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DU 5: Farm-out arrangements
or “Tax rules for mining expenses in farm-out deals”
You could also call this:

“Spreading tax deductions for mining development costs over the mine's expected lifespan”

When you’re a mineral miner, you might spend money to develop or explore a mining area. This is called mining development expenditure or mining exploration expenditure. Sometimes, you can get a tax deduction for this money you’ve spent.

If you start using the mining area to make money, you might be able to spread out your tax deduction over time. This is based on how long the mine is expected to last. However, you can only do this if you meet certain conditions.

If you don’t meet these conditions, or if you choose not to spread out your deduction in a certain way, you won’t be allowed to claim the deduction right away. Instead, you’ll have to follow special rules about how much you can deduct each year.

Even though this money is spent on long-term assets, which usually can’t be deducted, these special rules let you deduct it over time. But you still need to follow the general rules about what expenses can be deducted.

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Next up: DU 7: Deduction for certain mining expenditure spread on basis of units of production

or “Spreading mining costs as a tax deduction based on production”
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Part D Deductions
Mineral mining expenditure

DU 6Deduction for certain mining expenditure spread over assumed life of mine

  1. This section applies when—

  2. a mineral miner—
    1. incurs an amount of mining development expenditure for an income year on or in relation to their mining operations or associated mining operations in a mining permit area:
      1. has incurred an amount of mining exploration expenditure in relation to a mining permit area on acquiring or creating property for which the mineral miner has been allowed a deduction in an earlier income year, and the amount is recovered as income under section CU 4 (Recovery of certain expenditure); and
      2. the mineral miner starts to use the mining permit area to derive income; and
        1. the mineral miner either does not meet the requirements to allow allocation of the expenditure under section EJ 20E (Certain mining expenditure spread on basis of units of production) or, if they do, they do not choose to allocate the expenditure under that section.

          1. The mineral miner is denied a deduction for the expenditure except to the extent quantified and allocated under section EJ 20B (Certain mining expenditure spread over assumed life of mine).

          2. This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.

          Notes
          • Section DU 6: replaced, on (applying for the 2014–15 and later income years), by section 41(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).