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INCOME TAX ASSESSMENT ACT 1997 - SECT 40.1100

Meaning of farm-in farm-out arrangement and exploration benefit

             (1)  A farm-in farm-out arrangement is an * arrangement under which:

                     (a)  an entity (the transferor ) transfers, or agrees to transfer, part of the entity's interest in a * mining, quarrying or prospecting right to another entity (the transferee ); and

                     (b)  in exchange for the transfer, the transferee provides to the transferor one or more * exploration benefits.

             (2)  The transferee provides an exploration benefit to the transferor if:

                     (a)  the transferee:

                              (i)  conducts * exploration or prospecting for * minerals, or quarry materials, obtainable by * mining and quarrying operations; or

                             (ii)  undertakes to conduct exploration or prospecting for minerals, or quarry materials, obtainable by mining and quarrying operations; or

                            (iii)  funds, on the transferor's behalf, expenditure that the transferor incurs in relation to exploration or prospecting by the transferor or another entity (other than the transferee); or

                            (iv)  undertakes to fund, on the transferor's behalf, expenditure that the transferor incurs in relation to exploration or prospecting by the transferor or another entity (other than the transferee); and

                     (b)  the exploration or prospecting relates to the part of the transferor's interest in the * mining, quarrying or prospecting right that the transferor does not transfer, or agree to transfer, under the arrangement; and

                     (c)  in a case where the transferor conducts the exploration or prospecting--expenditure incurred by the transferor relating to the exploration or prospecting is:

                              (i)  included in the * cost of * mining, quarrying or prospecting information * held by the transferor; or

                             (ii)  included in any other * depreciating asset, held by the transferor, for which the decline in value is provided under section 40-80; or

                            (iii)  expenditure, of a kind referred to in subsection 40-730(1), that meets the requirements of subsection (3) of this section; and

                     (d)  in a case where the transferor does not conduct the exploration or prospecting--were the transferor to conduct the exploration or prospecting, expenditure incurred by the transferor relating to the exploration or prospecting would:

                              (i)  be included in the cost of mining, quarrying or prospecting information held by the transferor; or

                             (ii)  be included in any other depreciating asset, held by the transferor, for which the decline in value is provided under section 40-80; or

                            (iii)  be expenditure, of a kind referred to in subsection 40-730(1), that meets the requirements of subsection (3) of this section.

             (3)  Expenditure meets the requirements of this subsection if:

                     (a)  for that expenditure, the transferor satisfies, or would satisfy, one or more of paragraphs 40-730(1)(a) to (c); and

                     (b)  the expenditure is not of a kind referred to in subsection 40-730(2) or (3); and

                     (c)  the expenditure is not of a kind that another provision of this Act provides is not deductible.

Consequences for transferors



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