Exploration incentives good but not enough

THE Coalition’s proposed exploration development incentive is a step in the right direction but Grant Thornton tax partner Peter Hills says it is not enough for struggling explorers.

Andrew Duffy

The call comes after Treasury’s release of a discussion paper seeking feedback to help design the scheme proposed by the government during last year’s election.

The EDI is designed to provide an incentive to junior explorers and will be open to companies with no taxable income and no mining operations.

It would allow companies with exploration expenditure and tax losses in the same year to provide credits to their shareholders.

The credits will entitle shareholders to a refundable tax offset, effectively lowering their tax bill.

The scheme has been capped at $A100 million, with $25 million in 2014-15, $35 million in 2015-16 and $40 million in 2016-17.

Hills said while the incentive would go some way towards helping explorers, the $100 million limit was too low.

“It is a good thing because it’s a move in the right direction,” he said.

“Is it enough? No.

“It would be great to have seen the cap increased or potentially removed.”

Treasury’s discussion paper addresses several key questions, including how to ensure junior explorers benefit from the scheme and which investors will be able to receive credits.

The definition of eligible expenditure and greenfields will also be discussed, along with the exact workings of the credit system.

A watertight method to ensure the cap is not breached is also under discussion.

The refinements should give clarity on who can access the credits and how they will be portioned, which will allow companies to give guidance to their shareholders.

“The introduction of the EDI would be a positive step in encouraging investment into junior explorers, who have been badly impacted by the global financial crisis and declining commodity prices,” Grant Thornton said.

“Operating in a volatile commodity market with limited funding options and low cash balances is putting a severe competitive strain on the industry.”

Grant Thornton said its survey of junior miners and explorers confirmed they were “crying out” for government support.

It said while the discussion paper was a good first step, there were a number of areas that required consultation and scaling efforts to ensure the $100 million cap was not exceeded would be among the most problematic areas.