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  ― 336 ―

Exempt Income

19.A94. Section 23 (o) exempts income derived from the working of a mining property in Australia or Papua New Guinea where, throughout the working life of the mine, it has been mined principally to obtain gold or gold and copper and where, in the latter case, the value of the gold obtained from the property is not less than 40 per cent of total output.

19.A95. This exemption was expressly inserted as an incentive to gold mining. Until 1973 the exemption extended to such exempt income (less outgoings incurred in its production) distributed by way of dividend to the shareholders of a company. It should be noted that a deduction for exploration and prospecting expenditure under section 122J and for capital expenditure under section 122D is not available where the expenditure is incurred in prospecting or mining for gold, since these deductions related only to assessable income. Furthermore, where mining operations are carried on for the production of income exempt under section 23 (o) in addition to (other) assessable income, apportionment of expenditure is provided for under section 122P. This latter section excludes from the deductions allowable in relation to income from pyrites (which is assessable) expenses that would have been incurred even had the income from pyrites not been derived. The form of the section has led to some consequences which were not intended but which, in any event, appear to be anomalous. Income derived from the ‘working of a mining property’, where the output of gold is of the required percentage of the total value of the output of the mine and is extracted by a cyanide process from soil which has been raised from the beds of gold mines and from which the visible gold has been removed, has been held to be exemptnote. On the other hand, there is the case of the holder of a gold-mining lease who crushed ore from his own gold-mining lease, and also ore he had purchased from other such leases in which he held an interest, upon a surface machinery area lease also held by him. After extraction of the gold by crushing, the residues were run off in the form of slimes or tailings which the taxpayer collected in dumps and by means of a cyanide process extracted the residual gold from them. This process, in so far as it was applied to the ore obtained from the other leases, was held not to be the ‘working of a mining property’ and the income derived from it was held to be taxable. A distinction was drawn between the phrases ‘the working of a mining property’ and ‘mining operations’. In the case in question, Dixon, C. J. observed:

‘The various provisions of the Income Tax Assessment Act 1936–1943 relating to mining were introduced on different occasions and do not pursue a policy worked out with precision. They must be construed as they are expressed.’note

Without casting any doubt upon the correctness of the two decisions, the criticism of the distinction between them implicit in the remarks of Dixon, C. J. illustrates the incongruity of the results produced by section 23 (o) in its present form. It is reasonable to suppose that the legislature, in enacting section 23 (o) was really aiming at encouraging the winning of gold in Australia. It was not concerned whether the gold was extracted by the taxpayer from ore taken from the soil of the mining lease held by him or was extracted by the taxpayer from ore taken from the soil of other mining leases.

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