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PKF Mack

Locally Owned. Globally connected.

News

Junior Mineral Exploration Incentive (JMEI)

19 Jan 2018

The government has announced its intention to introduce a JMEI to encourage additional investment in junior exploration companies undertaking greenfields mineral exploration in Australia by providing a tax offset to investors.

 

The JMEI is based on the previous Exploration Development Incentive but importantly, the JMEI will only apply to newly issued shares and will be allocated on a first come, first served basis. Further, applications for the JMEI are able to be made in advance of capital raisings so that investors have greater certainty regarding the tax incentive when making investment decisions.

 

Outlined below are some high-level, key points relating to the proposed JMEI.

 

What?

The JMEI allows listed companies to forfeit tax losses to create and issue Exploration Credits to investors. Investors then receive a refundable tax offset or additional franking credits (if company investor) for the Exploration Credits.

Why?

The JMEI is intended to incentivise investment and enable small exploration companies to raise new capital.

Eligibility

The JMEI will apply to:

  • Listed companies;
  • Greenfields Exploration (see below);
  • New capital raisings/newly issued shares; and
  • On a first-in, first served basis.

Greenfields Exploration

Broadly, Greenfields Exploration is exploration or prospecting for minerals conducted in Australia but does not include exploration for petroleum or shale oil, or economic feasibility studies of discovered resources.

Exploration Credit Caps

The JMEI will apply for the 2018 to 2021 income years, providing $100m of capped Exploration Credits which apply on a first come, first served basis (2018 -$15m, 2019 - $25m, 2020 -$30m & 2021 -$30m).

Application Process

Companies should apply online to the Australian Taxation Office (“ATO”) in the approved form including an estimation of greenfields minerals expenditure and tax loss for the year. Applications must be made in advance by:

  • 2018  year – between 1 February 2018 to 28 February 2018
  • 2019 to 2021 years – prior to applicable income year end between 1 June to 30 June

Practical Example

Assume the following in respect of ABC Ltd for 2018 year:

  • Investors make new investment in ABC Ltd of $1m (i.e. 1m shares at $1 per share)
  • ABC Ltd uses investment funds to incur Greenfields Exploration & Tax Loss of $1m
  • ATO allocates to ABC Ltd $275k of Exploration Credits (i.e. at 27.5% tax rate)

The impact for ABC Ltd and Investors under the proposed JMEI would be:

  • ABC Ltd will distribute Exploration Credits of $275k to Investors and forgo Tax Loss of $1m in 2018 tax return
  • Investors may claim refundable tax offset or additional franking credits (if company) in 2018 tax return of $0.275 per share (i.e. $275k / 1m shares)

 

As the JMEI will apply on a first-in, first served basis and applications for the 2018 year commence from 1 February 2018, we are recommending that exploration companies who are interested in applying for the JMEI are adequately prepared to submit an application in February 2018.

 

If you wish to know more about the JMEI or are interested in applying for the JMEI, please contact either Darren Shillington or Peter Sinclair at our office.


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