Last week, both houses of Parliament approved the implementation of the much awaited exploration development incentive scheme through the adoption of the Tax and Superannuation Laws Amendment (2014 Measures No. 7) Bill 2014 and Excess Exploration Credit Tax Bill 2015.
As many will be aware, under the scheme junior exploration companies will be able to issue a limited number of exploration development incentive credits (EDIs) to investors where:
- the entity undertakes onshore minerals exploration, in Australia
- the exploration takes place in a greenfield location
- the company is not (and is not part of a wider economic structure that is) producing mineral resources while undertaking this exploration, (other than petroleum).
Eligible investors who receive EDIs can then offset the amount of the EDI against their taxable income, providing an increased incentive to invest in junior exploration companies that do not pay any form of dividend.
The introduction of the scheme is hoped to provide some relief to those in the junior resources sector, who have largely fallen out of favour with investors in recent years
as a result of increasingly volatile commodity prices, rising labour and exploration costs and a general reduction in investor appetite for investments with a higher risk profile.
The proposed scheme will last for three years and, unlike the Canadian ‘Flow through Share’ scheme, includes an annual overall limit on the number of EDIs that can be issued in respect of any one income year.
A further detailed update regarding the operation of the scheme will be provided once the Bill has been approved by the Governor-General.