Exemption from duty for Queensland exploration authorities

On 27 June 2013, the Commissioner issued Duties Act Public Ruling DA000.12.1, 'Transfer duty - exemption for farm-in transactions in the resource sector' which sets out how the Commissioner will administer, pending legislative enactment, the proposed exemption for transfers of exploration authorities in Queensland pursuant to farm-in agreements.

The purpose of this article is to summarise DA000.12.1 and to provide an update on the Commissioner's announcement on 8 July 2013 on the lodgement requirements for farm‑in agreements.

Background

As part of its State Budget 2012-2013, which was brought down in September 2012, the Queensland Government (among other things):

• enacted the Fiscal Repair Amendment Act 2012 (Qld) which implemented transfer duty for direct and indirect transfers of certain exploration authorities occurring on and after 10.30am on 13 January 2012 (the Start Date), this having been previously announced by the Queensland Government; and
• announced an exemption from duty for transfers of certain exploration authorities pursuant to farm‑in arrangements to the extent that the consideration under such agreements is the farmee incurring exploration and development expenditure (the Proposed Exemption).

It was stated in section 4 of Budget Measures 2012-13 that the 'scope and technical design of the concession will be a matter for consultation between the Queensland Office of State Revenue (OSR) and Industry'.¹

In an information sheet released on 7 October 2012, the Queensland OSR indicated that until the design of the exemption was formulated, the Commissioner would extend the due date for lodgement of farm-in agreements to 30 days after the date of Royal Assent of amending legislation introducing the exemption.

Since then, there has been some uncertainty as to the lodgement and duty status of some farm‑in agreements. Some taxpayers have lodged their farm-in agreements with the Queensland Office of State Revenue while others have not. Those that have may have done so as part of the process of obtaining registration of interests acquired under farm‑in arrangements from the Queensland Department of Natural Resources and Mines (DNRM). DNRM requires transfers of these interests to be stamped by the OSR.

On 8 July 2013, the OSR issued a fact sheet entitled 'Changes announced to the duty treatment of prospecting and exploration permits and authorities' (the July 2013 Fact Sheet). The Commissioner has set out his administrative arrangements in respect of lodging documents effecting transactions relating to exploration authorities pursuant to farm‑in arrangements entered into after the Start Date.

DA000.12.1 - Overview

Pending enactment of the Proposed Exemption, the Commissioner has issued DA000.12.1 which sets out how the Commissioner will administer the Proposed Exemption.

Only transfers of 'exploration authorities' under applicable agreements will be exempt.

What are 'exploration authorities'? 

They are:

• an exploration permit or prospecting permit under the Mineral Resources Act 1989;
• an authority to prospect under the Petroleum Act 1923 or the Petroleum and Gas (Production and Safety) Act 2004;
• a geothermal exploration permit under the Geothermal Energy Act 2010; and
• a GHG exploration permit under the Greenhouse Gas Storage Act 2009.

What are the 'applicable agreements'?

There are 2 types of applicable agreements:

1. Deferred farm-in agreements. This is defined in the ruling to mean:

"...an agreement between the farmor and another person (the farmee) which provides the farmee, after expending the exploration amount specified in the agreement, with a right to acquire an interest in the exploration authority that is:

(i) specified in the agreement;

(ii) to be held jointly with the farmor.

2. Upfront farm-in agreements. This is defined in the ruling to mean:

"an agreement between the farmor and another person (also the farmee) which provides for the immediate transfer of an interest in the exploration authority and, subject to expending the exploration amount by the date specified in the agreement (the expenditure completion date), entitles the farmee to retain the interest in the authority that is:

(i) specified in the agreement; and

(ii) to be held jointly with the farmor.

How will the Proposed Exemption be applied?

The Proposed Exemption will apply to these farm-in agreements as follows:

• transfer duty will not apply to consideration paid under a farm-in agreement to the extent it comprises an exploration amount that has been expended in accordance with the farm-in agreement (the Exploration Amount);
• transfer duty will apply to any other consideration paid for the interest in the exploration authority as an agreement for transfer. These amounts will include any amount paid for the grant of the agreement, consideration in addition to the exploration expenditure incurred and paid for each transfer under the agreement (in respect of staged acquisitions) and consideration for such things as mining information. The Commissioner states that all consideration for a farm-in agreement will be taken into account, irrespective of its nature; and
• where the farm-in agreement provides for the acquisition of an interest in the exploration authority in stages, transfer duty will be reassessed on the agreement and any other consideration paid at each relevant stage. Credit will be applied for duty paid in respect of previous stages when assessing the farm-in agreement at each future stage.

The Commissioner has also ruled that a concessional approach will be taken when assessing transfer duty on consideration paid in excess of the Exploration Amount. Duty will be assessed by reference only to the consideration paid and not by reference to the unencumbered (or market) value of the property the subject of the transaction.

In respect of upfront farm-in agreements, if the interest in the exploration authority has been transferred to the farmee and the farmee does not expend the exploration expenditure and does not reassign the interest to the farmor pursuant to a right to retain the interest, then:

• the farmee must notify the Commissioner within 30 days of the expenditure completion date²; and
• the Commissioner will either:
  • extend the time within which the exploration expenditure is to be expended; or
  • reassess duty on the agreement on the basis that the farm-in exemption did not apply.

Arrangements to avoid duty?

This administrative treatment will not apply to farm-in agreements or related transactions and arrangements which form part of an arrangement to avoid duty.

What are the transitional arrangements?

The following transitional arrangements will be applied. As transfers of exploration authorities are only liable for duty on and after the Start Date, the Proposed Exemption will apply to:

• farm‑in agreements made or entered into after the Start Date;
• a transfer made at or after the Start Date under a farm‑in agreement entered into at or after the Start Date; and
• a transfer made at or after the Start Date under a farm‑in agreement entered into before the Start Date (together, the Applicable Transactions).

Extended lodgement

In the July 2013 Fact Sheet, the Commissioner states that the due date for lodgement of documents giving effect to the Applicable Transactions is extended to 6 September 2013. Presumably, farm-in agreements entered into after 6 September 2013 will need to be lodged within the usual 30 day period after the agreement was entered into.

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¹ Refer to page 138 of Budget Measures 2012-13