The Federal Government's response to the Henry Tax Review
includes a proposed 30 percent resources exploration rebate for
exploration expenditure incurred on or after 1 July 2011.
This rebate will operate in a similar way to the research and
development tax off-set, and is intended to remove the current tax
disadvantages experienced by many exploration companies with tax
losses. The introduction of the resources exploration rebate comes
in the wake of controversy surrounding the Government's 40
percent resources super profits tax.
How will the resources exploration rebate work?
Although it's still early days, and we are yet to see draft
legislation, the concept of the resources exploration rebate is
relatively straightforward. Companies will receive a refundable tax
off-set at the prevailing company tax rate for their exploration
In practical terms, this is a change from the current position
where companies could only gain a tax benefit from exploration
expenditure where they had current profits to off-set exploration
expenditure against. Otherwise, they had to wait for future profits
to off-set against carried forward losses.
For example, a company that has no other profits to off-set the
expense against that spends $1 million on qualifying exploration
costs will receive a rebate cash refund of $300,000 (at the current
company tax rate). Where the taxpayer does have profits to off-set
the exploration expenditure against, we do not expect there will be
any practical change from the current position, where these costs
reduce the tax payable.
"Qualifying" exploration expenditure
At this stage, all exploration companies that undertake
qualifying exploration expenditure will be entitled to the
resources exploration rebate. It does not appear that there will be
any size restriction, such as a turnover threshold, on a
company's ability to access the rebate.
The Government's stated position is that the resources
exploration rebate will apply to all exploration expenses
immediately deductible under the current tax law, and will be
limited to exploration undertaken in Australia. The definition of
"exploration expenditure" will be expanded to include the
expenditure incurred in exploring for geothermal energy.
As the company loss rules and tax consolidation provisions
(which specify how company losses may be used within a consolidated
group) are already a very complex area of law, there may be
significant compliance costs associated with using the resources
We expect that the generous nature of the resources exploration
rebate will be balanced by strict policing by the Commissioner of
which exploration expenditure qualifies, and of the company loss
rules where the rebate has been claimed.
For more information on the implications of the resources
exploration rebate on your business, please contact
HopgoodGanim's Resources and Energy or Taxation and Revenue
The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
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