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

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Rob Southwell

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Managing Partner and Partner – Private Business and Family Advisory

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Michael Minter

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Managing Partner

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Leon Mok

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Managing Director

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Brendan Britten

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Managing Partner and Executive Director/Partner- Business Advisory and Assurance

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Nigel Fischer

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Managing Partner - Private Business and Family Advisory

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Managing Principal - Private Business and Family Advisory

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