The Queensland Office of State Revenue has issued a ruling on how it will apply the transfer duty exemption for farm-ins.
It is proposed that the exemptions will be incorporated in future legislation, and this ruling has been issued pending such legislation.
Some important points to consider:
- Transfer duty will not apply to a farm-in agreement where the only consideration for the agreement is an exploration amount. The only amount upon which duty is payable is for any other consideration not comprising an exploration amount (for example, upfront cash payments, payments for mining information or cash payments upon the actual transfer of the interest).
- In relation to a staged farm-in, duty will be assessed and payable on each stage as and when that stage occurs (rather than duty being assessed on all stages upfront).
- Transfer duty will be reassessed where the consideration (other than exploration amounts) is altered or additional consideration is paid (for example, where an agreement requires both an upfront cash payment and a subsequent cash payment upon the ultimate transfer of the interest). In these circumstances, the parties must lodge documents for reassessment within 14 or 30 days (depending on circumstances). A credit will apply to duty already paid.
- Duty will not arise on reassignments of interest to the original permit-holder.
- The critical date for when these exemptions apply is 10:30am on 13 January 2012. That is, transfer duty exemptions will only apply to:
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- a farm-in agreement made or entered into at or after 10:30am on 13 January 2012; or
- a transfer made at or after 10:30am on 13 January 2012, regardless of when the associated farm-in was entered into.
Example
Consider the following example involving a staged farm-in agreement between an exploration permit holder (X) and a party farming into the project (Y).
| Stage | Consideration paid to X by Y | Type of consideration | Rights gained by Y | Transfer duty applies? |
| 1 | $10,000 | Other consideration | Entry into the agreement | Yes |
| 2 | $1 million | Exploration expenditure | Right to acquire a 20% interest in the permit | No |
| 3 | $200,000 | Other consideration | Access to mining information | Yes |
| 4 | $300,000 | Other consideration | Transfer of 20% interest in the permit (Transfer 1) | Yes |
| 5 | $2 million | Exploration expenditure | Right to acquire a further 30% interest in the permit | No |
| 6 | $400,000 | Other consideration | Transfer of a 30% interest in the permit (Transfer 2) | Yes |
At each stage, the transfer duty will be assessed cumulatively, with credit provided for duty previously paid. Duty assessment for this example would take place as follows:
If Transfer 1 occurs, duty will be payable on the amount of $510,000, being the sum of the consideration at stages 1, 3 and 4.
If Transfer 2 occurs, duty will be payable on the amount of $910,000, being the sum of the consideration at stages 1, 3, 4, and 6. A credit will apply for duty previously paid in relation to stages 1, 3 and 4.
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
