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Purchase of Mining or Prospecting Right or Information.

19.42. Section 122B relates to the situation in which a purchaser incurs expenditure in acquiring from a vendor for the purpose of carrying on prescribed mining operations, or prospecting for minerals obtained by prescribed mining operations, a mining or prospecting right or mining or prospecting information (see the definitions of these terms in section 122 (1)). Section 122B includes in the allowable capital expenditure of the purchaser his outlay in acquiring from the vendor mining or prospecting information or a mining or prospecting right, where both the vendor and purchaser join in giving a notice in writing to the Commissioner that they have agreed to the inclusion of an amount specified in the notice, which amount may be the whole or a part of that outlay. The notice must be lodged with the Commissioner not later than two months after the end of the year of income of the purchaser in which the information or right was acquired or within such further time as the Commissioner allows. The intention of the section is to enable a transfer to the purchaser of the vendor's entitlement to deductions for certain allowable capital expenditure not exceeding in


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amount the expenditure of that kind previously outlaid by the vendor when he disposes of the information or right to the purchaser.

19.43. Provision is made in the section for the computation of the allowable capital expenditure which enures for the benefit of the purchaser and which in certain circumstances may be reduced to an amount less than that in the notice. The amount specified in the notice signed by both parties pursuant to section 122B, or the amount to which it is reduced under section 122B, is deductible by the purchaser over the life of the mine. It has been submitted to the Committee that in practice it is difficult to obtain the agreement of the vendor of a mining right to sign the notice required under section 122B, unless he has been trading unprofitably. If the vendor had been prospecting with a view to selling his right to mine upon discovery, then, unless he had been operating at a loss or was entitled to the benefit of the (now repealed) section 23 (p), he would be liable to be assessed to tax as income on the whole or a major part of the proceeds received by him on the sale of the right. In circumstances where the vendor has been trading unprofitably, and accordingly has been unable to take advantage of the mining deductions, the amount received on the disposal of the right may be set off against his accrued entitlement to deductions under section 122D and his agreement to specify the full amount in the notice is more readily obtainable.

19.44. While it may be strongly urged that the administrative convenience of section 122B would support its retention, the section does substitute the vendor's deduction entitlement as a predominant criterion upon which the sale price is set in lieu of normal market forces. It is also open to the criticism that, by allowing any previously undeducted exploration expenditure of the vendor to be transferred to a purchaser as a component of the vendor's ‘allowable capital expenditure’, it may in some instances encourage the fixing of an artificially high sale price, particularly where the vendor is withdrawing completely from the mining business so that he has no prospect of taking any further advantage of his accrued deduction entitlement. It has been pointed out to the Committee that in a number of countries the costs of the acquisition of the right to mine are allowed to be written off over the life of the mine or by some accelerated write-off method. The Committee favours the widening of the base of allowable capital expenditure under section 122A to include without limitation the cost of acquiring a mine; for this reason and for the reasons set forth in paragraphs 19.39–19.40, it is recommended that section 122B be deleted so that the costs of acquiring a mine may be amortised over the life of the mine.

19.45. It may be argued that some distinction should be made in the treatment of the acquisition of mining or prospecting information, as distinct from that applying to the mining right, since the former does not constitute an asset subject to depletion. On this basis, it is contended that the cost of acquiring mining or prospecting information should be regarded as an exploration expense and hence subject to the immediate write-off recommended in paragraph 19.19. In all situations in which a mining right is disposed of, it is suggested that a component of the asset being sold may in some sense be regarded as ‘mining or prospecting information’. Such an approach would therefore differentiate between these two items in allotting different taxation treatment to each. The problems of apportionment might prove formidable. It is envisaged that the difficulties encountered in apportionment would move taxpayers purchasing mines to apportion a higher figure in respect of mining information vis-a-vis the mine in order to take advantage of any better basis of deductibility offered them. Further, in discussing the nature and extent of the appropriate base for amortisation, the Committee has taken the view that the total cost to the taxpayer of a mining venture provides a fair means of computing the net income of a mining enterprise where all costs


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associated with it may be recouped over the life of the mine. Where no mine is ultimately acquired or mining operations are not undertaken as a consequence of the purchase of such information, the expenditure may be characterised as abortive and subjected to the same treatment as that accorded similar expenditure under the present Act. In summary, it is suggested that the expenditure in purchasing mining rights and mining or prospecting information should remain linked together in the same category of ‘allowable capital expenditure’ for the purposes of taxation treatment under Division 10.

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