Australian government finally on the right track with new exploration tax credit

By admin - September 13, 2017

The Australian government looks to have redeemed itself with its new exploration tax credit, which is expected to receive a much better response than its flawed predecessor.

Pitcher Partners Perth Managing Director Leon Mok told S&P Global Market Intelligence that the new scheme is clearly a boon for junior explorers and is essentially an improved version of the Exploration Development Incentive, or EDI.

"The new scheme seeks to overcome one of the major limitations of the EDI in relation to flowing benefits onto new shareholders," he said. "The new scheme specifically seeks to incentivize investors putting money into new raisings to conduct exploration."

The key issue with the EDI was that junior explorers were unable to promise investors at the time they undertook a capital raising that they will receive EDI credits, because they had to apply to the scheme and wait until the end of the financial year to find out how much shareholders would get back.

However, under the new scheme, eligible investors will have certainty that they will receive 100% of their credit until the A$100 million cap is reached, according to Australian corporate law firm Gilbert + Tobin.

The Australian government announced its plans to scrap the three-year, A$100 million EDI scheme in May this year following a review that showed a 36% drop in registered participants from the first year to the second year.

The move prompted a substantial backlash from explorers, and the government agreed to work with industry to find a better alternative.

The original proposal put to the government prior to the launch of the EDI in mid-2014 was similar to the Canadian flow-through share scheme, but what was implemented was a modified version that was capped each year.

The new Junior Mineral Exploration Tax Credit, or JMETC, however, is more along the lines of Canada's Mineral Exploration Tax Credit. "Even the similarity of the name of the new scheme is a nod to the Canadian model and its success," Pitcher Partners' Mok noted.

"By introducing a JMETC, the government are signaling their support of the sector. Due to the technical modifications, I would expect the JMETC to be more well received than the EDI."

While the latest Australian Bureau of Statistics figures show an uptick in exploration spend in the June quarter, it was largely focused on brownfields exploration.

Mineral exploration expenditure during the quarter climbed A$107.3 million, or 31.8%, to A$444.9 million. Exploration on areas of new deposits rose A$33.0 million, or 31.8%, and expenditure on areas of existing deposits increased A$74.1 million, or 31.6%.

The largest growth in mineral exploration expenditure was in selected base metals, which climbed A$39.7 million, or 73%, with increases in copper, nickel and cobalt.

Graham Short, Acting CEO of the Association of Mining and Exploration Companies, said that despite the positive growth, the percentage of greenfields exploration of meters drilled remained fixed at 30%.

"Nearly 70% of mineral exploration activity in Australia is extending existing deposits or drilling nearby an existing deposit," he said. "Australia needs greater greenfields mineral exploration to find the mines of tomorrow." 

Article origionally published on S&P Global Market Intelligence


Contact our experts


Other articles


 

Top of Page







IN THIS SECTION:


Rob Southwell

Sydney

Managing Partner and Partner – Private Clients Group


> View profile

John Brazzale

Melbourne

Chairman - Pitcher Partners Association Partner/Executive Director - Tax Consulting


> View profile

Bryan Hughes

Perth

Chairman


> View profile

Michael Minter

Newcastle

Managing Partner


> View profile

Tom Verco

Adelaide

Managing Principal


> View profile

Ross Walker

Brisbane

> View profile



Partnership fraud

SUCCESS

Paperwork and independent advice saves partnerships from fraud

Discover more

Kia Ora Horse Stud

CASE STUDY

Pitcher Partners fills a Financial Manager gap to keep the business on track

Discover more

Fuel Injection Company Administration

LEADERSHIP

A fuel injection company began life as an Australian public company before being acquired by a UK publicly listed company while in the research and development stage of a “green...

Discover more



@PitcherPartner The message of spread right across our firm last week, with our Perth team coming together sharing their fave… https://t.co/cpohHiAE0G