospecting right at the time of incurring the expenditure; and

(c) that has not been identified as containing a mineral resource that is at least inferred in a report prepared in accordance with the requirements of:

(i) unless subparagraph (ii) applies - the document that is known as the Australasian Code for Reporting of Exploration Results, Minerals Resources and Ore Reserves and that took effect on 20 December 2012; or

Note:

This document is commonly referred to as the JORC Code (2012 Edition).

(ii) such other document as the regulations prescribe; and

(d) that is not, and is not in, any of the following:

(i) the coastal sea of Australia (within the meaning of subsection 15B(4) of the Acts Interpretation Act 1901 );

(ii) an area referred to in subsection 960-505(2).

(iii) (Repealed by No 15 of 2017)

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S 418-80(3) amended by No 15 of 2017, s 3 and Sch 4 items 71 and 72, by substituting para (d)(ii) for para (d)(ii) and (iii) and repealing the note, effective 1 April 2017. Para (d)(ii), (iii) and the note formerly read:

(ii) an offshore area for the purpose of the Offshore Petroleum and Greenhouse Gas Storage Act 2006 ;

(iii) the Joint Petroleum Development Area (within the meaning of the Petroleum (Timor Sea Treaty) Act 2003 ).

Note:

An offshore area and the Joint Petroleum Development Area include the territorial sea, the exclusive economic zone and the continental shelf of Australia.

418-80(4)
For the purposes of paragraph (3)(c), disregard any mineral resource, identified in a report of a kind referred to in that paragraph, that does not include *minerals the exploration or prospecting for which involved:

(a) use of assets referred to in paragraph (1)(a); or

(b) expenditure referred to in paragraph (1)(b).

418-80(5)
The Commissioner may request an entity that is a *greenfields minerals explorer in an income year to prepare, within the period specified in the request, a report that:

(a) is of the kind referred to in paragraph (3)(c); and

(b) relates to an area in relation to which the entity has *greenfields minerals expenditure for the income year.

The request may specify the manner in which, and the form in which, the report is to be prepared.

SECTION 418-85 Exploration credits must not exceed maximum exploration credit amount  
418-85(1)
An entity must not create *exploration credits for an income year (the current income year ) of a total amount that exceeds the entity ' s *maximum exploration credit amount for the income year.

418-85(2)
The entity ' s maximum exploration credit amount for the current income year is worked out as follows: Method statement

Step 1.

Ascertain which of the following is the smallest amount:

(a) the entity ' s estimated *tax loss for the previous income year, as stated in the entity ' s declaration under paragraph 418-70(1)(b);

(b) the entity ' s actual tax loss for the previous income year;

(c) the entity ' s estimated *greenfields minerals expenditure for the previous income year, as stated in the entity ' s declaration under paragraph 418-70(1)(b);

(d) the entity ' s actual greenfields minerals expenditure for the previous income year.

Step 2.

Multiply that smallest amount by the *corporate tax rate applying to the previous income year.

Step 3.

Multiply the result of step 2 by the modulation factor declared under section 418-90 for the current income year. The result of this step is the entity ' s maximum exploration credit amount for the current income year.

418-85(3)
In working out the entity ' s actual *tax loss for the previous income year for the purposes of step 1 of the method statement in subsection (2), reduce that tax loss by the sum of:

(a) all *recoupments that the entity receives in relation to the entity ' s *greenfields minerals expenditure for the previous income year; and

(b) any part of the entity ' s tax loss for the previous income year that would not be deductible in the current income year; and

(c) if:

(i) an amount has been included in the entity ' s assessable income because a *balancing adjustment event occurs for a *depreciating asset; and

(ii) all or part of the amount of the deduction to which the entity is entitled under section 40-25 for the previous income year in relation to the decline in value of the asset is included in the entity ' s greenfields minerals expenditure for that income year;

so much of the amount of that deduction as was included in that greenfields minerals expenditure.

418-85(4)
For the purposes of paragraph (3)(b), assume that the entity ' s assessable income for the current income year is sufficient to allow the entity to utilise the whole of that tax loss in relation to the current income year.

418-85(5)
In working out the entity ' s actual *greenfields minerals expenditure for the previous income year for the purposes of step 1 of the method statement in subsection (2), reduce that greenfields minerals expenditure by the sum of:

(a) all *recoupments that the entity receives in relation to the entity ' s greenfields minerals expenditure for the previous income year; and

(b) if:

(i) an amount has been included in the entity ' s assessable income because a *balancing adjustment event occurs for a *depreciating asset; and

(ii) all or part of the amount of the deduction to which the entity is entitled under section 40-25 for the previous income year in relation to the decline in value of the asset is included in the entity ' s greenfields minerals expenditure for that income year;

so much of the amount of that deduction as was included in that greenfields minerals expenditure.

418-85(6)
A failure to comply with this section does not invalidate the creation of an *exploration credit.
SECTION 418-90 Modulation factors  
418-90(1)
The Commissioner must, by legislative instrument, declare modulation factors in accordance with this section for each of the following:

(a) the 2015-16 income year;

(b) the 2016-17 income year;

(c) the 2017-18 income year.

418-90(2)
The modulation factor for an income year is to be one if the Commissioner is satisfied that the total amount of *exploration credits that could be created in respect of that income year will not exceed the following amount (the exploration credit cap ) for the income year:

(a) for the 2015-16 income year - $25 million;

(b) for the 2016-17 income year - $35 million;

(c) for the 2017-18 income year - $40 million.

418-90(3)
If subsection (2) does not apply, the modulation factor for the income year is to be such a number as the Commissioner is satisfied would reduce the total amount of *exploration credits that could be created in that income year to the exploration credit cap for the income year.

418-90(4)
In ascertaining for the purposes of subsection (2) or (3) the total amount of *exploration credits that could be created in an income year (the current income year ), the Commissioner is to:

(a) use the information provided in declarations under paragraph 418-70(1)(b) for the previous income year; and

(b) disregard the possible application of any modulation factor.

418-90(5)
A failure to comply with subsection (2), (3) or (4) does not invalidate the declaration of a modulation factor for an income year.

418-90(6)
A declaration made under subsection (1) is a legislative instrument, but section 42 (disallowance) of the Legislation Act 2003 does not apply to the declaration.

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S 418-90(6) amended by No 93 of 2017, s 3 and Sch 2 item 11, by substituting " Legislation Act 2003 " for " Legislative Instruments Act 2003 " , effective 20 September 2017.

SECTION 418-95 Effect on tax losses of creating exploration credits  
418-95(1)
If an entity creates any *exploration credits in respect of a *loss year, the amount of the entity ' s *tax loss for the loss year is reduced by the amount worked out as follows:

The sum of all the *exploration credits the entity creates in respect of the *loss year

The *corporate tax rate

418-95(2)
However, if the amount worked out under subsection (1) equals or exceeds what would (apart from this section) be the entity ' s *tax loss for the *loss year, that tax loss is taken to be nil.

Subdiv 418-D inserted by No 21 of 2015, s 3 and Sch 6 item 2, applicable in relation to the 2015-16, 2016-17 and 2017-18 income years, but not in relation to any later income years. However, see amendments in Act No 72 of 2021 that extend the operation of Div 418 for the 2021-22 to 2024-25 years of income and note under Div 418 heading.

S 418-95 substituted by No 15 of 2018, s 3 and Sch 1 item 2, effective 1 April 2018. For application and transitional provisions, see note under Subdiv 418-DA heading. For former wording, see note under Subdiv 418-D heading.

S 418-95 inserted by No 21 of 2015, s 3 and Sch 6 item 2, applicable in relation to the 2015-16, 2016-17 and 2017-18 income years, but not in relation to any later income years. However, see amendments in Act No 72 of 2021 that extend the operation of Div 418 for the 2021-22 to 2024-25 years of income and note under Div 418 heading.