On 2 September 2017, the Government announced a welcome new four-year $100 million Junior Mineral Exploration Tax Credit (JMETC) following the expiry of the existing Exploration Development Incentive (EDI) exploration credit regime.
The JMETC will commence this 2017-18 financial year. Companies still have until 30 September to report their estimated expenditure to access credits under the existing EDI for the 2016-17 income year.
Who is eligible under the JMETC?
Whilst the announcement is scant on detail, it is expected that the JMETC will operate similarly to the EDI by allowing ‘greenfield mineral explorers’ (broadly, certain companies which have not carried on any mining operations during the income year or over the immediately preceding income year) to convert tax losses into credits that will be able to be distributed to their Australian resident shareholders.
- It is proposed that the EDI ‘modulation factor’ will be replaced with a ‘first-in first served basis’. The modulation factor under the EDI was used to adjust the exploration credit available to taxpayers so that the aggregate credits for all taxpayers for the year did not exceed the budgeted cap ($25 million for 2014-15, $35 million for 2015-16 and $40 million for 2016-17). The ‘first-in first served’ basis under the JMETC could streamline the process for issuing credits, though companies may now have to act quickly to avoid missing out altogether.
- Under the JMETC, credits will only be available for newly issued shares whilst the EDI requires credits to be distributed proportionate to a member’s shareholding. This change is intended to better target the incentive by encouraging additional investment. However, junior explorers will need to be careful when issuing new shares as this can give rise to other unintended income tax consequences.