General Mining

19.A36. Deduction for expenditure incurred in extraction, treatment and storage of minerals is provided for under Division 10 of the Act. In general, this Division allows a deduction for the cost of developmental works which would not qualify for any deduction under the normal depreciation provisions. The expenditure qualifying for deductions is provided for under the various categories of ‘allowable capital expenditure’ defined by section 122A. Some of these categories are:

  • (a) expenditure incurred in the preparation of a site, on buildings, and other improvements and plant necessary for carrying on the mining operations;
  • (b) expenditure on light, water and communications connected with the site and on ‘housing and welfare’ as defined in section 122 (1);

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    (c) treatment plant, storage facilities and buildings/plant connected therewith (‘treatment’ is restrictively defined in section 122(1)); and
  • (d) the costs of acquisition of a mining right or prospecting information.

The expenditure must in general be incurred by an enterprise that is in the course of conducting mining operations in Australia for the extraction of minerals, other than petroleum, from their natural site. These mining operations must be carried on for the purpose of producing assessable income; but in contrast to the position with regard to exploration expenditure under section 122J, the deduction is allowed against income generated from activities other than mining. ‘Mining operations’ in general covers the extractive process up to the stage where the mineral is obtained in manageable lumps.

19.A37. The categories of expenditure outlined above may be claimed as a deduction by writing off that expenditure over the estimated life of the mine to which it relates or over a term of twenty-five years, whichever is the less (section 122D).

19.A38. Alternatively, a taxpayer may elect to have the normal depreciation provisions applied to expenditure on a ‘unit of plant’ instead of having that expenditure deducted in accordance with Division 10. The annual rate of depreciation of any unit of plant is determined by the Commissioner on the basis of the effective life of the unit. This rate is increased by 50 per cent if depreciation is claimed on the diminishing value method.

19.A39. Certain categories of expenditure are expressly excluded from the ambit of the provisions outlined above:

  • (a) ships, railway rolling stock or road vehicles, or railway lines, roads, pipelines or other facilities used for the transportation of minerals (other than wholly within the mine site);
  • (b) buildings or other improvements in port facilities and other facilities for ships and port employees; and
  • (c) office buildings not on or adjacent to the site of mining operations.

Some of these items are depreciable in accordance with the normal depreciation provisions but others, particularly those items of expenditure under categories (b) and (c), are not deductible at all.

19.A40. The amortisation deduction under section 122D is a manifestation of the recognition that the profits of a mining venture cannot be effectively gauged for accounting or tax purposes until provision has been made for the recoupment from profits of capital employed in the venture.

19.A41. Under section 122 (3), the taxpayer has a distinct ‘residual capital expenditure’ in respect of each mining property on which he carries on prescribed mining operations. The deduction allowed under section 122D may not exceed net assessable income unless the taxpayer so elects, thereby allowing himself access to the loss provisions under section 80.

19.A42. Railways, roads, pipelines. Division 10AAA provides for deductions to be allowed over a period of twenty years for capital expenditure incurred on certain facilities used primarily and principally to transport minerals or products of minerals mined in Australia or Papua New Guinea for the purpose of producing assessable income. These facilities are defined in section 123 (2).

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19.A43. The deduction is available in respect of the undeducted capital expenditure incurred after 17 September 1974 on the cost of an eligible railway, road, pipeline or other facility used for the transport of minerals. If such expenditure was incurred between 1 July 1961 and 17 September 1974, it is deductible over a ten-year period under section 123B (1). Expenditure on earthworks, bridges, tunnels and cuttings necessary for a railway, road, pipeline or other facilities is deductible as is that incurred in obtaining a right to install a railway, etc. on land owned by another. Compensation payments (for damage or loss due to construction of a railway, etc.) fall within the ambit of this Division and are deductible. Deductions are available for the transport facilities even though they are used to transport materials resulting from the treatment or further processing of certain minerals.

19.A44. The cost of transport facilities used wholly within the mine site which is deductible under Division 10 is not deductible under Division 10AAA; nor are petroleum transport facilities where the transport forms part of petroleum mining operations which are deductible under Division 10AA (see below).

19.A45. A taxpayer may claim a deduction under Division 10AAA even though not himself engaged in mining operations which produce the minerals being transported.

19.A46. Any expenditure eligible for deduction under this Division is deductible in equal instalments over twenty years, commencing with the first year in which the facility is used to transport minerals or their products for the purpose of gaining assessable income.

19.A47. Expenditure on railway rolling-stock, road vehicles and ships is specifically excluded from the application of the Division. If rolling-stock and vehicles are used for transport wholly within the mine site, a deduction may be available under Division 10; if not, they (in addition to ships) are depreciable under sections 54 to 62.

19.A48. No deductions are available with respect to expenditure on ports and port facilities.


19.A49. The provisions relating to expenditure incurred in prospecting and mining for petroleum are set out in Division 10AA. As with general mining, this applies to operations conducted on the continental shelf, as the definition of ‘Australia’ includes the Australian continental shelf, Papua New Guinea and the continental shelf of that Territory.

19.A50. The scheme of the deductions for capital expenditure incurred in development is the same as that applying under Division 10 in relation to general mining. Certain items of capital expenditure incurred in carrying on prescribed petroleum operations are deductible over the life of the petroleum field, or twenty-five years, whichever is the less. These items are set out in section 124AA and include:

  • (a) The cost of acquiring a ‘petroleum prospecting or mining right’ or ‘petroleum prospecting or mining information’, where the parties to the sale have elected that the deduction entitlement should be transferred from the vendor to the purchaser.
  • (b) Capital expenditure incurred at any time in prospecting or mining operations in Australia for the purpose of obtaining petroleum or on plant necessary for carrying out these operations. This embraces development expenditure incurred in drilling and pumping.

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    (c) The cost of providing residential accommodation for employees when that accommodation is situated on or adjacent to the site.
  • (d) The cost of providing health, educational, recreational or other similar facilities or facilities for the supply of meals on or adjacent to the site (where provided principally for employees and their dependants and not for the purpose of profit-making).

19.A51. The categories of expenditure not allowed are set out in section 124AA and include:

  • (a) costs incurred on transport facilities which qualify for deduction under Division 10AAA (see above); and
  • (b) ships, railway rolling-stock and road vehicles used for the purpose of transporting petroleum, and refinery plant. These items are subject to depreciation under the normal provisions relating to depreciation.

19.A52. The deduction for accrued residual capital expenditure in any year is limited to the amount of net assessable income from petroleum derived in that year. Any excess is added to the residual capital expenditure deductible in future years. As with general mining, a taxpayer may elect, under section 124AG, that the normal depreciation provisions apply to plant.

19.A53. Sale of prospecting or mining rights or information. As with the general mining sections, provision is made whereby the parties to the sale/acquisition of mining rights or information may elect to transfer from the vendor to the purchaser an amount of undeducted allowable capital expenditure up to or equivalent to the consideration paid by the purchaser.

19.A54. Section 122B (general mining) and section 124AB (petroleum mining) were added to enable the purchaser of a mining right or information to obtain a deduction in respect of at least some part of the cost incurred by him. Under both sections, by giving notice to the Commissioner, certain allowable capital expenditure which would eventually have been deductible by the vendor will, to the extent of the amount nominated, but not exceeding the purchaser's expenditure in acquiring the mining rights, be deductible by the purchaser over the life of the mine or petroleum field, as the case may be. The vendor's allowable capital expenditure is correspondingly reduced.

19.A55. Disposal of mining and petroleum mining assets. Sections 122K and 124AM provide for balancing adjustments where assets in respect of which deductions have been granted on one of the special bases are sold, lost or destroyed.