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6.3.3. Rights and Natural Resource Licences

Mining, quarrying and prospecting rights are depreciable.

Taxation Determination (TD) 2019/1 issued on 13 February 2019 has clarified the meaning of “use” (and potentially first use)” in relation to a mining, quarrying or prospecting right (MQPR) which is a depreciating asset, for the purpose of claiming depreciation. Under the tax law, generally a deduction is provided for the decline in value of a depreciating asset over the asset's effective life. However, in case of these assets, the decline in value of such asset is the asset's cost, subject to following conditions:

  • the taxpayer is required to first 'use' the asset for exploration or prospecting for minerals, or quarry materials, and
  • when the taxpayer first uses the asset, they do not 'use' it for development drilling for petroleum, or operations in the course of working a mining property, quarrying property or petroleum field.

The term “use” is explained as below:

  • The use of MQPR includes undertaking of activities permitted/ authorized by the MQPR as also all the activities/ actions covered under the terms of granting of MQPR.
  • Merely holding, or meeting the conditions to hold, or retain, an MQPR does not constitute a 'use' of it.
  • Activities that are neither permitted nor authorised by the MQPR, or that which can be undertaken without holding the MQPR, are not a 'use' of the MQPR.
  • If another entity (for example, a joint venture partner or a contractor) who is authorised by the holder, does an activity on its behalf, it is considered as a “use” by the holder.
  • There is no explicit requirement that the 'use' must exploit the inherent characteristics of the MQPR. However, a trivial act does not constitute “use”. In other words, “use” of the asset should consist of reasonably significant activity.

The Taxation Determination is applicable to the years commencing both before and after 13 February 2019, except the cases in which it conflicts with the terms of a settlement of a dispute agreed to before this date.