Last week's State Budget heralded an unexpected concession for the mining industry, with the announcement that a new stamp duty exemption will apply to mining tenement farmins.
This development addresses some of the concerns raised by the industry earlier this year after the Government indicated that all transfers of resource authorities would be liable for duty.
Here, special counsel Justin Byrne discusses the announcement and explains how the concession might work.
Key facts
- The 2012 Queensland State Budget included a new concession for the State's miners, with farmins to be exempt from stamp duty.
- No further details were provided, with the Government stating that "the scope and technical design of the concession will be a matter for consultation between the Office of State Revenue and industry".
- Whether the exemption applies to upfront payments as well as expenditure over the term of the farmin is yet to be clarified.
Taxation of farmin agreements
After explaining in general terms that a farmin is the right to receive an interest in a mining tenement in return for the obligation to undertake works or commit certain expenditure, the Government, in its State Budget, said that "this expenditure will be exempt from duty". It is unclear, however, whether that exemption will apply only to expenditure under the farmin arrangement, or whether it also applies to any upfront payment made when entering into the farmin arrangement in order to secure it.
The answer may lie in the fact that this announcement is a further change in the way stamp duty in Queensland will apply to our mining industry in the future. Earlier this year, the Newman Government announced that it would proceed with the Bligh Government's proposal to assess duty transfers of all resource authorities, including (for example) exploration tenements and authorities to prospect, which were not previously subject to duty. However, only transfers taking place as a result of an agreement entered into after 13 January 2012 would be taxable.
Legislation was introduced into Parliament on 11 September 2012 to effect this change in law. Importantly, where liability for a tenement transfer has arisen since 13 January 2012 as a result of the (retrospectively applying) change in law, parties will have 30 days from the commencement of the legislation to lodge the relevant documents for assessment. The legislation enacting this change is expected to commence shortly.
When the announcement was made in January, concern was raised over how such transfers would be taxed where a farmin arrangement was involved. Given the Budget announcement, it may well be that only committed expenditure under the farmin will be exempt from duty, and that any upfront payment made to secure the farmin will be taxable.
For example, if $1 million is payable upfront by a farmee in order to secure farmin rights, and the farmee is also committed to spending $20 million over five years on the tenement, it may be that stamp duty will not be paid on the $20 million, but will be payable on the $1 million. This represents a significant change for junior explorers, but is broadly consistent with how other States tax such transfers.
We will continue to monitor the implementation of the Government's announcement. There is a long way to go before the announcement becomes law (if indeed it ever becomes law), and whether the final form of the legislation achieves the intended outcome, as announced, remains to be seen.
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