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Inland Revenue

Tax Policy

Chapter 4 - Current tax rules

4.1 The specified mineral tax rules provide tax concessions to miners of certain listed (“specified”) minerals. There are some 50 specified minerals, of which gold, silver and iron sands are the most commonly mined.

4.2 The main tax concessions for mineral mining are contained in subpart DU of the Income Tax Act 2007 and provide:

  • immediate tax deductions for expenditure that would normally be capitalised and depreciated over the useful life of the mine. For example, a miner extracting specified minerals may claim immediate deductions for expenditure on land, plant or machinery, production facilities and preparing the site for mining operations; and
  • tax deductions for amounts set aside (appropriated) for mining exploration or mining development that will be applied for these purposes within the next two years.

4.3 The overall effect of the specified mineral tax rules is that a miner’s income tax liability can be deferred for significant periods of time. This chapter discusses the main aspects of the existing tax rules that apply to miners of the 50 specified minerals.

Meaning of “specified mineral”

4.4 The list of 50 specified minerals is contained in section CU 28 of the Income Tax Act. The list includes gold, silver, iron sands, phosphate and platinum group elements.

Prospecting and exploration expenditure

4.5 Prospecting and exploration expenditure is deductible as it is incurred, as provided by section DU 1. Exploration expenditure includes prospecting expenditure and refers to expenditure a mining company incurs in exploring or searching in New Zealand for a specified mineral. Section CU 24 defines exploration expenditure and includes amounts incurred on:

a. acquiring mining prospecting information:
b. acquiring a mining or prospecting right:
c. geological mapping and geophysical surveys:
d. systematic searches for areas containing specified minerals:
e. searching by drilling in areas containing specified minerals:
f. searching for ore containing a specified mineral within or in the vicinity of an ore body by crosscuts, drilling, drives, rises, shafts or winzes.

Development and rehabilitation expenditure

4.6 Mining development expenditure is deductible as it is incurred, as provided in section DU 1. Mining development expenditure is expenditure that a company incurs in its mining or associated operations and includes expenditure on restoring the mining site. Section CU 23 defines development expenditure and includes amounts incurred on:

a. acquiring land for mining operations:
b. preparing the site for mining operations:
c. restoring the site during or after mining operations:
d. any of the following for mining operations:

i. buildings, mineshafts, platforms, tunnels, wells, or other improvements:
ii. plant or machinery, including vehicles:
iii. production equipment or facilities:
iv. storage facilities:

e. vessels or aircraft for use wholly or mainly in mining operations:
f. providing, or contributing to the cost of providing, communication equipment, fuel, light, power, or water for the site of mining operations:
g. buildings or facilities that—

i. are situated at, or adjacent to, the site of any mining operations; and
ii. are for use in the education, housing, or welfare of, or the supply of meals to, its employees in or connected with mining operations or in the education, housing, or welfare of, or the supply of meals to, the employees’ dependants.

h. Providing, or contributing to the cost of providing, communication equipment, fuel, light, power, or water for the buildings or facilities described in paragraph (g).

Appropriated amounts

4.7 A mining company is also allowed a tax deduction in advance for amounts appropriated for use as mining exploration expenditure or mining development expenditure. The amount of the deduction is based upon the amount of expenditure the company will, or considers likely to, incur in the following two years. The amount appropriated cannot exceed the amount of net income in the year the appropriation is made, as provided in section DU 4.

4.8 Appropriated amounts for mining development or mining exploration expenditure, when a deduction has been taken in the year that it was appropriated, is treated as income from mining in the following income year, as provided in section CU 9.


4.9 A New Zealand company that holds shares in a “mining company” may claim a deduction for amounts written off in relation to loans made to the mining company for funding its exploring, searching or mining activities. The deduction allowed is for the principal (but not interest) written off.

4.10 The amount of the deduction is up to the lesser of 50 percent of the net income of the holding company for the tax year the deduction is claimed, or the holding company’s proportionate share of the operating company’s total outgoings on exploration and development, reduced by any similar deduction allowed in a previous tax year (as provided by section DU 12).

4.11 Under section CU 17, a holding company of a mining company that has been allowed a deduction for an amount it has written off on a loan made to the mining company must, to the extent of the deduction, include as income:

  • any repayment of that debt made by the mining company (whether the repayment is made to the holding company or to any other person);
  • any amount derived from the disposal of shares (or an interest in shares) in the mining company that is in excess of the amount paid up in cash on the shares by the holding company; and
  • any net income that would have been derived by the mining company in a later tax year in accordance with section CU 19.

4.12 The income is allocated to the income year in which the mining company repays the amount or, in the last two cases, is treated as repaying the amount.

Sale of shares

4.13 The assessment of income from the sale of shares in a mining company that would ordinarily be taxable because the shares were acquired with the intention of resale or the person was in the business of share dealing may be deferred.

4.14 The deferral applies when the income is reinvested for mining purposes (as defined in section CU 29). The period of deferral can be up to six income years following the year that the shares are sold.

4.15 If any part of the above consideration is used for non-mining purposes, or the six-year period lapses, the amount is income in the year that it is used for non-mining purposes, or at the end of the six-year period (whichever is the earlier). However, if the above consideration is lent to a mining company, the principal repaid is income unless the repayment is further invested for mining purposes within six income years of receipt.

4.16 Deferral can also apply if the shares were sold to a mining company in return for shares in that company.

4.17 If the mining company is liquidated, any shares held are deemed to be sold to the company. All distributions on the liquidation are deemed to be consideration for the sale of shares, and any resultant profit is income.

Losses and grouping

4.18 Under section DU 7 a mining company may deduct a net loss from one class of income (mining income) against another class of income (income from other sources). This is subject to the qualification that any mining income deducted from the non-mining income should be reduced by one-third. For example, every $100 of mining loss is worth only $66.66 when making the deduction from non-mining income.

4.19 However, under section CU 13 any income derived by a non-resident mining operator from outside of the mining venture is separately assessed without regard to any income or expenditure incurred on the mining venture.

4.20 Special rules apply to the consolidation of mineral mining operations to ensure that:

  • under section FM 31(2) a mineral mining company may only form a consolidated group with other wholly owned mineral mining companies; and
  • losses incurred by a mineral mining company are ring-fenced to the mining company and to the relevant mining permit area, when shareholder continuity has been breached, or the company is not wholly owned. Under section IA 7 any losses from a permit area may be offset against the net income in the year of claim from the permit area.

Integrity measures

4.21 Given the generous deduction rules for specified mineral mining expenditure, the rules deem income from mining to arise in a number of situations.

4.22 Under section CU 3 the rules treat income from mining to be derived when an asset is transferred and an amount has previously been allowed as a deduction as mining development or mining exploration expenditure for that asset. Transfers include:

  • an asset used to derive income from mining is used to derive income other than income from mining. The amount of income from mining is an amount equal to the market value of the asset on the first day the asset is used to derive income not from mining); and
  • an asset used to derive income from mining, including mining prospecting information or a mining or prospecting right, is sold or disposed of. The amount derived from the disposal is treated as income from mining (there are various rules to assist with quantifying the amount – for example, when a mining asset is sold to an associated person it is treated as having been sold for market value).

4.23 Income from mining also includes compensation received for the loss, damage, or destruction of mining assets. When the asset is not restored or replaced, the insurance proceeds are treated as income from mining in the year received. When an asset is restored or replaced, only the excess of insurance plus scrap proceeds over restoration or replacement costs are included within income from mining. Under section CU 4 any costs of replacement or restoration that exceed insurance and scrap proceeds may be deducted in the year incurred.