This ruling provides guidance on the Commissioner’s interpretation of exploration for the purposes of farm-in transactions and farm-in agreements.
The Duties Act 2008 (Duties Act) contains specific provisions for assessing farm-in transactions in Chapter 2 Part 5 Division 9.
A farmor is a person who holds a mining tenement, an interest in a mining tenement, or a derivative mining right over a mining tenement.
A farmee is a person who enters into an agreement with the farmor (a farm-in transaction) to fulfil an exploration requirement on the tenement in exchange for an interest in the tenement, or a derivative mining right that relates to the tenement, or an interest in the farmor’s derivative mining right.
A farm-in agreement is an agreement between a farmor and farmee that contains at least one farm-in transaction. It may also contain other types of transactions such as an agreement to transfer an interest in a mining tenement, or the grant of an option to acquire an interest in a mining tenement.
An exploration requirement is a requirement to:
- expend, on exploration carried out by the farmee, an amount specified in, or determined in accordance with, the farm-in transaction and/or
- carry out exploration as specified in, or determined in accordance with, the farm-in transaction
after the farm-in transaction is made.
For the purposes of a farm-in transaction or agreement, exploration includes development carried out solely:
- for the purpose of facilitating exploration or
- otherwise incidentally to exploration
but not capital expenditure for the development of a mining infrastructure or mining operations.
The Commissioner may allow expenditure on administrative costs that would not otherwise be regarded as expenditure on exploration to be treated as if it were spent on exploration, subject to any limits or other conditions imposed by the Commissioner. See Commissioner’s Practice DA 54 for information on these limits and conditions.
This revenue ruling deals with:
- meaning of 'exploration'
- development for the purposes of facilitating exploration
- Farm-in transactions with multiple farmors
