Exploration expenditure deductions – Project and tax governance framework self-assessment procedures

Taxation Ruling TR 2017/1 (the Ruling) provides our views on deductions for mining and petroleum exploration expenditure under section 8-1 and section 40-730 of the Income Tax Assessment Act 1997 (ITAA 1997). The reference to ‘exploration expenditure’ covers exploration/prospecting expenditure within its ordinary meaning and also within the statutory extension in subsection 40-730(4).

On 22 February 2017, we published the ATO compliance approach – exploration expenditure deductions Practical Compliance Guideline 2016/17 (the Guideline). The Guideline outlines how we will administer the law and the Ruling to ensure deductions for exploration expenditure are correctly claimed and how we will apply its compliance resources to assure exploration expenditure deduction claims. Taxpayers can use the Guideline to increase their confidence that deductions are claimed correctly.

The self-assessment procedures are intended to help you practically assess and show whether your governance framework meets the principles set out in Part A of the Guideline.

If you can demonstrate your governance framework meets these principles, this will help us obtain assurance for a large portion of the claims for exploration expenditure deductions. We are then able to tailor any further compliance activity and focus on the high risk areas as set out in Part C of the Guideline.

The issue is the potential for inaccurate or inappropriate exploration expenditure claims by taxpayers arising from deficiencies in taxpayers’ governance frameworks (including substantiation).

The risk is that incorrect exploration expenditure deduction claims by taxpayers, resulting in an overstatement of deductions claimed and corresponding understatement of taxable income.

See also

• Taxation Ruling TR 2017/1
• ATO compliance approach – exploration expenditure deductions Practical Compliance Guideline 2016/17