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Inland Revenue

Tax Policy

Mineral mining remedials


(Matters raised by officials)

The Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 amended the rules that applied to miners of certain minerals (such as gold, silver and iron-sands).

The Advisor to the Committee has noted a number of minor drafting concerns with the mineral mining rules in that Act. Because the new rules are to apply to affected mineral miners from the 2014–15 income year, officials consider it is important to clarify the relevant drafting to avoid any unnecessary confusion.

We recommend that any amendments should take effect from the current income year (2014–15) to ensure that different rules do not apply within the same income year. Although, strictly speaking, this makes the amendments retrospective, the changes are not anticipated to have a material effect on the positions adopted as enactment is anticipated well before the first end-of-year assessments using the new rules are due.


The following matters are technical drafting issues and only serve to reinforce the stated policy intent of the provisions in question:

Prospecting and exploration expenditure

The intent of the original changes was that a miner should always get a deduction for expenditure that is either “prospecting” or “exploration expenditure” (subject to a claw-back rule that applies to exploration expenditure in some cases). This deduction was always meant to be available. However, the relevant provision, in section DU 1 of the Income Tax Act 2007, does not explicitly override the capital limitation. It may therefore be possible for a miner to be denied a deduction for prospecting expenditure.

Officials recommend that section DU 1 be amended to clarify that the deduction should be available even if this expenditure is ordinarily regarded as capital. It is not anticipated that this drafting suggestion will impinge on the operation of the claw-back rule in appropriate instances.

Spreading of development expenditure

It is intended that development expenditure and clawed-back exploration expenditure should be capitalised and amortised (deducted) over the life of the mine. This amortisation should take place on either a time or a “unit of production” basis. However, there is a technical question about whether clawed-back exploration expenditure is adequately catered for in section EJ 20E(4) of the Income Tax Act 2007, which operates when a miner operates on a unit of production basis. Failure to capture this expenditure properly could result in the miner being unable to amortise the amount – possibly resulting in “black hole” expenditure.

To remedy this, officials recommend that clawed-back expenditure should be specifically included in amounts that are subject to amortisation on a unit of production basis.

“Operational expenditure”

“Operational expenditure” is defined in section DU 12 (4) of the Income Tax Act 2007 as an exclusion to “development expenditure”. Development expenditure is capitalised and amortised over the assumed life of the mine, whereas operational expenditure is treated according to general tax principles. An issue has been raised that may result in a miner claiming immediate deductions for expenditure that is properly categorised as “development expenditure”.

This could arise when a miner has elected to allocate expenditure on a mine-by-mine basis, rather than over the entire permit area. It may be that the miner can treat development expenditure on a second mine as “operational” on the basis that it creates an asset that has an estimated useful life of less than one year.

To remedy this, officials recommend that expenditure that “contributes to the creation of an asset that has an estimated useful life of more than one year” should also be treated as development expenditure. On a single mine operation, this is not intended to expand the definition of “development expenditure”.

Cap on amortising development expenditure

As described above, it is intended that development expenditure be amortised over the assumed life of the mine. An exception is when the assumed life is expected to be 25 years or longer. In this case, it is intended that the amortisation period be capped at 25 years.

However, the current drafting of section EJ 20D(3) of the Income Tax Act 2007 arguably does not achieve this result. Officials therefore recommend that the wording be clarified to ensure that the 25 years operates as a cap.

Reassessing the life of the mine

It was anticipated that a miner would be required to reassess the assumed life of their mine each year to take into account any new deposits discovered or possibly to reduce the estimated life because probable deposits did not in fact materialise. This was designed to provide the most accurate estimate possible over time.

The drafting of section EJ 20D(4) of the Income Tax Act 2007 technically does not require this reassessment to take place every year. Officials therefore recommend that this be clarified to ensure that this regular recalculation is undertaken.


That the submissions be accepted.