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Australian explorers renew call for flow-through tax credit

Australian explorers have again urged the federal government to follow Canada's lead and adopt a flow-through share scheme following the decision to scrap the Exploration Development Incentive, or EDI.

Association of Mining and Exploration Companies, or AMEC, CEO Simon Bennison said a flow-through tax credit "must be adopted to address market failures for capital allocation to greenfield minerals exploration."

"The success of the Canadian system is very clear," he told delegates June 7 at the AMEC Convention in Perth, Australia. "It makes no sense that Australia does not emulate this initiative."

The government announced in May its decision to drop the three-year scheme because of low participation by junior exploration companies.

According to AMEC, the review undertaken by the government was not transparent and built on very limited information.

The organization also noted that the government will not give industry a copy of the review and there was limited public consultation before the decision was made.

"The decision by the minister to not extend the [EDI] came as a surprise to industry on the back of a review process that has not been at all transparent and based on an extremely thin dataset," Bennison said.

Federal Resources Minister Matthew Canavan told reporters on the sidelines of the convention that the government did not receive many submissions from industry during the review process.

"We didn't receive that many submissions in the review, but we had actively tried to encourage submissions from all registered participants," he said.

"Ultimately we made a decision that it was better to try and move on from this scheme, which simply was not meeting its objectives."

The original idea behind the EDI was to have something similar to Canada's flow-through share scheme, which basically allows investors to claim a tax deduction when they invest in junior explorers.

However, what was implemented by the Australian government in mid-2014 was a modified version that was capped at A$100 million over three years.

The main problem with the initiative was that, instead of junior explorers being able to promise investors at the time they conducted a capital raising that they would receive EDI credits, companies had to apply to the scheme and wait until the end of the financial year to find out how much shareholders would get back.

However, Canavan offered the industry a "clean slate" to put forward proposals for a more effective scheme.

"I realize and recognize the sector had put up a number of proposals to modify the existing [EDI] scheme, but our view is those weren't going to fundamentally change the outcomes of the scheme and it is better now to try and work on something new," he said.

A flow-through tax credit will be among the options considered by the government.

"I'm aware of the industry's views that the scheme in Canada is more effective," Canavan said. "It certainly has a lot fewer restraints and restrictions than the scheme we had in place here in Australia. So I am happy to look at that, but I am genuinely offering a clean slate."

Meanwhile, Western Australian Mines Minister Bill Johnston told reporters that the state government will work with industry on an alternative to the EDI.

"I take with interest the minister's comments and certainly will look to work with industry to try and find a way forward on the issue," he said.