INCOME TAX ASSESSMENT ACT 1936 (ARCHIVE)

PART III - LIABILITY TO TAXATION  

Division 10AA - Prospecting and mining for petroleum  

SECTION 124AH   EXPLORATION AND PROSPECTING EXPENDITURE  

124AH(1)   [Allowable deduction]  

Subject to this section, expenditure incurred by the taxpayer during the year of income on exploration or prospecting for petroleum obtainable by prescribed petroleum operations is an allowable deduction.

124AH(1A)   [No application from 1997/98 year]  

A deduction is not allowable under subsection (1) for the 1997-98 year of income or any later year of income.

Note:

Subdivision 330-A of the Income Tax Assessment Act 1997 gives a taxpayer a deduction for expenditure incurred on exploration or prospecting for petroleum obtainable by eligible mining operations in the 1997-98 year of income or a later year of income.

124AH(2)   [Limit of deduction]  

A deduction is not allowable under this section in any year of income in respect of expenditure incurred on or before 17 August 1976 (including expenditure incurred on or before that date that is deemed, by virtue of subsection (4), to be incurred during that year of income) unless, in the year of income, the taxpayer derives assessable income from petroleum, and the amount of the deduction in respect of that expenditure shall not exceed the amount remaining after deducting from that assessable income from petroleum all allowable deductions (other than deductions under this section) in respect of that assessable income.

124AH(3)   [Other deductions allowable]  

The reference in subsection (2) to all other allowable deductions in respect of assessable income from petroleum derived by a taxpayer in the year of income is a reference to:


(a) any other deductions allowable from the assessable income of the taxpayer of the year of income that relate exclusively to that assessable income from petroleum; and


(b) so much of any other deductions allowable from the assessable income of the taxpayer of the year of income as, in the opinion of the Commissioner, may appropriately be related to that assessable income from petroleum,

and includes a reference to any deductions allowable under sections 124AD , 124ADB , 124ADD , 124ADF , 124ADG , 124AF and 124AM .

124AH(4)   [Excess amount]  

Where the amount of the expenditure of the kind referred to in subsection (1) that was incurred during the year of income, being expenditure incurred on or before 17 August 1976 (including any expenditure incurred on or before that date that is deemed to have been incurred during the year of income by any previous application or applications of this subsection), exceeds the amount of the deduction allowable under this section in respect of that expenditure in respect of the year of income, the excess amount shall, for the purposes of subsection (1), be deemed to have been incurred by the taxpayer during the first subsequent year of income in which the taxpayer derives assessable income from petroleum.

Note:

Section 330-35 of the Income Tax (Transitional Provisions) Act 1997 converts any excess amount at the end of the 1996-97 year of income into exploration or prospecting expenditure incurred by the taxpayer in the 1997-98 year of income.

124AH(4A)   [Maximum deduction]  

Subject to subsection (4AC), the amount of the deduction allowable under this section in respect of expenditure incurred during the year of income, being expenditure incurred after 17 August 1976, shall not exceed an amount equal to so much of the assessable income of the year of income as remains after deducting all allowable deductions, other than deductions allowable under this section in respect of expenditure incurred after that date.

124AH(4AA)   [Election as to application of subsec (4A) limit]  

A taxpayer may elect, in relation to a year of income, being the year of income that commenced on 1 July 1985 or a subsequent year of income, that the limit in subsection (4A) shall not apply in relation to actual expenditure in relation to the taxpayer in relation to the year of income.

124AH(4AB)   [Time of election]  

An election under subsection (4AA) must be made on or before the last day for the furnishing of the taxpayer's return of income of the year of income to which the election relates or within such further time as the Commissioner allows.

124AH(4AC)   [Effect of election]  

Where:


(a) a taxpayer makes an election under subsection (4AA) in relation to a year of income; and


(b) but for this subsection, subsection (4A) would apply to limit the amount of the deduction otherwise allowable under this section in relation to expenditure incurred by the taxpayer during the year of income,

the following provisions have effect:


(c) subsection (4A) does not apply in relation to expenditure incurred by the taxpayer during the year of income;


(d) the deduction allowable under this section in respect of any deemed expenditure in relation to the taxpayer in relation to the year of income is an amount ascertained in accordance with the formula


      AC      
A + B  
,


where:
  • A is the number of whole dollars in the amount of the deemed expenditure in relation to the taxpayer in relation to the year of income;
  • B is the number of whole dollars in the amount of the actual expenditure in relation to the taxpayer in relation to the year of income; and
  • C is an amount equal to the assessable income of the taxpayer of the year of income reduced by the sum of all deductions allowable from that assessable income, other than deductions allowable under this section in respect of expenditure incurred after 17 August 1976.
  • 124AH(4AD)   [Interpretation]  

    For the purposes of subsections (4AA) and (4AC):


    (a) a reference to actual expenditure in relation to a taxpayer in relation to a year of income is a reference to expenditure of a kind referred to in subsection (1) incurred by the taxpayer during the year of income, other than deemed expenditure in relation to the taxpayer in relation to the year of income; and


    (b) a reference to deemed expenditure in relation to a taxpayer in relation to a year of income is a reference to expenditure of a kind referred to in subsection (1) that is deemed by subsection (4B) to have been incurred by the taxpayer during the year of income.

    124AH(4B)   [Excess amount]  

    Where the amount of the expenditure of the kind referred to in subsection (1) that was incurred during the year of income, being expenditure incurred after 17 August 1976 (including any expenditure incurred after that date that is deemed to have been incurred during the year of income by any previous application or applications of this subsection), exceeds the amount of the deduction allowable under this section in respect of that expenditure in respect of the year of income, the excess amount shall, for the purposes of subsection (1), be deemed to have been incurred by the taxpayer during the first subsequent year of income in which the taxpayer derives assessable income.

    Note:

    Section 330-40 of the Income Tax (Transitional Provisions) Act 1997 converts any excess amount at the end of the 1996-97 year of income into exploration or prospecting expenditure incurred by the taxpayer in the 1997-98 year of income.

    124AH(4C)   [Type of expenditure]  

    A deduction is not allowable under this section in respect of expenditure incurred during the year of income, being expenditure incurred after 17 August 1976, unless:


    (a) the Commissioner is satisfied that, during the year of income, the taxpayer carried on, or proposed to carry on, prescribed petroleum operations; or


    (b) the Commissioner is satisfied that:


    (i) during the year of income, the taxpayer carried on a business of, or a business that included, exploration or prospecting for petroleum obtainable by prescribed petroleum operations; and

    (ii) the expenditure was necessarily incurred in carrying on that business.

    124AH(5)   [Notice under s 124AB]  

    Where an amount specified in a notice duly given to the Commissioner under section 124AB in relation to the acquisition from the taxpayer of a petroleum prospecting or mining right or petroleum prospecting or mining information is attributable to the whole or a part of an excess amount of expenditure referred to in subsection (4) or (4B), the excess amount or the part of the excess amount, as the case may be:


    (a) shall not, under that subsection, be deemed to have been incurred by the vendor in the year of income in which the transaction to which the notice relates occurred or any subsequent year of income; and


    (b) shall not be taken into account in calculating the amount to be included in the allowable capital expenditure or unrecouped previous capital expenditure of a purchaser by virtue of a notice given to the Commissioner under section 124AB in respect of a transaction entered into after the first-mentioned transaction.

    124AH(6)   [Applicable expenditure]  

    This section applies only to expenditure incurred by the taxpayer in the year of income of the taxpayer in which 17 September 1974 occurred or in a subsequent year of income, other than expenditure incurred on or before 17 September 1974 or incurred after 17 September 1974 and before 1 July 1976 in pursuance of a contract made on or before 17 September 1974, being a contract under which property was to be acquired by, or work was to be performed for, the taxpayer.

    124AH(7)   [Qualifying activities]  

    In this section, exploration or prospecting includes geological, geophysical and geochemical surveys, exploration drilling and appraisal drilling but does not include development drilling or operations in the course of working a petroleum field.


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