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Last week's State Budget heralded an unexpected concession
for the mining industry, with the announcement that a new stamp
duty exemption will apply to mining tenement farmins.
This development addresses some of the concerns raised by the
industry earlier this year after the Government indicated that all
transfers of resource authorities would be liable for duty.
Here, special counsel Justin Byrne discusses the announcement
and explains how the concession might work.
Key facts
The 2012 Queensland State Budget included a new concession for
the State's miners, with farmins to be exempt from stamp
duty.
No further details were provided, with the Government stating
that "the scope and technical design of the concession will be
a matter for consultation between the Office of State Revenue and
industry".
Whether the exemption applies to upfront payments as well as
expenditure over the term of the farmin is yet to be
clarified.
Taxation of farmin agreements
After explaining in general terms that a farmin is the right to
receive an interest in a mining tenement in return for the
obligation to undertake works or commit certain expenditure, the
Government, in its State Budget, said that "this expenditure
will be exempt from duty". It is unclear, however, whether
that exemption will apply only to expenditure under the farmin
arrangement, or whether it also applies to any upfront payment made
when entering into the farmin arrangement in order to secure
it.
The answer may lie in the fact that this announcement is a
further change in the way stamp duty in Queensland will apply to
our mining industry in the future. Earlier this year, the Newman
Government announced that it would proceed with the Bligh
Government's proposal to assess duty transfers of all resource
authorities, including (for example) exploration tenements and
authorities to prospect, which were not previously subject to duty.
However, only transfers taking place as a result of an agreement
entered into after 13 January 2012 would be taxable.
Legislation was introduced into Parliament on 11 September 2012
to effect this change in law. Importantly, where liability for a
tenement transfer has arisen since 13 January 2012 as a result of
the (retrospectively applying) change in law, parties will have 30
days from the commencement of the legislation to lodge the relevant
documents for assessment. The legislation enacting this change is
expected to commence shortly.
When the announcement was made in January, concern was raised
over how such transfers would be taxed where a farmin arrangement
was involved. Given the Budget announcement, it may well be that
only committed expenditure under the farmin will be exempt from
duty, and that any upfront payment made to secure the farmin will
be taxable.
For example, if $1 million is payable upfront by a farmee in
order to secure farmin rights, and the farmee is also committed to
spending $20 million over five years on the tenement, it may be
that stamp duty will not be paid on the $20 million, but will be
payable on the $1 million. This represents a significant change for
junior explorers, but is broadly consistent with how other States
tax such transfers.
We will continue to monitor the implementation of the
Government's announcement. There is a long way to go before the
announcement becomes law (if indeed it ever becomes law), and
whether the final form of the legislation achieves the intended
outcome, as announced, remains to be seen.
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