Limiting deductibility for exploration expenditure

On 6 November 2013, the then Treasurer announced in a joint media release that the government will target the immediate deduction for exploration to genuine exploration activities as previously announced by the former government (see phase 1 below). The tax treatment of mining rights acquired under a ‘farm-in, farm-out’ arrangement (the partial exchange of a tenement interest in exchange for the farmee providing exploration services as consideration) and mining rights acquired under tenement ownership realignments within a common development project (see phase 2 below) are also being clarified.

Cost of acquiring a mining right and mining information first used for exploration (phase 1)

With the exception of certain cases, the cost of acquiring a mining right and mining information first used for exploration will be deductible over 15 years or the effective life of the right or information, whichever is shorter.

An immediate deduction will continue to be available for:

  • the cost of mining rights and mining information acquired from an Australian government authority
  • the cost of geological, geophysical or similar information acquired from specified providers, and
  • the cost of newly created mining information.

This measure, enacted by Tax and Superannuation Laws Amendment (2014 Measures No.3) Act 2014External Link, applies to transactions to acquire mining rights or mining information entered into after 7.30pm (AEST) 14 May 2013.

Resource project realignment and farm-out legislation (phase 2)

Legislation to clarify the tax treatment for farm-in farm-out arrangements and interest realignment arrangements that take place in the resource sector received royal assent on 16 September 2015. These changes will apply from 7.30pm (AEST) 14 May 2013.

Administrative treatment (phase 2)

Taxpayers who:

  • claimed deductions that accord with the changes do not need to do anything more
  • have under claimed deductions can seek amendments and, if a reduction in liability results, interest on overpayment will be paid if applicable
  • have over claimed deductions (as a result of the change to the law) will need to seek amendments.    
    • No tax shortfall penalties will be applied and we will remit any interest accrued to the base interest rate up to the date of enactment of the law change.
    • Any interest in excess of the base rate accruing after the date of enactment will be remitted if taxpayers actively seek to amend assessments within a reasonable timeframe after enactment.

Legislation and Supporting Materials

Legislation to implement phase 1 received royal assent on 30 June 2014:

Legislation to implement phase 2 received royal assent on 16 September 2015.

For more information, refer to:

Media release

For more information, refer to:

Find out more

Note: The exposure draft of the legislation and explanatory memorandum of the proposed law were released for consultation on 9 January 2015. Submissions closed on Friday 6 February 2015.

    Last modified: 06 Oct 2015QC 35196