Australian junior miners and their local investors are being urged to check new rules now which could deliver them a tax break in the 2018-19 financial year.

The Federal Government’s Junior Minerals Exploration Incentive (JMEI) only passed the Parliament in March 2018 but applies for four consecutive years from 1 July 2017 to 30 June 2021.

Specifically, entities which expect to raise capital during the 2018-19 year should apply for the JMEI before applications close on 30 June 2018.

We note the following in respect of the new measures:

  • The scheme enables companies carrying out “greenfield” exploration to apply to the ATO for tax credits and then distribute them to Australian resident shareholders who participated in capital raisings during the same year.
  • If the company has carried out exploration in that year and that generates a tax loss, this can then be converted to exploration credits and issued to investors.
  • Exploration credits are passed to Australian investors as a refundable tax credit to shareholders who are individuals, trusts and superannuation funds – or a franking credit to corporate shareholders.
  • It is important for entities to recognise the scheme has a ‘first in best dressed’ factor with a capped funding pot up to $100 million over four years and a maximum $25 million dollars of that can be allocated for the 2018-19 year.
  • This rises to $30 million annually in the final two years.
  • The JMEI aims to encourage investment in greenfields exploration and prospecting in Australia and replaces the Exploration Development Incentive (EDI).

Key benefits for investors in the new scheme is timeliness in that it enables shareholders to claim a tax offset one year earlier than the previous incentive, plus any unallocated portion of the annual exploration cap transfers to the immediately following year so it’s not automatically use it or lose it.

The downside could be the administrative burden on companies required to keep track of each shareholder providing capital at every capital raising. However, companies familiar with the defunct EDI should have most of the systems in place to help them comply with the new scheme.