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New Zealand

19.A27. The outlay by a mining enterprise on both exploration and development is deductible in the year in which it is incurred. The capital expenditure provisions under relevant New Zealand legislation allow mining companies a deduction for exploration and development expenditure incurred and those companies are subject to income tax on mining income at only two-thirds of the rate applicable to other companies. This includes expenditure incurred as consideration paid or payable for the acquisition of an asset. This situation extends to certain specified minerals and petroleum. In relation to specified minerals, the concession applies to the accumulation, processing to the stage of concentration, and transport of the products to the stage where they are in saleable form and at a location suitable for acquisition by a purchaser or are ready to be processed beyond concentration, or used in a manufacturing operation.

19.A28. There is little restriction on the nature of capital expenditure by a mining company that qualifies for deduction: the entire outlay on exploration and development is deductible. Section 153F (12) requires the salvage value of any mining asset disposed of subsequently (or transferred to non-mining activities) to be returned as assessable mining income at that stage.

Mining Companies

19.A29. Section 153F provides the basis of assessment of mining companies and states that the assessable income is to be divided into mining and non-mining income. These special mining provisions apply only to New Zealand companies whose sole or principal source of income is mining in New Zealand for specified minerals and/or petroleum, or exploration and searching for minerals or petroleum for a reward related to and dependent on production or participation in profits from production of any specified mineral and/or petroleum.

19.A30. Mining expenditure is allowed first against assessable mining income of that same year, and two-thirds of any excess against other assessable income derived in that year. Any excess of non-mining expenditure over non-mining assessable income is allowed in full against mining income.

19.A31. Loss carry-forward. There is no time-limit on the availability of past losses for set-off against subsequent profits. Where mining expenditure is carried forward as a loss against income of a subsequent year, or past non-mining losses are carried forward against mining income, that carried-forward loss takes into account the differential in tax rates between mining and non-mining income. Such losses are offset firstly against the same class of income in that subsequent year and any excess mining loss then allowed against non-mining income. In such an event the balance of any non-mining loss available for carry forward is reduced by 150 per cent of the mining loss deducted from non-mining income.

19.A32. Appropriations. Either a mining company or a non-resident mining operator may appropriate income for expenditure within two years on exploration and development and may elect to claim a deduction of that amount against the income of the year to which those appropriated profits relate. The amount so allowed as a deduction is treated as assessable income of the succeeding year. The relevant expenditure incurred may be claimed as a deduction in that succeeding year, subject to a further right to claim as a deduction in that year any unexpended portion of that initial appropriation and, subject to the same general terms, make any new appropriations in respect of the succeeding two-year period. This will not apply if the result

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would be to put the taxpayer into a loss situation for the year's result overall. The effect of this provision, it will be noted, resembles the former section 122G of the Australian Act, except that the latter applied essentially to development expenditure. Such an appropriation provision enables a company to preserve its liquidity during the exploration stage of a mining venture in anticipation of substantial capital outlay.

Mining Operators

19.A33. Section 153J covers the tax position of those New Zealand residents who do not come within the definition of a mining company but are engaged in or propose engaging in mining or associated operations as a business. Exploration and development expenditure is deductible as for mining companies but there is no deduction available for appropriations. The concessional tax rate does not apply to mining income. Mining losses are firstly to be offset against mining income of any year, with any excess available to be offset against other income. There is a restriction that a mining loss can be offset only as to 50 per cent against other income in any income year. Where a non-mining loss is offset against mining income, there is no such restriction.

Non-resident Mining Operators

19.A34. Section 153K covers all non-resident persons (individuals and companies) engaged in New Zealand in a business venture principally involving mining operations. Exploration and development expenditure is deductible in similar fashion to resident mining companies, as also are amounts appropriated for such expenditure in the event that an election to that effect is made. The total income of non-resident operators relating to mining activities is taxable separately at the flat rate of 45 cents in the dollar.

19.A35. It will be observed that the New Zealand provisions do not discriminate between development and exploration costs, as immediate write-off is available in respect of each category. Further, the availability of a limited right of set-off of mining expenditure against non-mining income serves to ensure that mining exploration concessions may be available to, and utilised by, enterprises engaged in other businesses and infant mining enterprises for which the right of unlimited loss carry-forward preserves the value of accrued deductions for exploration expenditure.