PERTH (miningweekly.com) – The Australian resources industry on Wednesday expressed concern that the federal government’s tax amendments, especially changes to deductions on exploration spend, could slow the search for new resources.

In the 2013/14 Budget, federal Treasurer Wayne Swan introduced measures to limit deductions on exploration spend, which were expected to deliver some A$1.1-billion to the government over four years.

The new changes meant that miners would not be able to deduct the purchase price of a tenement that had already been explored, or the cost of information on the tenement.

Swan said that this measure would support “genuine exploration activity”, rather than having the deduction claimed for a resource that had effectively already been discovered.

If the tenement is being explored for the first time, the deduction of the cost for the mining rights, and for the information gathered at site, would also now be available over the shorter of 15 years or the project’s effective life.

If exploration at the site was unsuccessful, the remaining value of the right would be written off.

The Western Australian Chamber of Minerals and Energy (CME) said on Wednesday that the taxation changes would negatively impact on the health and future development of major resource projects.

“While CME is pleased that pre-Budget speculation about changes to the diesel fuel rebate weren’t announced, changes to exploration expenditure and the thin capitalisation rules are of concern to the resource sector,” said CME CEO Reg Howard-Smith.

He noted that the CME believed that any amendments that brought about further costs to the resources sector, needed to be re-examined. 

“Industry is already dealing with significant increases in the cost of doing business, particularly in Western Australia. It makes no economic sense to place further barriers in front of the strongest industry in the country when the long-run aim is increased revenues.”

Howard-Smith said the resources sector needed to remain internationally competitive if it was to continue to deliver benefits to the community. When combined with decreasing ore grades and new minerals- and energy-rich regions emerging around the world, the level of competition in the global resources sector is increasing for Western Australia.

“Taxation changes such as those announced may have unintended consequences for the future growth and prosperity of Australia,” he warned.

The Association of Mining and Exploration Companies (Amec) has also expressed its concern regarding the tax changes, with CEO Simon Bennison saying that the industry body was disappointed that Swan had chosen a default position of a 15-year write-off period for high-risk exploration rights.

“It is only in the event that the exploration activities are considered unsuccessful that a balancing adjustment deduction can be claimed, or, in the event of a project being developed with an effective life of less than 15 years, that a greater deduction can be claimed,” Bennison said.

“To consider a 15-year period is unrealistic and needs to be changed to reflect the inherent risks associated with exploration.”

He further noted that the introduction of the concept of 'unsuccessful exploration' potentially created uncertainty as to what this entailed.

“Exploration may lead to the discovery of resources; however, due to a range of factors, including commodity prices and difficulty raising finance, a company may not be able to develop a mine. When this occurs the level of write-off of the acquisition costs will not be commensurate with the commercial outcome.”

Amec has, meanwhile, welcomed the proposal to codify tax laws relating to farm-out arrangements, which Bennison said should hopefully provide greater certainty regarding the tax treatment of farm-out arrangements beyond the current tax ruling.

Meanwhile, the revenue target for the much-contested minerals resource rent tax (MRRT) was again downgraded, with Swan expecting that just over A$200-million would be raised during the current financial year, just 10% of the forecast A$2-billion in revenue previously expected for this year.

For 2014, the MRRT was forecast to raise just A$700-million, with a further A$1-billion expected in 2015.