Australia: JMEI: New tax incentive for investors in small minerals exploration companies

Last Updated: 6 December 2017
Article by Carlos Gouveia


The Federal Government's Treasury Laws Amendment (Junior Minerals Exploration Incentive) Bill 2017 (Bill) creates a new scheme called the Junior Minerals Exploration Incentive (JMEI) which provides Australian resident investors in small minerals exploration companies that participate in the scheme a refundable tax offset or franking credits for corporate investors. We take a look at the key features, eligibility requirements, as well as how eligible companies can apply for, create and issue exploration credits.

The JMEI extends and improves the Exploration Development Incentive (EDI) which ended on 30 June 2017. It has been developed following consultation between industry, government and other stakeholders.

The Explanatory Memorandum recognises that Australia has not had a tier one mineral discovery in more than 20 years and that greenfields exploration activity has declined by almost 70% over the past five years (see paragraphs 3.1 and 3.3). The JMEI has responded to the challenges faced by the EDI in a positive way which is a welcome measure for the sector.


The key features of the JMEI are:

  • it applies from 1 July 2017 to 30 June 2021
  • eligible companies can apply to the Commissioner of Taxation (Commissioner) for an exploration credits allocation for an income year subject to certain limits
  • the annual funding allocated to the JMEI (called the annual exploration cap) is $15 million for 2017-18, $25 million for 2018-19, $30 million for 2019-20 and $30 million for 2020-21 (regulations may specify an additional amount for the 2019-20 and 2020-21 years), and unallocated amounts are carried over to the next income year
  • the exploration credits allocation is made on a first in, first served basis
  • a company that has an exploration credits allocation may create exploration credits and issue them to Australian residents who invest in shares in the company in proportion to the amount invested
  • exploration credits entitle investors to a tax offset or franking credit (for a corporate tax investor) based on the amount invested
  • the company's tax loss balance is reduced by the sum of all of the exploration credits created, grossed up for the company's corporate tax rate
  • the company is liable to pay excess exploration credit tax if it issues exploration credits in breach of the rules


The JMEI applies to Australian residents who acquire new shares in a greenfields minerals explorer before the end of an income year in which the Commissioner has made an exploration credits allocation but on or after the day on which the allocation is made. The shares must be equity interests for the purposes of the debt and equity tax rules.

A greenfields minerals explorer is a company that in an income year is a disclosing entity for the purposes of the Corporations Act 2001 that has incurred deductible expenditure on exploration or prospecting for minerals in Australia. The company and its connected entities and affiliates must not have carried on mining operations during that income year and the immediately preceding income year.


Eligible companies must apply to the Commissioner for an exploration credits allocation for an income year in the approved form. The application is made electronically and must include an estimate of the company's exploration expenditure, tax loss and corporate tax rate for the income year.

For the 2017-18 year, the application must be made between 1 February 2018 and 1 March 2018. For other years, the application must be made between 1 June and 30 June in the financial year before the income year. The Commissioner must consider applications on a first come, first served basis until the annual exploration cap for the income year is reached. The exploration credits allocated to a company must not exceed the lesser of:

  • the company's estimated exploration expenditure and tax loss for the income year multiplied by the expected corporate tax rate for that year; and
  • 5% of the annual exploration cap for that year.

Expenditure must relate to exploration and prospecting in respect of a mining, quarrying or prospecting right (but not petroleum or oil shale) in Australia held by the entity, or a right under which it is the transferee under a farm-in farm-out arrangement, which has not been identified as containing a mineral resource at least inferred in a Joint Ore Reserves Committee report.

The Commissioner must provide notice to the company of his determination to allocate or not allocate exploration credits.

An application will be refused if the Commissioner is not satisfied that there is a reasonable possibility that the company will not incur the estimated exploration expenditure or tax loss, or be subject to the expected corporate tax rate. The regulations may prescribe other requirements.


An eligible company can create exploration credits for an income year if it has an exploration credits allocation for that year or an unused allocation of exploration credits from the year before. Exploration credits cannot be created until the company lodges its income tax return for the year and been assessed for tax.

The company cannot create exploration credits in excess of its maximum exploration credit amount. This is the lesser of the actual exploration expenditure and tax loss for the income year multiplied by the company's actual corporate tax rate. However, the maximum exploration credit amount cannot exceed the sum of the exploration credits allocation and unused allocation of exploration credits.

The company creates exploration credits by a single decision which cannot be revoked or amended.


The company can issue exploration credits for an income year to an investor who acquires new shares in that year or to an investor who acquires new shares in the immediately preceding income year. This allows the company two years to incur exploration expenditure to support the creation and issue of exploration credits to an investor. The acquisition of shares must occur on or after the day the Commissioner makes a determination to allocate exploration credits to the company but before the end of the income year for which the allocation applies.

The exploration credit that can be issued to an investor is limited to the amount paid by the investor to acquire the new shares multiplied by the corporate tax rate. Investors who acquired new shares in the immediately preceding income year are entitled to receive exploration credits in priority to investors who acquired new shares in the income year, except where there is no unused allocation of exploration credits from the preceding year. In that case, exploration credits can only be issued to investors who acquired new shares in the income year. Exploration credits must be issued in proportion to each eligible investor's investment so streaming of exploration credits to particular investors is not permitted.

If exploration credits are not issued by the end of the income year in which they are created, they will expire.

The company must provide each investor who is issued exploration credits a statement in the approved form. The company must also notify the Commissioner if it has issued exploration credits or if exploration credits have expired.

If the company does not comply with the requirements of the rules, the validity of the exploration credits is not affected, but the company will be subject to excess exploration credit tax. Other sanctions include the imposition of penalties and general interest charge and the potential for a determination by the Commissioner that the company is not a greenfields minerals explorer which means that it cannot participate in the JMEI in future years.


An investor is entitled to claim the tax offset in the income year before the exploration credit is issued, that is the claim is made in the year in which the exploration expenditure is incurred.

The rules also require the reduced cost base of new shares acquired by an investor for capital gains tax purposes to be reduced by the value of the potential exploration credits that could be issued to the investor. The reduction is calculated by multiplying the corporate tax rate that applied to the company in the income year in which the share was issued by the amount of paid up capital contributed by the investor.

The Federal Government intends to review the operation of the JMEI by 30 June 2020 to assess its efficacy in attracting investment.


The consultative process indicated that the EDI was undersubscribed due to:

  • benefits to investors were diluted because EDI credits were available to all shareholders
  • a company's cap for EDI credits was based on a modulation factor to ensure that the EDI scheme did not exceed the allocated funding for the scheme, which created uncertainty for companies and investors about the amount of EDI credits
  • the tax offset could only be claimed in the year that the EDI credits were issued

The JMEI scheme seeks to address these issues by:

  • limiting the eligibility to exploration credits to investors who acquire new shares
  • requiring the Commissioner to determine the exploration credits allocation on a first in, first served basis
  • accelerating the entitlement to the tax offset to the year in which the exploration expenditure is incurred
Carlos Gouveia
Energy and resources
Colin Biggers & Paisley

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.

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Carlos Gouveia
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