A timely reminder to check whether your organisation is eligible for the Exploration Development Incentive (EDI), a tax incentive aimed at junior explorers. The EDI is currently operating as a three year trial with EDI credits capped at $100 million.
The scheme has been very successful in its first year of operation in encouraging investment in Australian greenfields mining projects, with 84 applications for credits made relating to $70 million of eligible exploration expenditure and generating $21 million of EDI credits paid to shareholders out of a total cap on claims in that year of $25 million.
The Australian Taxation Office (ATO) administers the cap through the registration and modulation process.
EDI credits for the second year of the scheme of $35 million are available for eligible expenditure in the 2015/16 year and $40 million EDI credits for the third year are available for eligible expenditure in the 2016/17 year.
Broadly, the EDI allows companies who choose to participate in the scheme to convert tax losses into EDI credits, which may be passed through to Australian resident shareholders either as a refundable tax offset or franking credit depending on the investor profile.
The EDI is limited to companies who are greenfields minerals explorers which have incurred greenfields minerals expenditure. A key threshold requirement to be a greenfields minerals explorer is that the entity (or any associate) has not carried on any mining operations during the current or previous income year.
Whether the expenditure qualifies as greenfields minerals expenditure also needs to be considered, for example the EDI does not apply to expenditure on areas where a mineral resource has already been identified. Participation is optional and the decision to claim the EDI is made each year. Importantly, taxpayers who did not register last year are still eligible to register this year.
Advice should be sought as to eligibility for the EDI scheme. Registrations for the second year of the scheme are due for lodgement with the ATO by 30 September 2016.