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Exploration concessions not in Labor’s tax plans

A LABOR Government is unlikely to provide much relief for mining companies and explorers seeking taxation concessions to encourage exploration.

Addressing an Association of Mining and Exploration Companies luncheon last week, Opposition Science and Resources spokesman Martyn Evans all but ruled out any move to give tax deductions on investments in exploration companies.

“I’m very happy to make a commitment to look at the whole issue of increasing exploration,” Mr Evans said.

“But it may not be flow-through shares at the end of the day.

“I personally think that getting exploration going through improving the amount of data available to the industry is probably going to do more than any taxation relief to investors.

“Exploration has been on the way down for the past five years and it is a very serious issue and one that I believe the Government still doesn’t take seriously enough.”

AMEC chief executive officer George Savell said he was “encouraged” by Mr Evans’ concern and commitment to the industry.

Exploration companies have struggled to attract equity in the market.

The Australian Gold Council/CIBC World Markets Explorers Index has seen its total market capitalisation decline from 5431.5 points in 1994 to 2344.8 points on October 8.

In a joint letter to Industry, Science and Resources Minister Nick Minchin last week, the AGC-AMEC once again pushed a case for a fairer treatment of investments in exploration.

“Discrimination in the current taxation regime has compounded the malaise and encouraged investor sentiment to move away from the junior resource sector as a preferred home for venture capital towards IT and biotechnology companies that have been the beneficiaries of Government assistance and promotion,” AGC CEO Greg Barns and AMEC CEO George Savell wrote.

The industry proposes to amend the Income Tax Provisions to provide a flow-through of the exploration deduction to the entity that subscribes capital to the explorer.

“In effect, the explorer would forego an exploration deduction and transfer it to an investor,” the submission says.

Under the current Uniform Capital Allowance provisions, exploration companies are entitled to an immediate deduction for exploration expenditure.

“However, many explorers are not generating taxable income and, as such, are not in a position to immediately benefit for the tax benefit of the exploration deduction,” the submission says.

Australia used to have a similar provision between 1969 and 1973, while Canada still provides taxation incentives.

“The previous provisions provided a deduction for capital subscribed to companies for the purposes of exploration, prospecting or mining for petroleum and certain minerals,” the submission says.

“The company was required to lodge a declaration with the Australian Taxation Office that the subscribed money would be expanded on eligible exploration and mining activities.

“The company forfeited an entitlement to a deduction from the declared monies.

“In effect, the deduction was transferred to the investee, who is more likely to be in a position to immediately benefit from the tax deduction.”

The submission supported by the WA Chamber of Minerals and Energy suggests that investors be entitled to a deduction over a two-year period commencing in the year of capital subscription.

In this way “the investor is claiming the deduction in the same period that the explorer would otherwise have made the claim”.

Mr Evans said the industry needed to look at value-adding opportunities, which could be fostered by the Government.

“Australia has been a quarry and a farm from day one and it’s been the case where we haven’t always looked for value-adding opportunities,” he said.

Mr Evans said the Liberal Government’s funding cut to the Australian Geoscience Organisation was counterproductive to unlocking the potential for value-added downstream processing opportunities.

“Rather than cutting AGSO’s potential it (the Government) should be doing everything it can to enhance their role,” he said.

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