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To encourage exploration activity, the Queensland State Government announced in the 2012/2013 Budget that an exemption from duty would be introduced for farm-in arrangements under which an investor earns an interest in an exploration tenement by funding exploration work.
Since then the Queensland Office of State Revenue has confirmed that they will apply the exemption under an administrative arrangement until appropriate legislation is introduced. The details of this administrative arrangement are contained in the recently issued Public Ruling DA000.12.1.
In summary, transfers of exploration tenements under farm-in agreements will not be subject to duty to the extent that the consideration for the transfer is ‘exploration expenditure’, which includes amounts spent on both exploration and development of the tenement. However, duty will be payable to the extent any other consideration is paid under the farm-in agreement, such as an up-front premium, a payment for information or a reimbursement of exploration costs previously incurred by the tenement holder.
While the ruling is welcomed, it does have a number of technical compliance requirements. For example, it would appear that the exemption is limited to the acquisition of interests in exploration tenements, and will not be available where an exploration tenement converts into a production tenement before the relevant farm-in interest is ‘earned’.
The ruling further highlights the importance for farm-in agreements to be negotiated, structured and drafted in a way which ensures access to the various revenue concessions and exemptions available to them.
McCullough Robertson’s stamp duty team specialises in the structuring and commercial implementation of resources transactions and were actively involved in the consultation process that resulted in this new farm-in exemption. We would welcome the opportunity to help you structure your next deal to ensure the best possible duty outcome.
Focus covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. Focus is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.