Before winning office in the Federal Election, the Coalition
announced that it would introduce an exploration development
incentive if it won Government. Now that the election is over and
the Coalition has won government, thoughts are turning to when the
incentive will be introduced and how it will work.
From the very limited details contained in the announcement, it
appears to be the case that:
The incentive will apply from 1 July 2014.
Only "small" exploration companies with no taxable
income will be eligible. It remains to be seen how
"small" will be defined.
There is an overall cap of $100m worth of benefits to be
provided by the Government. Presumably therefore each claim will be
monitored by the Government and once the industry has claimed the
cap, no more benefits will be claimable. It certainly suggests that
it will be a case of first in, best dressed.
The investors in the junior miner will reap the benefits,
rather than the junior miner itself. Currently, the junior miner
obtains a tax deduction for exploration expenditure incurred, but
generally this is of little use unless or until it can be offset
against income. The beauty about the Coalition's proposal is
that the investors themselves will be entitled to an offset from
their tax bill as a result of the exploration expenditure
incurred.. Issues that arise out of the proposal are:
how will the exploration expenditure incurred by the junior
miner be allocated among the investors? On a proportionate
shareholding basis? On a subscribed capital basis?
What happens when income is eventually generated and profits
are made? Are the profits deemed to belong to investors (as the
exploration expenditure was), who will pay tax on them? Or will the
profits belong to the junior miners, who will pay tax on them?
Is it possible to obtain a benefit greater than the investment?
For example if $3m has been invested by way of equity and $2 by way
of borrowings, is it possible to obtain a tax offset of say $2m in
year one and $3m in year two? That is, does the investor obtain a
benefit for not only equity invested, but also borrowings used to
fund the exploration expenditure?
Is the incentive limited to only certain forms of structures,
for example, companies? A joint venture/partnership already
effectively provides a flow through of expenditure whereby each
joint venturer/partner claims a share of the venture's net
profit or loss.
Undoubtedly the above issues will be covered off in the
legislation once it is introduced into Parliament. HopgoodGanim
will continue to monitor the progress of this proposal.
Depending on the type of ETP, the employee's age and years of service, the amount may be taxed in various different ways.
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