Australian Income Tax bill introduced - tenement realignments and farm-ins/farm-outs

On 25 June 2015, the Australian Government introduced a tax bill (Tax and Superannuation Laws Amendment (2015 Measures No 2) Bill 2015) to Parliament dealing with tenement realignment and farm-in-farm-outs.

Broadly, upon enactment of the bill the following rules will apply (retrospectively from 14 May 2013):

1. There will be an income tax roll-over for tenement swaps undertaken to align ownership of tenements to facilitate a joint project – this reduces the need for complicated contractual (synthetic) arrangements in many circumstances although stamp duty will still be an impediment for onshore deals; and
2. The income tax farm-in tax rulings will be codified in the Australian tax legislation so in essence where there is a farm-in the farmor will only be subject to Australian tax on cash consideration/reimbursement of expenses and the farmee will be allowed a deduction for all expenditure it incurs/funds on exploration to earn its interest – this greatly simplifies the tax treatment of these arrangements.”  

For further information, please contact Narelle McBride, Director, Greenwoods & Herbert Smith Freehills or your usual Herbert Smith Freehills contact.