The Federal Court has ruled in favour of the Australian Taxation Office (ATO) in disallowing a claim for exploration costs relating to the acquisition of mining licenses over undeveloped offshore oil fields.

Under Australian tax laws companies can deduct the cost of a mining, quarrying or prospecting right over its estimated life but where the right is first used for exploration or prospecting the whole amount is immediately tax deductible.

Due to the fact that the license acquired was a production license the Court ruled that the immediate deduction for exploration expenditure was not available. The Court ruled that the immediate deduction only applied to licenses that authorised no more than the carrying on of exploration activities. The Court made this decision even though the license allowed exploration activities to be carried out.

This decision is likely to have significant impact in the mining industry. Should you want to know more about please contact Murray Howlett from our Taxation Services Division on (07) 3023 1300.