Examples of how farm-in concessions apply

Deferred farm-in agreement

BCB and GHG enter into a written agreement in which GHG agrees to undertake certain exploration and development activities over a defined area.

Under the agreement, GHG 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 BCB and GHG 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, BCB and GHG must lodge the agreement and a completed dutiable transaction statement (Form D2.2) for assessment.

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

GHG spends the exploration amount by the expenditure completion date

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

When lodging these documents for reassessment, BCB and GHG may be required to provide evidence of the exploration amount spent to confirm that the concessions were 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.

Upfront farm-in agreement

• paying $100,000 to XMA on entry into the agreement
• paying $100,000 to XMA 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, XMA and YPG must lodge the agreement and a completed dutiable transaction statement (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 XMA to YPG 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 XMA and YPG 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, XMA and YPG may be required to lodge independent evidence of value for the authority at the transfer date.

YPG spends the exploration amount by the expenditure completion date

If YPG spends $1 million on the exploration activities stated in the agreement within 1 year after the agreement is made, it must lodge the stamped agreement and a completed dutiable transaction statement (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.

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

If YPG does not spend $1 million on exploration activities within 1 year after the agreement is entered into, it must lodge the stamped agreement and a completed dutiable transaction statement (Form D2.2) within 30 days after the expenditure completion date. These documents must be lodged even if XMA and YPG agree to extend the expenditure completion date.

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

If YPG does not transfer the 50% interest in the exploration authority back to XMA, 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.

Also consider…

• Understand how transfer duty applies to farm-in agreements.
• Read about eligibility for the concession.
• Find out how to apply.