Prospecting for tax deductions

The ATO consolidates and clarifies its views about when exploration and prospecting costs are immediately deductible


The Commissioner of Taxation has released TR 2015/D4 - Income Tax: deductions for mining and petroleum exploration expenditure (Draft Ruling).

In the Draft Ruling, the Commissioner provides further detail on how he considers expenditure is treated under section 40-730 of the Income Tax Assessment Act 1997 (ITAA 1997). Section 40-730 provides an immediate deduction for certain expenditure relating to exploration or prospecting for minerals (including petroleum).

The Draft Ruling highlights that the Commissioner will focus on the actual substance of the expenditure and the purpose behind it in the context of exploration or prospecting. On this basis, understanding the definitions contained within section 40-730 becomes critical to understanding how to obtain deductions under this section.