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By Peter Hill
The Australian Tax Office is moving quickly to issue tax credits to junior mining companies as part of a program targeting smaller operators in the sector.
Under the new Junior Minerals Exploration Incentive (JMEI), junior mineral exploration companies undertaking greenfield mineral exploration can apply for tax credits to distribute to initial investors as refundable tax offsets attached to the shares. Core Exploration Ltd. announced April 24 it received A$750,000 in tax credits, making it the first company to receive the boost so far.
Over the next four years, A$100 million ($75.5 million) is potentially available as credits attaching to new share issues. The current application process is for the maximum of A$15 million available for stage one. Given each applicant for the JMEI can only get a maximum allocation of 5 percent of each stage’s funding, stage one applicants are up for a maximum of A$750,000 in tax credits.
Core Exploration said it anticipates making “a JMEI distribution of between approximately 0.5 cents and 0.8 cents per share,” according to the announcement made to the Australian Stock Exchange.
An ATO spokesman told Bloomberg Tax in an email April 23 that “to date, we have received a number of applications; however, a portion of the A$15 million annual cap remains unutilised.”
Noting the current application period—for the 2017-18 income year—closes on May 15, the spokesman said the tax office “may receive more participation forms over the coming weeks.”
Warren Pearce, chief executive officer of the Association of Mining and Exploration Companies (AMEC) in West Perth told Bloomberg Tax in an email April 24 that a number of the association’s members intended to participate in the program, but he didn’t expect the first stage to be fully subscribed.
Craig Yaxley, partner and mining tax leader at KPMG LLP in Perth, also doesn’t think the maximum available credits of A$15 million will be utilized in the first stage.
He told Bloomberg Tax April 24 that the original plan was for the JMEI legislation to be passed before Christmas last year, which would have enabled stage one applications to be open during February. When that didn’t happen, and the legislation was only passed early this year, it has resulted “in a very small window” for companies wishing to access stage one tax credits.
Under the JMEI rules, credits are only available for capital raised after an application is process by the ATO, Yaxley said. This meant that only companies planning on raising capital in May or June 2018 would be applying for stage one credits.
Yaxley is therefore telling his junior mining and exploration clients that they have “probably missed the boat” and that “they should be focusing on their 2018-19 plans to raise capital and getting in their application for stage two credits when it opens on June 1.”
The good news, Yaxley added, is that any unallocated tax credits from stage one will be roll forward to future stages. “Under the old Exploration Development Incentive any surplus was lost,” he said.
Yaxley says it is almost guaranteed the ATO will check the bona fides of any company in a screening process of applications for the JMEI.
The time it takes for the tax office to process applications remains a critical issue, since companies can only use the tax credits for shares issued after they get approval. The ATO’s spokesman said it was the tax office’s goal to “issue determination letters to eligible participants within 28 days after the application period closes.” That would make a deadline of June 12 for stage one applicants.
However, the ATO spokesman also said that for stage one, “we are aiming to issue determination letters as soon as practical from the date they were lodged.” He added that the tax office is cognizant of the “particularly tight” time frames for the 2017-18 year.
Pearce told Bloomberg Tax that AMEC’s discussions with the tax office indicated that applications would be dealt with “quite quickly—in about two weeks.”
The ATO approved Core Exploration’s application within a week.
Yaxley is ensuring clients know that planning is needed to obtain the maximum benefits of participating in the JMEI. “It brings in a bigger discipline in terms of timing your capital raising and what your communications are with investors,” he said.
Only one of his clients is applying for stage one of the JMEI—it has incurred eligible exploration expenditure since July 1, 2017, but is planning to raise capital between May and June.
His other clients are focusing on applying for stage two credits. Given that process begins June 1, those clients will have much more time to organize their capital raising efforts before June 30, 2019.
Like Yaxley, Pearce expects the JMEI to be fully subscribed over its four-year complete cycle.
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