Treasury Laws Amendment (Junior Minerals Exploration Incentive) Act 2018 (15 of 2018)

Schedule 1   Junior minerals exploration incentive

Part 1   Main amendments

Income Tax Assessment Act 1997

2   Subdivisions 418-D and 418-E

Repeal the Subdivisions, substitute:

Subdivision 418-D - Creating exploration credits

Table of sections

418-70 Entities that may create exploration credits

418-75 Meaning of greenfields minerals explorer

418-80 Meaning of greenfields minerals expenditure

418-81 Meaning of exploration credits allocation for an income year

418-82 When does an entity have an unused allocation of exploration credits from an income year

418-85 Exploration credits must not exceed maximum exploration credit amount

418-95 Effect on tax losses of creating exploration credits

418-70 Entities that may create exploration credits

(1) An entity may create exploration credits for an income year if:

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

(b) the entity has an *exploration credits allocation for the income year or an *unused allocation of exploration credits from the immediately preceding income year.

(2) The entity cannot create *exploration credits for an income year before income tax is assessed for the entity for the year.

(3) The entity cannot create *exploration credits for the 2021-22 income year or a later income year.

(4) A failure to comply with subsection (1) or (2) does not invalidate the creation of an *exploration credit.

(5) An *exploration credit is to be expressed as an amount.

(6) The entity cannot make more than one decision to create *exploration credits for an income year, and the decision is final and irrevocable.

418-75 Meaning of greenfields minerals explorer

(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.

(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.

418-80 Meaning of greenfields minerals expenditure

(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.

(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

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

(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, or is the transferee under a *farm-in farm-out arrangement; 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).

(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).

(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.

418-81 Meaning of exploration credits allocation for an income year

(1) An entity has an exploration credits allocation for an income year if the Commissioner makes a determination under section 418-101 allocating the entity *exploration credits for the income year.

(2) The amount of the entity's exploration credits allocation for the income year is the amount of *exploration credits allocated to the entity under the determination.

(3) If no determination is made allocating *exploration credits to the entity for the income year, the amount of the entity's exploration credits allocation for the year is nil.

418-82 When does an entity have an unused allocation of exploration credits from an income year

(1) An entity has an unused allocation of exploration credits from an income year if each of the following:

(a) the entity's *exploration credits allocation for the income year;

(b) the total credits issue for investment in the entity for the income year;

exceeds the total amount of all *exploration credits created by the entity for the income year.

(2) The amount of the unused allocation of exploration credits from the income year is the lesser of:

(a) the amount by which the amount mentioned in paragraph (1)(a) exceeds the total amount of all *exploration credits created by the entity for the income year; and

(b) the amount by which the amount mentioned in paragraph (1)(b) exceeds the total amount of all *exploration credits created by the entity for the income year.

(3) If neither the amount mentioned in paragraph (1)(a) nor (1)(b) exceeds the total amount of all *exploration credits created by the entity for the income year, there is no unused allocation of exploration credits from the income year, and the amount of any unused allocation of exploration credits from the income year is nil.

(4) In this section:

total credits issue for investment in the entity (the minerals explorer ) for an income year means the total of all *exploration credits that may be issued by the minerals explorer to all other entities in relation to *exploration investment made by those other entities in the minerals explorer in the income year if section 418-120 is complied with.

418-85 Exploration credits must not exceed maximum exploration credit amount

(1) An entity must not create *exploration credits for an income year of a total amount that exceeds the entity's *maximum exploration credit amount for the income year.

(2) An entity's maximum exploration credit amount for an income year (the credit year ) is the smallest of the following amounts:

(a) the entity's *greenfields minerals expenditure for the credit year multiplied by the entity's *corporate tax rate for the credit year;

(b) the entity's *tax loss for the credit year multiplied by the entity's corporate tax rate for the credit year;

(c) the sum of:

(i) the entity's *exploration credits allocation for the credit year; and

(ii) the entity's *unused allocation of exploration credits from the income year immediately preceding the credit year.

(3) In working out the entity's *greenfields minerals expenditure for the credit year for the purposes of paragraph (2)(a), 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 credit 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 credit year in relation to the decline in value of the asset is included in the entity's greenfields minerals expenditure for that year;

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

(4) In working out the entity's *tax loss for the credit year for the purposes of paragraph (2)(b), 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 credit year; and

(b) any part of the entity's tax loss for the credit year that would not be deductible in the income year immediately following the credit 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 credit year in relation to the decline in value of the asset is included in the entity's greenfields minerals expenditure for that year;

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

(5) For the purposes of paragraph (4)(b), assume that the entity's assessable income for the income year immediately following the credit year is sufficient to allow the entity to utilise the whole of that *tax loss in relation to the credit year.

(6) A failure to comply with this section does not invalidate the creation of an *exploration credit.

418-95 Effect on tax losses of creating exploration credits

(1) If an entity creates any *exploration credits for a *loss year, the amount of the entity's *tax loss for the loss year is reduced by the amount worked out as follows:

(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.

Subdivision 418DA - Exploration credits allocation

Table of sections

418-100 Applying for an exploration credits allocation

418-101 Determination by the Commissioner

418-102 General allocation rules

418-103 Meaning of annual exploration cap

418-104 Failure to comply with this Subdivision does not affect allocation

418-100 Applying for an exploration credits allocation

(1) An entity may apply to the Commissioner for a determination under section 418-101 allocating *exploration credits to the entity for an income year.

(2) The application must be made within 1 month before the start of the *financial year corresponding to the income year for which the allocation is sought.

(3) The application must:

(a) be *lodged electronically; and

(b) be in the *approved form; and

(c) include an estimate of:

(i) the entity's *greenfields minerals expenditure for the income year; and

(ii) the entity's *tax loss for the income year; and

(iii) the entity's *corporate tax rate for the income year.

(4) The Commissioner must give the entity:

(a) if the Commissioner makes a determination under section 418-101 - a copy of the determination; or

(b) if the Commissioner decides to refuse the application - notice of that decision.

418-101 Determination by the Commissioner

Determination allocating exploration credits

(1) The Commissioner may make a written determination allocating *exploration credits of an amount specified in the determination to an entity for an income year.

Circumstances in which the Commissioner must not make a determination

(2) The Commissioner must not make a determination allocating *exploration credits to an entity for an income year if the Commissioner is not satisfied that:

(a) there is a reasonable possibility that the entity will have:

(i) *greenfields minerals expenditure of the amount estimated by the entity in the application, or greater; and

(ii) a *tax loss of the amount estimated by the entity in the application, or greater; and

(iii) the *corporate tax rate estimated by the entity in the application; and

(b) the entity meets any other requirement prescribed under the regulations.

Amount of the exploration credits allocated

(3) The amount of the *exploration credits specified in the determination must be the smallest of the following amounts:

(a) the entity's estimated *greenfields minerals expenditure for the income year multiplied by the entity's estimated *corporate tax rate for the income year;

(b) the entity's estimated *tax loss for the income year multiplied by the entity's estimated corporate tax rate for the income year;

(c) either:

(i) 5% of an amount equal to the *annual exploration cap for the income year; or

(ii) if another amount, or a method for working out another amount, is prescribed - the other amount.

Determination not a legislative instrument

(4) A determination made under subsection (1) is not a legislative instrument.

418-102 General allocation rules

(1) The total amount of *exploration credits allocated to entities for an income year by the Commissioner must not exceed the *annual exploration cap for the year.

(2) The Commissioner must consider applications for *exploration credits from entities for an income year in the order in which the Commissioner receives the applications.

(3) If the Commissioner receives more than one application at the same time, the Commissioner may decide the order in which the Commissioner considers the applications.

(4) If the Commissioner would contravene this section by allocating *exploration credits to an entity for an income year of an amount worked out under subsection 418-101(3) then, despite that subsection, the amount of exploration credits allocated to that entity for the income year is to be the difference between the *annual exploration cap for the year and the total amount of exploration credits already allocated to other entities for the year.

418-103 Meaning of annual exploration cap

(1) The annual exploration cap for an income year is the following amount:

(a) for the 2017-18 income year - $15 million;

(b) for the 2018-19 income year - $25 million, plus the *exploration credits remainder for the immediately preceding income year;

(c) for the 2019-20 income year - $30 million, plus the exploration credits remainder for the immediately preceding income year and any other amount prescribed for the purposes of this paragraph;

(d) for the 2020-21 income year - $30 million, plus the exploration credits remainder for the immediately preceding income year and any other amount prescribed for the purposes of this paragraph.

(2) If the total amount of *exploration credits allocated by the Commissioner for an income year is less than the *annual exploration cap for the year, the difference is the exploration credits remainder for the income year.

418-104 Failure to comply with this Subdivision does not affect allocation

A failure by the Commissioner to comply with this Subdivision does not invalidate a determination allocating *exploration credits to an entity for an income year.

Subdivision 418-E - Issuing exploration credits

Table of sections

418-110 Issuing exploration credits

418-111 Working out whether an exploration investment has been made in an income year

418-115 Who may receive an exploration credit and what is the pool from which the credit may be issued

418-116 Exploration credits issued must be in proportion to exploration investment

418-120 The total of all exploration credits issued in relation to exploration investment

418-125 Expiry of exploration credits

418-130 Notifying the Commissioner of issuing or expiry of exploration credits

418-110 Issuing exploration credits

(1) An entity that has created *exploration credits for an income year (the minerals explorer ) may issue an exploration credit for that income year to another entity (the investor ).

(2) The *exploration credit issued to the investor for the income year may relate to:

(a) *exploration investment made by the investor in the minerals explorer in the income year; or

(b) exploration investment made by the investor in the minerals explorer in the immediately preceding income year.

However, this rule is subject to the limitations imposed under sections 418-115, 418-116 and 418-120.

(3) An *exploration credit is issued to an entity by giving the entity a statement in the *approved form.

418-111 Working out whether an exploration investment has been made in an income year

(1) An entity (the investor ) makes an exploration investment in another entity (the minerals explorer ) in an income year if:

(a) *shares in the minerals explorer are issued to the investor by the minerals explorer:

(i) on or after the day on which the Commissioner makes a determination under section 418-101 allocating *exploration credits to the minerals explorer for the income year; and

(ii) before the end of the income year; and

(b) those shares are *equity interests.

(2) The amount of the exploration investment made by the investor in the minerals explorer in the income year is equal to the total amount paid up by the investor on the shares during the period mentioned in paragraph (1)(a).

418-115 Who may receive an exploration credit and what is the pool from which the credit may be issued

(1) If *exploration credits are to be issued by an entity (the minerals explorer ) for an income year (the credit year ), work out each of the following by identifying whether scenario 1, 2 or 3 applies, and applying the rules for that scenario:

(a) whether the minerals explorer can issue an exploration credit to another entity in relation to *exploration investment made by the other entity in the minerals explorer in the credit year;

(b) whether the minerals explorer can issue an exploration credit to another entity in relation to exploration investment made by the other entity in the minerals explorer in the income year immediately preceding the credit year (the preceding year );

(c) the pool of exploration credits from which an exploration credit may be issued to another entity in relation to exploration investment made by the other entity in the minerals explorer in the credit year (this is called the issue pool for exploration investment made in the minerals explorer in the credit year);

(d) the pool of exploration credits from which an exploration credit may be issued to another entity in relation to exploration investment made by the other entity in the minerals explorer in the preceding year (this is called the issue pool for exploration investment made in the minerals explorer in the preceding year).

Scenario 1 - no unused allocation of exploration credits from the preceding year

(2) If there is no *unused allocation of exploration credits from the preceding year:

(a) *exploration credits can be issued to another entity in relation to *exploration investment made by the other entity in the minerals explorer in the credit year; and

(b) no exploration credits can be issued to another entity in relation to exploration investment made by the other entity in the minerals explorer in the preceding year.

(3) In this scenario:

(a) the issue pool for *exploration investment made in the minerals explorer in the credit year is equal to the total amount of *exploration credits created by the minerals explorer for the credit year; and

(b) the issue pool for exploration investment made in the minerals explorer in the preceding year is nil.

Scenario 2 - exploration credits for the credit year exceed unused allocation of exploration credits from the preceding year

(4) If the amount of the *exploration credits created by the minerals explorer for the credit year is more than the *unused allocation of exploration credits from the preceding year:

(a) exploration credits can be issued to another entity in relation to *exploration investment made by the other entity in the minerals explorer in the credit year; and

(b) exploration credits can be issued to another entity in relation to exploration investment made by the other entity in the minerals explorer in the preceding year.

(5) In this scenario:

(a) the issue pool for *exploration investment made in the minerals explorer in the credit year is equal to the difference between the *unused allocation of exploration credits from the preceding year and the total amount of *exploration credits created by the minerals explorer for the credit year; and

(b) the issue pool for exploration investment made in the minerals explorer in the preceding year is equal to the unused allocation of exploration credits from the preceding year.

(6) However, no *exploration credit can be issued to another entity in relation to *exploration investment made by the entity in the minerals explorer in the credit year unless the *issue pool for exploration investment in the preceding year is exhausted.

Scenario 3 - exploration credits for the credit year are equal to or less than the unused allocation of exploration credits from the preceding year

(7) If the amount of the *exploration credits created by the minerals explorer for the credit year is equal to or less than the *unused allocation of exploration credits from the preceding year:

(a) no exploration credits can be issued to another entity in relation to *exploration investment made by the entity in the minerals explorer in the credit year; and

(b) exploration credits can be issued to another entity in relation to exploration investment made by the other entity in the minerals explorer in the preceding year.

(8) In this scenario:

(a) the issue pool for *exploration investment made in the minerals explorer in the credit year is nil; and

(b) the issue pool for exploration investment made in the minerals explorer in the preceding year is equal to the total amount of *exploration credits created by the minerals explorer for the credit year.

418-116 Exploration credits issued must be in proportion to exploration investment

If an *exploration credit is issued by an entity (the minerals explorer ) for an income year to another entity (the investor ) in relation to *exploration investment made by the investor in the minerals explorer in an income year (the investment year ):

(a) the proportion of the *issue pool for exploration investment made in the minerals explorer in the investment year that is issued to the investor as an exploration credit must be the same as the proportion of the total exploration investment in the minerals explorer in the investment year that is represented by the investor's exploration investment in the minerals explorer in the investment year; and

(b) the minerals explorer must issue an exploration credit to every entity who made an exploration investment in the minerals explorer in the investment year.

418-120 The total of all exploration credits issued in relation to exploration investment

The total amount of all *exploration credits issued by an entity (the minerals explorer ) to another entity (the investor ) in relation to *exploration investment made by the investor in the minerals explorer in an income year (the investment year ) must not exceed the amount worked out using the following formula:

418-125 Expiry of exploration credits

An *exploration credit created by an entity for an income year (the credit year ) expires if the entity does not issue the credit under this Subdivision on or before 30 June in the financial year that corresponds to the income year that immediately follows the credit year.

418-130 Notifying the Commissioner of issuing or expiry of exploration credits

(1) An entity that has created *exploration credits for an income year (the credit year ) must notify the Commissioner of the issuing or expiry of the credits.

(2) The notice must:

(a) be in the *approved form; and

(b) be given to the Commissioner on or before the due date:

(i) if the entity is an *investment body for *Part VA investments - for giving to the Commissioner an *annual investment income report in respect of the *financial year corresponding to the year immediately following the credit year; or

(ii) otherwise - for the entity to lodge its *income tax return for the income year that immediately follows the credit year.