Mining and quarrying and minerals transport
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From 1 July 2001, you work out deductions for the decline in value of depreciating assets used in mining and quarrying and in minerals transport using the general rules - see Working out decline in value.
However, the decline in value of a depreciating asset you first use for exploration or prospecting for minerals (including petroleum), or quarry materials, obtainable by activities carried on for the purpose of producing assessable income can be its cost. This means you can deduct the cost of the asset in the year in which you start to use it for such activities to the extent the asset is used for a taxable purpose.
An immediate deduction is available for payments of petroleum resource rent tax and for capital expenditure which does not form part of the cost of a depreciating asset and is incurred on:
- exploration or prospecting for minerals (including petroleum), or quarry materials, obtainable by activities carried on for the purpose of producing assessable income, or
- rehabilitation of your mining or quarrying sites.
If the expenditure arises from a non-arm's length dealing and is more than the market value of what it was for, the amount of the expenditure is taken to be that market value.
A recoupment of the expenditure may be included in assessable income.
Expenditure incurred after 30 June 2001 which does not form part of the cost of a depreciating asset and is not otherwise deductible may be a project amount which you can allocate to a project pool for which deductions are available. To be a project amount, mining capital expenditure or transport capital expenditure must be directly connected with carrying on the mining operations or business, respectively, in relation to which the expenditure is incurred.
Mining capital expenditure is capital expenditure you incur on:
- carrying out eligible mining or quarrying operations
- site preparation for those operations
- necessary buildings and improvements for those operations
- providing water, light, power, access or communications to the site of those operations
- buildings used directly for operating or maintaining plant for treating minerals or quarry materials
- buildings and improvements for storing minerals or quarry materials before or after their treatment
- certain housing and welfare - except for quarrying operations.
Transport capital expenditure includes capital expenditure on:
- a railway, road, pipeline, port or other facility used principally for transporting minerals, quarry materials or processed minerals (other than wholly within the site of mining operations) or the transport of petroleum in certain circumstances
- obtaining a right to construct or install such a facility
- compensation for damage or loss caused by constructing or installing such a facility
- earthworks, bridges, tunnels or cuttings necessary for such a facility
- contributions you make in carrying on business to someone else's expenditure on the above items.
For information on how to work out deductions using a project pool, see Project pools.
Special transitional rules ensure that amounts of undeducted expenditure as at the end of 30 June 2001 incurred under the former special provisions for the mining and quarrying and mineral transport industries remain deductible over the former statutory write-off periods - for example, over the lesser of 10 years and the life of the mine.
Similarly, the former statutory write-off continues to apply to expenditure you incurred after 30 June 2001 if:
- it would have qualified for deduction under the former special provisions, and either
- it is a cost of a depreciating asset that you started to hold under a contract entered into fore 1 July 2001 or otherwise started to hold or commenced to construct before that day, or
- your expenditure was incurred under a contract entered into before 1 July 2001 and the expenditure does not relate to a depreciating asset.
Finally, eligible exploration or prospecting expenditure incurred after 30 June 2001 that is a cost of a depreciating asset that you started to hold under a contract entered into before 1 July 2001 or otherwise started to hold or commenced to construct before that day is deductible at the time it is incurred.
Last modified: 01 Oct 2006QC 27597