Exploration Expenditure
19.102. A quarry-master undertakes exploratory activity that includes geological investigation in order to find an appropriate place to commence operations: some drilling activity is necessary in order to ascertain the extent of a deposit, and it has been said that the investigation is, as a rule, more accurate than its equivalent in mineral mining. Further, most deposits are searched for and located near the markets the product will service as this is a strong factor in the viability of such an operation. Few quarries are located in remote areas away from townships and, where they are, they have been so located to fulfil a particular need of the market. The exploration expenditure incurred by a quarry-master is normally of a much smaller amount than that incurred by its general mining counterpart.
19.103. It is in this context that the taxation treatment of exploration expenditure must be viewed. In relation to
general mining, it will be recalled that the Committee views such expenditure as being an integral part of the conduct
of a mining business and hence appropriately treated as subject to an immediate deduction in the year in
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which it is incurred from income derived from any source. The rationale for regarding exploration expenditure in
this way is the fact that, upon termination of mining operations on one mine, the miner must explore for and locate
another mine to remain in the business. The same is equally true of the quarry-master, who must look for alternative
sources of product. The exploration costs, though they may be abortive, must therefore be viewed as part of the costs
of acquiring stock-in-trade. This would necessitate bringing to account as assessable income the proceeds of sale of
any quarry acquired by a taxpayer who has received a deduction in the past in respect of exploration expenditure. As
with general mining, the Committee sees no reason for restricting the class or source of income against which
deduction may be made.