As you may be aware, the Junior Minerals Exploration Incentive (JMEI) is available for expenditure incurred in the 2018 to 2021 income years, with total credits limited to $100 million.
How companies can participate
A company’s participation in the JMEI is voluntary, however, it should be noted that the JMEI is allocated between eligible companies on a “first come, first served” basis.
An eligible company intending to participate and create exploration credits is required to lodge the JMEI Participation Form electronically by the deadline. For the 2020 income year, the form is required to be lodged only between 1 June 2020 and 30 June 2020.
The Income Tax Assessment Amendment (Exploration for Minerals) Regulations 2020 has added $5 million in unused exploration credits from the 2017-18 income year to the exploration credits available for the 2020-21 income year, increasing the available cap to $35 million.
Penalties may apply for false or misleading statements.
An eligible exploration company can participate in the JMEI if:
- the company is a greenfields minerals explorer; and
- during the income year, it is a constitutional corporation that is a disclosing entity under Section 111AC of the Corporations Act 2001; and
- during the income year and the immediately preceding income year, neither the company or any entity connected or affiliated with it, carried on any mining operations for the extraction of minerals from their natural site for the purposes of producing assessable income.
Amount of exploration credits
The amount of exploration credits created for an income year cannot exceed the lesser of an exploration company’s:
- tax loss; or
- greenfields minerals expenditure
multiplied by the corporate tax rate.
Broadly, the rules ensure that exploration credits are proportionally provided to the investors that actually funded the relevant expenditure.
Greenfields minerals expenditure
The definition attributed to such expenditure is consistent with that applying to the former exploration development incentive (“EDI”). However, the amendments specifically provide that such expenditure extends to transferees under farm-in farm-out arrangements thereby ensuring these entities can also benefit from the JMEI.
The amount of greenfields minerals exploration expenditure for an income year is the sum of the amounts that can be deducted for:
- minerals exploration and prospecting; and
- the decline in value of a depreciating asset that is immediately deductible on the basis it was first used for exploration or prospecting.
Minerals exploration or prospecting must be carried in an area:
- that is land within Australia;
- over which the company holds a mining, quarrying or prospecting right or interest, or is the transferee under a farm-in farm-out arrangement; and
- that has not been identified as containing a mineral resource that is at least inferred in a JORC Code report or other prescribed document.
Notifying eligible investors of their entitlement to exploration credits
You must provide written notification to investors who made an exploration investment that contains the following:
- your entity name
- your Australian business number (ABN)
- the date the exploration credits are issued and the income year in which they must be included in the investor’s income tax return
- the amount of exploration credits issued to the investor under Subdivision 418-E of the Income Tax Assessment Act 1997 (ITAA 1997)
- a statement that the issuing of the exploration credits complies with section 418-120 of the ITAA 1997.
Notifying the ATO of the issuing or expiry of exploration credits
For each relevant income year, you must notify the ATO of the amount of exploration credits you:
- have created which have expired.
You can do this by completing the notification of the issue or expiry of exploration credits form and lodging it with the ATO.
Implications for investors
Australian resident investors in small minerals exploration companies undertaking greenfields minerals exploration are entitled to a refundable tax offset (or a franking credit in some cases) if issued with an exploration credit. In effect, an exploration credit represents the conversion of a tax loss from exploration and prospecting into an immediately distributable tax benefit.
There are also capital gains tax (“CGT”) implications upon the sale of a share by an investor that has received the JMEI.
More information can be found here.