The rules apply to exploration for, and development of mines, and the physical mining of the minerals.
The new rules:
- cover the 50 specified minerals that can be mined in New Zealand. The most commonly mined minerals are gold, silver and iron sands
- align the tax treatment of mineral mining more closely to the tax treatment given to other business activities, while still meeting the unique aspects of mineral mining
- apply to all entities including companies and individuals when their main source of income or business activity is mineral mining.
Deductions for mining expenditure
There is a deduction for mining expenditure in some of the specific phases of the mining process.
| If the deduction is for ... | then expenditure is ... |
|---|---|
| prospecting | immediately deductible. |
| exploration | immediately deductible (see below"). |
| development | capitalised and deductible over the life of the mine. |
| rehabilitation | deductible in the year it was incurred. |
When you buy an asset for the purpose of exploration, the amount claimed as a deduction is added back as income. You then claim a deduction over the life of the mine as if it were developmental expenditure.
Treatment of land or interest in land
Land used for mining is treated as revenue account property. This means that you account for both:
- income received from the disposal of the land
- expenditure incurred in acquiring the land
in the income year the land is disposed of.
Treatment of mineral mining assets
An amount received for the disposal of mineral mining assets is income. Land is not a mineral mining asset.
Mineral mining assets are:
- mining or prospecting rights
- exploration
- prospecting or mining permits
including an interest or share in any of these.
An immediate deduction is allowed for expenditure incurred in acquiring a mineral mining asset, if the asset was acquired before a mining permit was obtained for the mining area.
If the mineral mining asset was acquired after a mining permit was obtained the expenditure is spread over the life of the mine.
Converting losses into refundable tax credits
Rehabilitation expenditure, mining development expenditure or loss on disposal of land can occur when mining operations end. In the mine's final years there may not be sufficient income to be offset against this expenditure or loss.
The result for that tax year is a net income loss from mining.
The loss can be converted into a tax credit, which is refundable. The tax credit cannot exceed the total amount of tax paid on income from the same mine.
Spreading expenditure over the life of the mine
A mineral miner has two options for calculating the depreciation of mining development expenditure which is spread over the life of the mine.
- If they use IFRS rules to prepare their financial statements or have sufficient records to verify their calculation they can chose to calculate the depreciation using a unit of production method, based on proven and probable reserves.
- Otherwise the miner can make a self-assessed determination, of the "assumed life" of the mine to calculate the depreciation of mining development expenditure over the life of the mine.
Tax Information Bulletin, Vol 26, No 4, May 2014, pages 33-39