Income Tax Assessment Amendment Act (No. 3) 1977

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INCOME TAX ASSESSMENT AMENDMENT ACT (No. 3) 1977

No. 127 of 1977

An Act to amend the law relating to income tax.

BE IT ENACTED by the Queen, and the Senate and House of Representatives of the Commonwealth of Australia, as follows:

Short title, &c.

1. (1) This Act may be cited as the Income Tax Assessment Amendment Act (No. 3) 1977.

(2) The Income Tax Assessment Act 1936 is in this Act referred to as the Principal Act.

Commencement

2. This Act shall come into operation on the day on which it receives the Royal Assent.

Exemptions

3. (1) Section 23 of the Principal Act is amended by inserting after paragraph (o) the following paragraph:

“(pa) income derived by a person from the sale, transfer or assignment by the person of his rights to mine, in a particular area in Australia, for gold or for any prescribed metal or prescribed mineral, being a person who is a bona fide prospector, that is

to say—

(i) a person (other than a company) who has personally carried out the whole or the major part of the field work of prospecting for gold or for the prescribed metal or prescribed mineral, as the case may be, in that area, or has contributed to the expenditure incurred in the work of prospecting and development in that area; or

(ii) a company which has itself carried out the whole or the major part of such field work,

except that—

(iii) where, under Division 10, or under the Division for which that Division was substituted, a deduction has been allowed or is allowable from the assessable income of the taxpayer of any year of income in respect of expenditure on exploration or prospecting in a particular area, this paragraph applies to so much only of the income of the taxpayer derived from the sale, transfer or assignment by him of rights to mine in that area as exceeds the sum of any deductions so allowed or allowable; and

(iv) this paragraph does not apply in respect of a sale, transfer or assignment of any right to mine for a metal or mineral, other than gold, if—

(a) any party or parties of the one part to the sale, transfer or assignment has or have the power (whether under the terms of the transaction or otherwise) to control, directly or indirectly, the entry into the transaction by, or the activities in connexion with the mining rights of, a party of the other part; or

(b) any person or persons has or have the power (whether under the terms of the transaction or otherwise) to control, directly or indirectly, the entry into the transaction by, or the activities in connexion with the mining rights of, a party of the one part and a party of the other part to the sale, transfer or assignment;

(2) The amendment made by sub-section (1) applies in relation to income derived after 26 October 1977 from the sale, transfer or assignment of rights to mine, other than income derived from the sale, transfer or assignment in pursuance of a contract made on or before that date.


(3) Except where regulations made for the purposes of paragraph 23(pa) of the Principal Act as amended by this Act otherwise provide, any metal or mineral specified in regulations prescribing metals and minerals for the purposes of paragraph 23(p) of the Income Tax Assessment Act 1936, as in force immediately before the commencement of the Income Tax Assessment Act (No. 5) 1973, is a prescribed metal or prescribed mineral, as the case may be, for the purposes of that first-mentioned paragraph.

Residual previous capital expenditure

4. Section 122c of the Principal Act is amended by adding at the end thereof the following sub-section:

“(3a) Where an amount of income derived by the taxpayer in a year of income, being the year of income of the taxpayer in which 27 October 1977 occurred or a subsequent year of income, (in this sub-section referred to as the ‘year of sale’) from the sale, transfer or assignment of rights to mine on any mining tenement is or has been exempt from income tax by virtue of paragraph (pa) of section 23 and, in relation to that tenement—

(a) any excess amounts of expenditure referred to in sub-section (3) of section 123aa of the Income Tax Assessment Act 1936-1967 have, under that sub-section, been required to be deemed to be expenditure in respect of which the taxpayer was entitled to a deduction under section 122 of that Act; or

(b) any excess amounts of expenditure referred to in sub-section (3) of section 122j of this Act have been or are required to be deemed to be allowable capital expenditure incurred in the year of sale or a prior year of income,

the residual previous capital expenditure of the taxpayer as at the end of the year of sale shall be reduced by so much of those excess amounts as has not been allowed, and is not allowable, as a deduction under section 122 of the Income Tax Assessment Act 1936-1967 or under section 122d of this Act, but so that the total amount of the reductions under this section shall not exceed the amount of the exempt income.

Exploration and prospecting expenditure

5. (1) Section 122j of the Principal Act is amended—

(a) by omitting from sub-section (3) “section 122e” and substituting “sections 122da and 122e”;

(b) by inserting after sub-section (3) the following sub-section:

“(3a) Where—

(a) an amount of income derived by the taxpayer in a year of income, being the year of income of the taxpayer in which 27 October 1977 occurred or a subsequent year of income, (in this sub-section referred to as the ‘year of sale’) from the sale, transfer or assignment of rights to mine on any mining tenement is or has been exempt from income tax by virtue of paragraph (pa) of section 23 of this Act; and

(b) in relation to that tenement, there are any excess amounts of expenditure referred to in sub-section (3) of this section that have not been, and are not required to be, deemed to be allowable capital expenditure incurred by the taxpayer in the year of sale or a prior year of income,

sub-section (3) of this section does not operate so as to require the taxpayer to be deemed to have incurred, as allowable capital expenditure, in any year of income after the year of sale, any part of those excess amounts that does not exceed the amount that remains after deducting from that exempt income the amount, if any, by which, in relation to that tenement, the residual previous capital expenditure of the taxpayer as at the end of the year of sale has been reduced under sub-section (3a) of section 122c.”; and

(c) by inserting after sub-section (4) the following sub-section:

“(4a) Where—

(a) an amount of income derived by the taxpayer in a year of income, being the year of income of the taxpayer in which 27 October 1977 occurred or a subsequent year of income, (in this sub-section referred to as the ‘year of sale’) from the sale, transfer or assignment of rights to mine on any mining tenement is or has been exempt from income tax by virtue of paragraph (pa) of section 23 of this Act; and


(b) in relation to that tenement there are any excess amounts of expenditure referred to in sub-section (4) that have not been, and are not required to be deemed, for the purposes of sub-section (1), to have been incurred by the taxpayer in the year of sale or in a prior year of income,

sub-section (4) does not operate so as to require the taxpayer to be deemed to have incurred, in any year of income after the year of sale, any part of those excess amounts that does not exceed so much of the amount of the exempt income as has not been applied—

(c) under sub-section (3a) of section 122c in reduction of the residual previous capital expenditure of the taxpayer as at the end of the year of sale; or

(d) under sub-section (3a) of this section in reduction of the amount of expenditure that, but for that sub-section, would be deemed to be allowable capital expenditure incurred by the taxpayer in any year of income after the year of sale.”.

(2) The amendment made by paragraph (1)(a) shall be deemed to have come into operation on 20 December 1976.

 

Overview

The Income Tax Assessment Amendment Act (No. 3) 1977 was enacted by the Queen, and the Senate and House of Representatives of the Commonwealth of Australia, to amend the law relating to income tax. It was introduced to address specific issues surrounding the taxation of income derived from the sale, transfer or assignment of mining rights, particularly for bona fide prospectors. This Act amends the Income Tax Assessment Act 1936 to provide tax exemptions for certain income related to mining rights and to make adjustments to the treatment of capital expenditure and allowable deductions for mining activities. The policy objective appears to be to provide clarity and relief to prospectors and mining companies in relation to the taxation of their mining-related income and expenses. This legislation came into operation on the day it received the Royal Assent, ensuring that the amendments were immediately applicable to the relevant taxpayers. The Act also includes provisions to ensure that the amendments apply to income derived after a specific date, 26 October 1977, and to regulate the application of certain exemptions and deductions to the residual previous capital expenditure of the taxpayer.

Scope and Application

The Income Tax Assessment Amendment Act (No. 3) 1977 amends the Income Tax Assessment Act 1936 to modify provisions related to income tax, specifically concerning income derived from the sale, transfer, or assignment of mining rights. The Act applies to individuals and companies who are bona fide prospectors in Australia, meaning those who have personally carried out significant prospecting activities for gold or specified metals and minerals, or companies that have done the same. The amendment introduces an exemption for bona fide prospectors from income tax on the income derived from the sale, transfer, or assignment of mining rights, subject to certain conditions such as the exclusion of controlled transactions. The Act's application is limited to income derived after 26 October 1977, and it specifies thresholds and conditions for the exemption to apply, including adjustments for prior deductions related to exploration or prospecting expenditure. The Act also details provisions for residual previous capital expenditure and adjustments to allowable capital expenditure incurred in relation to the sale of mining rights.

Key Provisions

The Income Tax Assessment Amendment Act (No. 3) 1977, as indicated in section 1, modifies the law concerning income tax. This Act is set to commence on the date it receives Royal Assent, as per section 2. Section 3 of the Act introduces a new paragraph (pa) to section 23 of the Principal Act, providing a tax exemption for bona fide prospectors who derive income from the sale, transfer, or assignment of mining rights. This exemption applies to individuals or companies that have personally or through their own efforts carried out the majority of prospecting activities or contributed to the costs of prospecting and development in the area. The exemption is subject to certain conditions, such as the limitation of the deduction to the portion of income that exceeds the sum of any allowable deductions. Moreover, the exemption does not apply if there is any form of control over the transaction or mining activities by a party to the sale or transfer. The Act, as amended by section 4, also addresses the issue of residual previous capital expenditure. Specifically, it provides for the reduction of residual previous capital expenditure by any excess amounts of expenditure that have not been allowed as a deduction under the specified sections of the Income Tax Assessment Act 1936-1967 or under section 122d of the Principal Act, but only to the extent that it does not exceed the amount of the exempt income derived from the sale of mining rights. Furthermore, section 5 of the Act amends section 122j of the Principal Act by modifying the references within the subsections and introducing new subsections (3a) and (4a). These amendments ensure that excess amounts of expenditure related to prospecting are not deemed to be allowable capital expenditure in any year of income following the year of sale, unless the amounts have not been applied under the relevant subsections in reduction of residual previous capital expenditure or the amount of expenditure deemed to be allowable capital expenditure. The Act imposes obligations on taxpayers who derive income from the sale, transfer, or assignment of mining rights to ensure that they are aware of the tax exemptions and the conditions that apply, as well as the adjustments to residual previous capital expenditure. Failure to comply with the provisions of this Act could result in unintended tax liabilities or the disallowance of deductions that should have been applied. The Act does not explicitly state any offences, penalties, or consequences for breach; however, the general tax laws and administrative measures would apply in the event of non-compliance.

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