New tax incentive to drive the minerals exploration industry

Back in September 2017, the government announced it will look to provide a tax incentive for junior exploration companies to encourage investment and risk taking. The Junior Mining Exploration Incentive (JMEI) builds upon the Exploration Development Incentive (EDI) which ceased on the 30th of June 2017.

The Australian Bureau of Statistics released Australia’s mineral exploration statistics for the December 2017 quarter. The report found that overall there continues to be an imbalance between greenfields and brownfields exploration, with 67% of drilling happening in already explored brownfield locations. The JMEI looks to address this imbalance as the Government plans to secure the future of mining in Australia. The JMEI is a tax credit arrangement which allows mineral exploration companies (with no mining income) to renounce and pass future tax deductions (losses) to their Australian resident investors.

As with all announcements there is some good news that is tinged with a little bit of bad news. Firstly the good news is that all junior explorers will continue to be able to pass on the tax credits to their shareholder as the JMEI is replacing the more limited EDI but the bad news is that the hoops that need to be jumped through in order to secure the incentive, are more demanding than under the current EDI system.

With the aim of driving the industry, the JMEI will give companies a way to reduce any losses as eligible companies can now create and issue tax credits by giving up a portion of their tax losses from greenfield mineral exploration expenditure, which can then be distributed to eligible shareholders. Essentially this will make it more attractive to invest in junior explorers as the risk is reduced for investors as any losses attributed to greenfield exploration can be distributed to their shareholders.

Key differences

There are some key differences between the old EDI and the new JMEI. Under the new scheme the differences are:

• The number of credits issued are capped at a lower level
• Any unused credits in the first three years of the scheme can now be rolled over
• First in, best-dressed approach to allocation of the credits
• A revised threshold of no more than 5% of the total credits available
• JMEI requires application before funds are raised and expenditure has occurred.

Lodgement dates

Key lodgement dates for the JMEI are as follows:

2017 – 2018
00:00 AEST on 16 April 2018
23:59 AEST on 15 May 2018

2018 – 2019
00:00 AEST on 1 June 2018
23:59 AEST on 30 June 2018

2019 – 2020
00:00 AEST on 1 June 2019
23:59 AEST on 30 June 2019

2020 – 2021
00:00 AEST on 1 June 2020
23:59 AEST on 30 June 2020

The JMEI applies from the 2017-18 income year with exploration credits capped at a total of $100 million over a four year period:

• $15 million in the 2017-18 income year
• $25 million in the 2018-19 income year
• $30 million in the 2019-20 income year
• $30 million in the 2020-21 income year.

If any part of the annual exploration credit cap is unallocated for an income year, the amount that is unallocated will be carried over to the following income year.