Overseas Exploration and Prospecting
19.29. There is no provision in Division 10 for any deduction in respect of expenditures incurred in exploration or prospecting for minerals outside Australia, Papua New Guinea and the continental shelf delineated in section 6AA of the Act. Australian companies are consequently deterred from engaging in such an activity. It has been submitted to the Committee that ‘it is part of the Australian Government's enunciated foreign policy to foster and encourage closer economic and political ties with neighbouring island groups and the countries and territories of Asia’. The Committee's attention has been drawn to the fact that the United Kingdom, Canada and the United States each makes some provisions for tax concessions in respect of overseas mineral exploration and it is argued that Australian companies should be placed on the same footing as their competitors from these countries who are able to offer overseas governments better terms in regard to royalties and to perform more exploration and prospecting for each dollar of net cost and still obtain a rate of return on productive operations equal to or greater than Australian companies. It is contended that it is in Australia's economic and political interests for Australians to do what reasonably can be done to expedite the growth and development of the economies of neighbouring countries. The Committee has noted these submissions with interest but is of the opinion that it is inherent in the very nature of the arguments supporting them that the decision to accede to or reject a submission of this nature lies outside the Committee's province: whether a deduction of this kind should be incorporated in the Australian taxation system depends not upon taxation policy but upon political policy. These submissions also raise the wider question of Australian taxation on foreign-source income. So long as the present exemption system applies in regard to such income of Australian residents taxed abroad, foreign exploration expenditure may be regarded as expenditure in deriving exempt income and thus, on general principles, not deductible. If exploration costs are properly to be regarded as revenue expenditure it would, as the Committee has recommended, on general principles be deductible if Australia moved to a system of taxing foreign-source income with credit for foreign tax payable thereon in accordance with the Committee's recommendations in Chapter 17. The restriction in Division 10 of deductibility would in this event be inappropriate. Accordingly, the Committee does no more than draw attention to the submissions themselves and to the fact that other countries have seen fit to make such taxation concessions available.