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Income Tax Act 2007

Timing and quantifying rules - Spreading of specific expenditure - Definitions

EJ 20B: Certain mining expenditure spread over assumed life of mine

You could also call this:

“Spreading mining costs over a mine's expected lifespan”

This law explains how you can spread out the cost of certain mining activities over time. It applies when you’re a mineral miner who has spent money on developing or exploring a mine, and you’ve started using the mine to make money. You can use this method if you don’t meet the requirements for another way of spreading the cost, or if you choose not to use that other method.

You’re allowed to claim a deduction each year for a portion of your mining costs. To figure out how much you can deduct, you use a formula: rate times value. The rate is either a straight-line rate or a diminishing value rate, which you can choose. The value is either the adjusted tax value of what you spent or the diminished value for that year, depending on which method you picked.

You can find the rates you need to use in schedule 12 of the law. If you choose the straight-line method, you use the rate in column 2 that’s closest to a rate you calculate using another formula in section EJ 20D(2). If you choose the diminishing value method, you use the rate in column 1 that matches the straight-line rate.

If you use special accounting rules called IFRS to do your financial statements, you might be able to spread the cost over the whole mine instead of just the area covered by your mining permit. But you can only do this if it’s allowed by the IFRS rules.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM6036007.

Topics:
Money and consumer rights > Taxes
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EJ 20C: Length of spreading period, or

“How long mining costs are spread for tax purposes”

Part E Timing and quantifying rules
Spreading of specific expenditure: Definitions

EJ 20BCertain mining expenditure spread over assumed life of mine

  1. This section applies for the purposes of section DU 6 (Deduction for certain mining expenditure spread over assumed life of mine) when a mineral miner—

  2. incurs an amount of mining development expenditure or mining exploration expenditure as described in that section; and
    1. starts to use the mining permit area to derive income; and
      1. either does not meet the requirements to allow allocation of the expenditure under section EJ 20E or, if they do, they do not choose to allocate the expenditure under that section.

        1. The mineral miner is allowed a deduction for an income year that falls within the spreading period referred to in section EJ 20C calculated using the formula—

          rate × value.

          Where:

          • The items in the formula are defined in subsections (4) and (5).

          • Rate is—

          • the straight-line rate set out in schedule 12, column 2 (Old banded rates of depreciation) that is nearest to the rate calculated for the expenditure using the formula in section EJ 20D(2), if the mineral miner chooses to use the straight-line method:
            1. the diminishing value rate set out in schedule 12, column 1 that corresponds to the straight-line rate under paragraph (a), if the mineral miner chooses to use the diminishing value method.

              1. Value is—

              2. the adjusted tax value of the expenditure, if the mineral miner chooses to use the straight-line method:
                1. the diminished value of the expenditure for the income year, if the mineral miner chooses to use the diminishing value method.

                  1. For the purposes of this section, a mineral miner may allocate expenditure for an income year under this section in relation to a mine rather than in relation to a mining permit area, but only if—

                  2. the mineral miner uses IFRS rules to prepare their financial statements; and
                    1. the allocation is permitted for the purposes of their statements.

                      Notes
                      • Section EJ 20B: inserted, on (applying for the 2014–15 and later income years), by section 50 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).