Mining and Prospecting

Chapter
Chapter 25
25
Mining
Mining and
and prospecting
prospecting
allowances
allowances
Mining expenditure
Qualifying mining expenditure (QME) in related of
working of mine, would be given mining allowances
as a revenue expense against gross income.
Preferential treatment for (QME) is to assist operator
to be more competitive and efficient in mining
business.
Mining allowance > income, current year business
losses will be available against any other income.
Qualifying Mining Expenditure (QME)
QME is expenditure incurred in connection with the

working of mine or in preparation for working of
mine.
Expenditure as QME
Expenditure on:
1. Acquisition of mine or rights on or over the mine.
2. Searching for, or discovering and testing or winning
access to deposits of minerals.
3. Construction of any works or building which when
the mine ceases to be worked.
4. Development, general admin or management before
the production of mine begin or during any period
when mine are not being proceed.
QME
Acquisition of
NOT
land which Expenditure incurred
contain of mine. ‘in connection’ or ‘in preparation
for’ working of mine
REMEMBER THAT!!
Definitions
Estimated life : No. of years for the life of mine fixed from
time to time by DG.
Residual expenditure : Total QME incurred in respect of
mine before the date by operator, reduce the amount of mining
allowance and recovered expenditure.
QME XX
Less: mining allowance (X)
: recovered expenditure (X)
RE X
Residual life : No. of years of estimated life of mine
remaining at that date.
Mine : Source of minerals over which mining are,
have been or may lawfully be carried on.
Minerals : mineral and mineral substances.
Mining operations : operations that include every
method or process which minerals are won or
obtained.
MINING
Mining allowance for accounting period,
more or less than 12 months
Mining allowance are determine as follows:
RE at the end of period shall be divided by residual life at
beginning of that period.
Resulting figure shall be increase or decrease in the same
proportion as the length of that accounting period bears to a
period of 12months and shall then constitute the amount of
the deduction.
For existing mining business, any new acquisition of
mine that YA<12months, no apportionment by time
is required. Full year MA is given.
For 1st mining business that YA<12months:

~ MA will be compute on full year basis and need to
apportion by time.
Recovered expenditure
A consideration (monetary or non-monetary)
received in respect of the sale or transfer of any
mining asset or part of a mining asset.
It is deducted in arriving residual expenditure.
Recovered expenditure include:
Consideration received at the date of transfer of a

mining asset.
Consideration received on granting any right in or
over the mine or any part of the mine.
Any amount of property receive by way of
compensation or otherwise for any QME incurred
by person in connection with the working of mine.
Tax treatment on recovered expenditure
RE exceeds recovered RE less than recovered

expenditure expenditure
On date of transfer of an asset, RE Recovered expenditure exceeds the

exceeds the difference between: aggregate of the RE at the beginning of
a) total amount of all operator’s the basis period.
recovered expenditure received &
and QME during the period excess the amount
b) Total amount of all his recovered in gross income of mining business for
expenditure received prior to that date. that basis period
The excess is allowable deduction The transferee will be able to claim
under s34 MA based on QME incurred on
transfer.
Cessation of working
Person permanently ceases to work in a mine.
The recovered expenditure received after date of cessation is
treated as having been received on the date of cessation.
Recomputed the mining allowance.
Mining operation > 5 years : spreading to the 5
immediately preceding YAs and also the final basis period
(the cessation occur).
Mining operation < 5 years : based on actual number of
year.
Expenditure on prospecting operations
To encourage mine operator to embark into searching

and discovering workable mine.
Unabsorbed prospecting expenditure would be

carried forward to future years for set off with no
time limit.
Qualifying prospecting expenditure
Expenditure that wholly and exclusively incurred in

a) Searching for or
b) Discovering or
c) Winning access to deposits of minerals in an
eligible area or in testing any such deposit.
Not include expenditure incurred on
acquisition of:
NO!!!
The site of the source of deposits.

The site of any works which are likely to be of
little or no value when the source is no longer
worked.
The rights in or over such site.
Rights in or over the deposits.
Procedures to claim qualifying prospecting
expenditure.
An election to claim in a return of his income.

The owner must have incurred such qualifying
prospecting expenditure.
The owner may:
Claim prospecting expenditure as and when it was
incurred.
Accumulate the prospecting expenditure up to the
stage of abortive.
Eligible area
When eligible area turns to be successful, mining
license would then be issued.
The person would be entitled to claim mining
allowances.
Treatment of gross income
When prospecting expenditure has been claim,
such expenditure will be charged to tax under
s43(1)(c) for the YA to arrive at aggregate income.
The prospector will be allowed to claim for mining
allowance.
Net prospecting expenditure
The qualifying prospecting expenditure would be

reduced by the following receipt:
Sales of rights
Grant or other payment by Government, State
Government, or Statutory Authority.

Mining and Prospecting

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Mining and Prospecting

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Chapter

QME is expenditure incurred in connection with the

For 1st mining business that YA<12months:

Consideration received at the date of transfer of a

RE exceeds recovered RE less than recovered

On date of transfer of an asset, RE Recovered expenditure exceeds the

To encourage mine operator to embark into searching

Unabsorbed prospecting expenditure would be

Expenditure that wholly and exclusively incurred in

The site of the source of deposits.

An election to claim in a return of his income.

The qualifying prospecting expenditure would be

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