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Income Tax Act 2007

Timing and quantifying rules - Spreading of specific expenditure - Definitions

EJ 20D: Measurement of assumed life of mine and application to rate

You could also call this:

“How to calculate tax deductions for mineral miners based on estimated mine life”

This section talks about how to figure out how long a mine will last and how to use that information to work out tax deductions for mineral miners. It’s part of the Income Tax Act 2007.

You use a simple math formula to work out the rate of deduction. You divide 100% by the ‘assumed life’ of the mine. The ‘assumed life’ is the shorter of two time periods:

  1. The time the miner thinks the mine will last for their business records, or how long they guess it will last if they don’t need to record it.

  2. A period of no more than 25 years from when the mine started making money or when the miner spent money on the mine, whichever happened later.

Every year, you need to check if your guess about how long the mine will last is still right. If you need to change it, the new guess applies from the start of the next tax year.

This rule helps decide how much money a miner can claim as a tax deduction each year for the costs of running their mine.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM6036014.

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

“How long mining costs are spread for tax purposes”

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EJ 20E: Certain mining expenditure spread on basis of units of production, or

“Spreading mining costs over time based on production levels”

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

EJ 20DMeasurement of assumed life of mine and application to rate

  1. This section applies for the purposes of section EJ 20B(4)(a) for the item rate in the formula that determines the amount of the deduction a mineral miner is allowed for an income year that falls in the spreading period described in section EJ 20C.

  2. The formula for the straight-line rate is—

    100% ÷ assumed life.

    Where:

    • In the formula, assumed life, for an amount of expenditure and an income year, is the period that is the lesser of the following periods:

    • the period that—
      1. the mineral miner uses for accounting purposes as the amortisation period for the mining permit area; or
        1. for a mineral miner that is not required to use an amortisation period for their accounts, the mineral miner estimates is a reasonable period for the commercial production of a listed industrial mineral from the mining permit area; and
        2. the period that is not more than 25 years from the later of—
          1. the date on which commercial production from the mining permit area starts; and
            1. the date on which the mineral miner incurs the expenditure relating to the mining permit area.

            2. A mineral miner must reassess the assumed life of the mine for the purposes of this section and sections DU 11 (Meaning of mining development expenditure) and EJ 20C. A reassessment must be made at the end of each income year that falls within the period, and applies from the start of the next income year for all remaining income years in the period in relation to all outstanding expenditure for which no deduction has yet been allowed.

            Notes
            • Section EJ 20D: 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).
            • Section EJ 20D(3): replaced (with effect on 1 April 2014 and applying for the 2014–15 and later income years), on , by section 73(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
            • Section EJ 20D(4): amended (with effect on 1 April 2014 and applying for the 2014–15 and later income years), by section 73(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).