How to participate in the EDI
- Notify us of your company's estimated greenfields minerals expenditure and estimated tax loss
You need to notify us of your estimated greenfields minerals expenditure and estimated tax loss for the previous income year by 30 September.
You can notify us by filling out the Exploration Development Incentive Participation form (EDIP) and lodging it with us through the Business portal or by post.
- We then use this information to work out the modulation factor
The modulation factor is worked out for each income year after all of the participating companies' information has been received. The modulation factor is used to make sure the amount of credits that can be issued does not exceed the capped amount of the incentive for the income year. We will publish the modulation factor on this website.
- Apply the modulation factor to your company's eligible expenditure
To determine the maximum exploration credit amount that your company can issue, apply the previous year tax rate and the modulation factor to the lesser of the total of your:
- estimated greenfields minerals expenditure for the previous income year (as notified to us)
- estimated tax loss for the previous income year (as notified to us)
- actual greenfields minerals expenditure for the previous income year
- actual tax loss for the previous income year.
If the lowest of these previous income year amounts was $1 million and the modulation factor published was 0.950, you would calculate the amount of exploration credits you can create as follows:
- ($1m x 30%) x .950 = $285,000 (the maximum exploration credit amount for distribution)
This is the maximum amount you can issue to your shareholders.
End of example
- Issue exploration credits to your shareholders
You issue this amount by determining a per-share entitlement. The amount issued to each shareholder must be in proportion to the equity shares that the shareholder holds as a proportion of the total equity shares. You can choose to restrict the availability of the incentive to shares issued on or after 1 July 2014, however, if you restrict the incentive to shares issued on or after 1 July 2014, you must do so before issuing any exploration credit. If you make this choice it is irrevocable.
You must also notify your shareholders of their credit entitlement (in the approved form) before 30 June following the publication of the modulation factor.
To satisfy the requirements for an approved form you will need to provide your shareholders with a written statement that contains the following information:
- the name of the entity issuing the exploration credits
- the issuing entity’s Australian business number (ABN)
- the date the exploration credits are issued
- the amount of exploration credits that are issued to the shareholder under Subdivision 418-E of the Income Tax Assessment Act 1997 (ITAA 1997)
- a statement that the issuing of the exploration credits complies with section 418-120 of the ITAA 1997.
Exploration credits will expire if they are not issued by 30 June following the publication of the modulation factor.
- Cancel the equivalent amount of your company's carry forward tax losses to account for the credits your company has created
You must account for the cancellation of your company's tax losses following the creation of exploration credits, whether or not you issued the exploration credits. You account for this in the income year in which the conversion happened using existing labels in the company losses and consolidated group losses schedules (that is, as 'Tax losses forgone' in Part F of the Losses Schedule which accompanies the income tax return).
Using the same situation as in step 3 above, if your company had created exploration credits equal to the maximum exploration credit amount of $285,000 then the amount of tax loss cancelled would be $950,000. That is: $285,000/30% = $950,000 of tax loss to be cancelled.
End of example
- Notify us of the issuing or expiry of exploration credits
Once you have issued exploration credits (or if they expire without being issued), you must notify us by lodging the Annual Investment Income Report (AIIR).
The AIIR is currently being updated to enable exploration companies to include exploration credits issued to investors and is expected to be available at the end of March 2016.
- Notify us of the distribution of excess exploration credits
If you have distributed exploration credits in excess of your maximum exploration credit amount, you will be liable to pay tax equal to the amount of the excess issued. You may also be liable for interest and penalties.
If this occurs, you must lodge an Excess Exploration Credit Tax Return and pay any amount of excess exploration credits tax by 21 July of the financial year corresponding to the income year in which you distributed the excess exploration credits.
How to participate in the Exploration Development Incentive (EDI).