The Exploration Development Incentive (EDI) was legislated by the Federal Government in 2015. Cannings Purple’s Investor Insight team explain.
In 2015, the Federal Government legislated the Exploration Development Incentive (EDI), designed to encourage greenfields exploration in Australia.
The scheme, worth $100 million over three years, allows companies to transfer losses through to their shareholders in the form of exploration credits. There are differences in the way that company and individual shareholders can utilise the credits, however they both provide a tax incentive to shareholders in some form.
Whether it was because it was a new scheme and not well understood, or a result of the general state of the exploration industry in Australia, in FY2015 the pool of funds available ($25m) was not fully utilised, meaning the 84 successful companies that participated got all of their eligible exploration accounted for.
As we head towards the end of the 2016 financial year, it is worth thinking about the EDI, both for company directors and also for investors.
For companies, if you have undertaken greenfields exploration activities (which the ATO defines as ground that doesn’t contain a JORC resource), you need to advise the ATO by 30 September 2016 of your eligible expenditure for FY2016.
If your expenditure is deemed eligible by the ATO, some time over the course of FY2017, you will be able to set a record date and pass those credits onto eligible shareholders.
For investors, if you are lucky enough to have invested in one of the 84 companies that were successful in participating, you will need to keep these tax credits in mind when sorting out this year’s tax return.
There still appear to be a few flaws with regards to the EDI, most notably the time difference between the timing of expenditure and the record date for passing on the credits. In some cases, the time difference could be up to two years.
However, if the explorer in your portfolio is spending money on greenfields exploration in Australia, you should be asking them why they aren’t signing up for the EDI. With $35 million worth of tax credits to be distributed this financial year (for work that has already been done), you’d be silly not to be a part of it.
