In a move likely to be welcomed by the mining and resources industry in Australia, and potentially Canadian and other companies looking to explore in Australia, on September 3, 2013, the then Australian Shadow Minister for Energy and Resources, Ian Macfarlane, announced the then Australian opposition’s commitment to introduce an Exploration Development Incentive benefiting exploration companies. Four days later on September 7, 2013, the opposition Coalition emerged victorious in the Australian Federal election.

In the pre-election media release, Ian Macfarlane confirmed “The Coalition will introduce an Exploration Development Incentive that will allow investors to deduct the expense of mining exploration against their taxable income, starting on 1 July 2014” and “Our scheme will target small exploration companies by limiting eligibility to companies with no taxable income and will be capped at $100 million over the forward estimates”. While the details of the scheme are yet to be announced, the concept will ring very familiar to Canadian junior exploration companies who have benefited from Canada’s flow-through share tax incentive system for the better part of 25 years now. The National Post has previously reported that the five-year annual average raised from flow-through issuances through 2012 was approximately $500-million a year, encompassing 93 deals on average.

While the introduction of such a scheme had previously been Australian Labor Party policy at the 2007 election, it was never implemented.  While the industry may be cautious, the commitment to a firm start date of 1 July 2014 and the announcement of a specific Australian budget cost for the measure is significant. If introduced, the cap of $100 million limits the cost of the measure to the Australian treasury.  Interested exploration companies in Australia should consider undertaking their fund raising and exploration activities from an earlier date following the Scheme’s commencement given the limited budget allocation.

Further details are likely to emerge as Australia’s new Prime Minister Tony Abbott moves into office. Also on the agenda is Mr. Abbott’s commitment to repeal Australia’s Minerals Resource Rent Tax (the mining tax) on coal and iron ore within his first 100 days in office. We will await and see if that election promise is held to, and resource nationalism reverses course in Australia.