Examples of how farm-in concessions apply

The following examples will help you understand how the transfer duty farm-in concessions apply in certain circumstances, and how eligibility for them are affected by later events.

Example 1

B and C enter into a written agreement, in which C agrees to undertake certain exploration and development activities over a defined area.

Under the agreement, C has the opportunity to earn a 20% interest in 2 exploration authorities by spending $1 million on exploration and development activities (the exploration amount) and other costs associated with the management of the exploration area (including paying legal, administration and management fees) within 9 months after the agreement is made (the expenditure completion date).

When B and C enter into the agreement, only 1 of the exploration authorities is granted, with the other being an application for an authority.

Initial assessment

Within 30 days after entering into the agreement, B and C must lodge the agreement and a completed Form D2.2 for assessment.

As only 1 of the exploration authorities is granted when the agreement is made, the agreement is a deferred farm-in agreement for the granted authority only. When the agreement is initially assessed for transfer duty, B and C may be required to apportion the $1 million to be spent between the exploration amount, other costs and the 2 exploration authorities to establish the amount that the concession will apply to. This is because eligibility for the concessions is tested on the agreement when it is made, so it will only apply to the granted exploration authority.

Because the agreement is a farm-in agreement, no duty will apply when it is initially assessed because there is no other consideration paid or payable to B for entering into the agreement.

The concessions do not apply to the application for the exploration authority. Once the authority is granted and a 20% interest in it is transferred, transfer duty will be assessed on the greater of the consideration for the transfer, or the unencumbered value of the 20% interest in the authority.

If duty is assessed on the unencumbered value of the authority, B and C may be required to lodge independent evidence of value for the authority at the transfer date.

C spends the exploration amount by the expenditure completion date

If C spends $1 million on the exploration and development activities and other costs stated in the agreement within 9 months after the agreement is made, C must lodge the stamped agreement, the signed transfer for the 20% interest in the granted authority and a completed Form D2.2 within 30 days after the transfer is signed.

When lodging these documents for reassessment, B and C may be required to provide evidence of the exploration amount spent to confirm that the concessions was correctly claimed when the agreement was initially assessed.

When the agreement is reassessed, no transfer duty will apply to the exploration amount. However, it will apply to the amounts spent on legal, administration and management fees. For the reasons explained above, duty will also apply to the transfer of the 20% interest in the exploration authority that was originally an application when the agreement was made.

Example 2

X (the farmor) enters into an upfront farm-in agreement with Y (the farmee) in relation to an exploration authority. Prior to the agreement date, Y earned a 10% interest in the authority by completing a certain amount of expenditure. Under the agreement, Y has an opportunity to earn a further 50% interest in the authority by:

  • paying $100,000 to X on entry into the agreement
  • paying $100,000 to X for mining information on commencement of the work to earn the 50% interest
  • spending $1 million on exploration activity in a defined area within 1 year after the agreement date (expenditure completion date).

Initial assessment

Within 30 days after entering into the upfront farm-in agreement, X and Y must lodge the agreement and a completed Form D2.2 for assessment. The consideration for the agreement, including the exploration amount, is $1.2 million. Transfer duty will be initially assessed on the agreement on $100,000 - the amount paid for entering into the agreement.

The instrument to transfer a 50% interest in the exploration authority from X to Y also needs to be lodged for assessment, together with a completed Form D2.2, within 30 days after it is signed. No duty will apply to the initial transfer of the 50% interest, and the transfer instrument will be stamped accordingly for registration purposes.

Assessing the 10% interest transfer

The concessions will not apply to the transfer of the 10% interest in the authority because expenditure occurred before X and Y entered into the upfront farm-in agreement. Transfer duty will be assessed on the greater of the consideration for the transfer (including the amount of expenditure for the 10% interest) or the unencumbered value of the 10% interest in the exploration authority. If duty is assessed on the unencumbered value of the exploration authority, X and Y may be required to lodge independent evidence of value for the authority at the transfer date.

Y spends the exploration amount by the expenditure completion date

If Y spends $1 million on the exploration activities stated in the agreement within 1 year after the agreement is made, Y must lodge the stamped agreement and a completed Form D2.2 within 14 days after the amount is spent.

Transfer duty will be reassessed on the agreement on $200,000 - the sum of the amount paid for entering into the agreement and the amount paid for mining information. A credit will apply for duty previously paid on the agreement.

Y does not spend the exploration amount by the expenditure completion date

If Y does not spend $1 million on exploration activities within 1 year after the agreement is entered into, Y must lodge the stamped agreement and a completed Form D2.2 within 30 days after the expenditure completion date. Lodgement of these documents is required even if X and Y agree to extend the expenditure completion date.

If the expenditure completion date is not extended, Y must transfer the 50% interest in the exploration authority back to X. The retransfer will be exempt from duty.

If Y does not transfer the 50% interest in the exploration authority back to X, the agreement will be reassessed for transfer duty as if it were not a farm-in agreement. Duty will be reassessed on the greater of the consideration for the agreement or the unencumbered value of a 50% interest in the exploration authority. A credit will apply for duty previously paid on the agreement.

Contact

Office of State Revenue

  • Call 1300 300 734 (Australia) or
    +61 7 3179 2500 (overseas)
  • Send an email using our online enquiry form.