Details of the promised exemption from transfer duty for Queensland exploration authorities have now been released, but there's a sting in the tail for the transfer of mining information.
Historically, Queensland was a friendly jurisdiction for the mining sector, with comparatively low duty rates (which although not as low as they were, are still among the country's best) and with exploration tenements of all types falling outside the duty net.
Changes to Queensland duty laws, implemented last year by the Fiscal Repair Amendment Act 2012 (and first announced in February 2012) expanded the mining industry's liabilities with respect to transfer duty, bringing Exploration Permits within the definition of "land". However, the Government stated that it would introduce an exemption for farm-in agreements with respect to exploration authorities, broadly in line with that existing in some other States.
That exemption remains to be legislated, but on 27 June 2013, the Commissioner for State Revenue issued Public Ruling DA000.12.1 Transfer duty—Exemption for farm-in transactions in the resources sector, detailing concessional administrative arrangements giving effect to the farm-in agreements exemption, pending a legislative solution.
A farm-in agreement typically involves one party (known as the farmee) undertaking to incur expenditure in the exploration or development of land subject to an exploration authority held by another party (the farmor) in return for an interest in the authority (or in a later tenement developed out of the authority, such as a mining lease). The interest might be transferred before any amount is expended, or after the amount has been expended, or in stages.
General position of farm-in transactions
Where the only consideration for an interest in an exploration tenement is expenditure (or moneys agreed to be expended) on exploration, the Ruling provides that no duty is payable on transfer of the interest.
The Ruling makes it clear that the exemption only extends as far as money actually invested in the "exploration or development" of the land the subject of the exploration authority. Consequently, all other consideration provided to the farmor by the farmee for the interest in the exploration authority is dutiable. Further, the exemption only applies to agreements that do not form part of an arrangement to avoid duty.
The concession does not apply to the transfer of an interest tenements other than the exploration permit itself. Nor does it apply to a sale or issue of shares in a company which holds an exploration permit (ie. an indirect acquisition will be subject to landholder duty without benefit of any farm-in concession).
Accordingly the ruling is somewhat limited in scope.
The potential sting in the tail
The Ruling appears to be putting forward an ambit claim to assess all moneys payable under a farm-in agreement (save amounts directly incurred on exploration) and thus seeks duty on payments for "mining information". That is said to be the basis that "All consideration for a farm-in agreement will be taken into account irrespective of its nature" (see footnote 3 and the example in the Ruling).
Mining information is not "dutiable property". Presumably the transfer of mining information without more will remain exempt from duty, but the impact of the aggregation provisions may mean that it is not as simple as providing for payment for any mining information in a separate contemporaneous document.
Timing of assessments
The timing of the assessment of any transfer duty payable on these agreements depends on the structure of the agreement and the timing of the transfer of any interest.
Deferred farm-in agreements
A deferred farm-in agreements is an agreement where the transfer of the interest in the exploration authority occurs after investment by the farmee in exploration activity. These agreements, will be assessed at two distinct stages; at the time of granting the agreement and at the time any transfer of interest to the farmee. Where the agreement provides for the transfer of the interest in the exploration authority in stages, the duty payable will be reassessed at each transfer stage.
For example (based examples in the Ruling), an agreement may exist between two parties where the farmee agrees to pay:
- $10,000 to the farmor for entering into the agreement;
- $200,000 to the farmor upon the transfer of a 25% interest, to occur once the farmee has invested $1,000,000;
- $300,000 to the farmor upon the transfer of a further 25% interest, to occur once the farmee has invested an additional $500,000.
In this case, transfer duty will be assessed in three stages.
Initially, duty will be assessed on the $10,000 the farmor is receiving for entering into the agreement.
Once the first interest transfer occurs, duty will be reassessed on $210,000 – all the consideration paid to the farmor at that stage which does not form part of the investment into the exploration and development of the exploration authority – and the agreement will be stamped for the first time.
Finally, the duty will be reassessed on $510,000 at the time of the second interest transfer and the agreement will be stamped a second time. A credit will apply at the time of each transfer to account for any duty previously paid.
Upfront farm-in agreements
An upfront farm-in agreement is one under which the interest in the exploration authority is immediately transferred to the farmee. The farmee's continued interest in the land is subject to incurring an agreed amount of expenditure by a set date (the expenditure completion date). Liability for transfer duty arises at the time of transfer and the farmee must lodge the agreement for assessment with the Commissioner within 14 days of the transfer.
A failure by the farmee to incur the agreed exploration amount may give rise to transfer duty issues for the parties, including the loss of the benefit of the exemption. Where the agreed amount has not been incurred by the expenditure completion date, the farmee must inform the Commissioner of the failure within 30 days of that date.
In these circumstances, in order to avoid the application of duty, the parties must take one of two steps:
- agree to extend the timeframe for the farmee to invest the agreed amount; or
- effect a transfer of the farmee's interest back to the farmor – as a transfer of the farmee's interest back to the farmor in respect of an upfront farm-in agreement may occur at any time without attracting duty.
If the parties fail to come to such an agreement, or where the agreement is made to avoid paying duty on an otherwise dutiable transfer, the Commissioner will reassess the farm-in agreement on the basis that the exemption does not apply.
Special transitional rules apply such that farm-ins entered into between 13 February 2012 and the present date which have not been lodged for assessment of duty now must be lodged by 6 September 2013.