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Edited version of your private ruling
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Ruling
Subject: Whether a payment for an exploration licence is deductible
Question
Whether a payment for an exploration licence is deductible
Answer
Yes
This ruling applies for the following periods:
1 January 2008 to 31 December 2008
1 January 2009 to 31 December 2009
The scheme commences on:
1 January 2008
Relevant facts and circumstances
The entity is a wholly owned subsidiary of a foreign company listed on a foreign stock exchange and has carried on a business of production and sale of resources in a foreign country
Relevant legislative provisions
Income Tax Assessment Act 1997 (ITAA1997)
Subsection 40-25(1)
Section 40-30
Section 40-40
Section 40-60
Subsection 40-80(1)
Section 40-175
Section 40-180
Section 40-185
Subdivision 40-C
Subsection 40-730(4)
Subsection 40-730(7)
Subsection 701-1(1)
Section 995-1
Reasons for decision
Mining, quarrying or prospecting information is defined in section 40-730(8) of the ITAA 1997 as:
Mining, quarrying or prospecting information is geological, geophysical or technical information that:
(a) relates to the presence, absence or extent of deposits of *minerals or quarry materials in an area; or
(b) is likely to help in determining the presence, absence or extent of such deposits in an area.
The exploration tenements in which the entity has interests are depreciating assets under paragraph 40-30(2) of the ITAA 1997.
Subsection 40-80(1) of the ITAA 1997 provides that an asset's cost can be deductible if the asset is first used for exploration and prospecting for minerals obtainable by mining operations and when first used it is not used for operations in the course of working a mining property.
For purposes of the deduction in terms of subsection 40-80(1) of the ITAA 1997, it is also necessary that when the interests in the exploration tenements are first used you can satisfy one or more of the following:
(i) carried on mining operations
(ii) it would be reasonable to conclude that a proposal is to carry on such operations
(iii) carried on a business of, or a business that included exploration or prospecting for natural resources obtainable by such operations and expenditure on the asset was necessarily incurred in carrying on that business.
Where these conditions are satisfied, the operation of subsection 40-25(1) of the ITAA 1997 and subsection 40-80(1) of the ITAA 1997, will mean the cost of a depreciating asset first used in exploration and prospecting for natural resources obtainable by mining operations will be fully deductible.