Private ruling: Farm-in farm-out arrangement
Date of advice: 13 November 2020
Published: January 2021
Ruling period: 1 July 2020 to 30 June 2021 | 1 July 2021 to 30 June 2022 | 1 July 2022 to 30 June 2023 | 1 July 2023 to 30 June 2024

Ruling: Q1: Does a balancing adjustment event occur for a depreciating asset under subsection 40-295(1) of the Income Tax Assessment Act 1997 when Company A and Trustee for the XY Unit Trust transfer Licence A to Company C? | A1: Yes | Q2: Will the Farm-in Agreement between Company A, Company B, XY Unit Trust and Company C be a farm-in farm-out arrangement for the purposes of section 40-1100? | A2: Yes | Q3: For the purposes of the Uniform Capital Allowance (UCA) provisions in Division 40, the interest disposed of in Licence B (a post-UCA asset) and if the interests disposed of in Licence C, Licence D and Licence E are post-UCA assets: (a) will the termination value of the part interest in the above Tenements transferred to Company C be reduced by the value of the exploration benefit received pursuant to section 40-1105? | A7: No | Q4: If Licence C, Licence D and Licence E are pre-UCA assets, will the market value of any exploration benefits received be treated as zero when working out the capital proceeds from their disposal to Company C under subsection 116-115(1)? | A8: Yes | Q5: If Licence C, Licence D and Licence E are pre-UCA assets, will a capital gain arise under section 104-25 as a result of the contractual right created under the Farm-in Agreement and the subsequent satisfaction or partial satisfaction of the contractual right? | A9: No | Q6: Will any income that would be included in Company C's assessable income because it was a reward for providing exploration benefits be treated as non-assessable non-exempt (NANE) income pursuant to paragraph 40-1130(1)(b)? | A10: Yes | Q7: Will CGT event D1 under section 104-35 happen to cause a capital gain for Company C on creation of a right in each of Company A, Company B and XY Unit Trust to receive an exploration benefit? | A11: No | Q8: Will the depreciable cost of the transferred rights in the hands of Company C be reduced by the market value of the exploration benefits provided pursuant to paragraph 40-1130(1)(a)? | A12: Yes | Q9: Will subsection 40-730(3) apply to deny a deduction for known and ascertainable expenditure incurred by Company C under the Farm-in Agreement that are also exploration benefits? | A13: No | Q10: Having regard to the matters in subsection 177D(2) of the Income Tax Assessment Act 1936 (ITAA 1936), will the Commissioner make a determination under section 177F of the ITAA 1936 to cancel a tax benefit obtained by a party to the Farm-in Agreement in connection with that agreement? | A14: No

Relevant facts and circumstances: Company A, Company B and XY Unit Trust are Joint Venture Participants in exploration and mining joint ventures. Both Company A and Company B are Australian residents carrying on a business in Australia. XY Unit Trust is an Australian resident unit trust carrying on business in Australia. For the purposes of Division 40, the Joint Venture Participants hold a number licences as follows: • Licence A and Licence B, held by Company A and XY Unit Trust; and • Licence C, Licence D and Licence E, held by Company B and XY Unit Trust. These licences are not trading stock of their owners. Licence A is not part of the Farm-in Agreement and will be transferred for consideration to Company C prior to entering that agreement. Under the Farm-in Agreement, Company C is granted the sole and exclusive right to access and explore all of Licence B, Licence C, Licence D and Licence E (the Tenements ). Over a specified period from the IPO listing date, Company C will carry out the exploration in accordance with the Farm-in Agreement to earn up to a Z% interest in the Tenements. Company C was incorporated to undertake an initial public offering ( IPO ) to raise the capital. The capital raising will achieve two objectives. Firstly, to raise capital to accelerate the exploration of natural resources. Secondly, to bring in new investors to diversify the risk of their exploration activities. Alternatives to IPO The advisors to the Joint Venture Participants did consider the following as an alternative to the IPO: • the existing Joint Venture Participants to fund the exploration of the Tenements; and • the interests in the Tenements to be transferred for shares or cash (rather than through a Farm-in Agreement). These alternatives were not pursued for economic and commercial reasons. In summary, the main commercial drivers behind the decision to transfer interests in the Tenements pursuant to a Farm-in arrangement between the Joint Venture Participants and Company C are: (a) risk diversification; (b) financial capability; (c) funding the necessary technical and managerial skills to undertake the farm-in works required to continue the necessary exploration of the Tenements; (d) satisfying both ASX and investor requirements; (e) the advice of the IPO advisors; and (f) to the extent possible, to secure a successful IPO and listing on the ASX. Assumptions

Relevant legislative provisions: Income Tax Assessment Act 1936 Part IVA | Income Tax Assessment Act 1936 subsection 177D(2) | Income Tax Assessment Act 1936 section 177F | Income Tax Assessment Act 1997 Division 40 | Income Tax Assessment Act 1997 section 40-30 | Income Tax Assessment Act 1997 subsection 40-30(1) | Income Tax Assessment Act 1997 subsection 40-30(2) | Income Tax Assessment Act 1997 section 40-35 | Income Tax Assessment Act 1997 section 40-115 | Income Tax Assessment Act 1997 subsection 40-115(2) | Income Tax Assessment Act 1997 section 40-185 | Income Tax Assessment Act 1997 subsection 40-185(1) | Income Tax Assessment Act 1997 section 40-295 | Income Tax Assessment Act 1997 subsection 40-295(1) | Income Tax Assessment Act 1997 paragraph 40-295(1)(a) | Income Tax Assessment Act 1997 subsection 40-300(1) | Income Tax Assessment Act 1997 paragraph 40-300(1)(b) | Income Tax Assessment Act 1997 paragraph 40-305(1)(b) | Income Tax Assessment Act 1997 subsection 40-730(1) | Income Tax Assessment Act 1997 paragraph 40-730(1)(c) | Income Tax Assessment Act 1997 subsection 40-730(2) | Income Tax Assessment Act 1997 subsection 40-730(3) | Income Tax Assessment Act 1997 section 40-1100 | Income Tax Assessment Act 1997 subsection 40-1100(1) | Income Tax Assessment Act 1997 paragraph 40-1100(1)(a) | Income Tax Assessment Act 1997 paragraph 40-1100(1)(a) | Income Tax Assessment Act 1997 subsection 40-1100(2) | Income Tax Assessment Act 1997 subparagraph 40-1100(2)(a)(ii) | Income Tax Assessment Act 1997 paragraph 40-1100(2)(b) | Income Tax Assessment Act 1997 paragraph 40-1100(2)(c) | Income Tax Assessment Act 1997 paragraph 40-1100(2)(d) | Income Tax Assessment Act 1997 subsection 40-1100(3) | Income Tax Assessment Act 1997 section 40-1105 | Income Tax Assessment Act 1997 section 40-1110 | Income Tax Assessment Act 1997 paragraph 40-1110(c) | Income Tax Assessment Act 1997 paragraph 40-1110(d) | Income Tax Assessment Act 1997 section 40-1130 | Income Tax Assessment Act 1997 paragraph 40-1130(1)(a) | Income Tax Assessment Act 1997 paragraph 40-1130(1)(b) | Income Tax Assessment Act 1997 paragraph 40-1130(1)(c) | Income Tax Assessment Act 1997 section 104-25 | Income Tax Assessment Act 1997 section 104-35 | Income Tax Assessment Act 1997 paragraph 104-35(5)(g) | Income Tax Assessment Act 1997 subsection 116-115(1) | Income Tax Assessment Act 1997 subsection 116-115(2) | Income Tax Assessment Act 1997 section 118-24 | Income Tax Assessment Act 1997 subsection 118-24(1) | Income Tax Assessment Act 1997 section 995-1

Reasons for decision: Summary: A balancing adjustment event occurs under subsection 40-295(1) when Company A and XY Unit Trust transfer Licence A to Company C. | Detailed Reasoning - Detailed reasoning: Division 40 outlines the tax treatment of depreciating assets, which includes rights granted after 30 June 2001. Subsection 40-30(1) defines a depreciating asset as an asset that has a limited effective life and can reasonably be expected to decline in value over the time it is used. Intangible assets are excluded from the definition of a depreciating asset under subsection 40-30(1), unless they are mentioned in subsection 40-30(2). Subsection 40-30(2) mentions the following intangible assets, where they are not trading stock: (a) mining, quarrying or prospecting rights; (b) mining, quarrying or prospecting information; ... A 'mining, quarrying or prospecting right' is defined under section 995-1 as: (a) an authority, licence, permit or right under an * Australian law to mine, quarry or prospect for * minerals, * petroleum or quarry materials; or (b) a lease of land that allows the lessee to mine, quarry or prospect for minerals, petroleum or quarry materials on the land; or (c) an interest in such an authority, licence, permit, right or lease; or (d) any rights that: (i) are in respect of buildings or other improvements ... that are on the land concerned or are used in connection with operations on it; and (ii) are acquired with such an authority, licence, permit, right, lease or interest. Licence A is an exploration licence which falls within the definition of a 'mining, quarrying and prospecting right' and is not trading stock of its owners. When a depreciating asset is sold, a balancing adjustment event occurs. Section 40-295 states that a balancing adjustment event occurs for a depreciating asset if: (a) you stop holding the asset (for example, if the asset is sold), or (b) you stop using it for any purpose and expect never to use it again. When Company A and XY Unit Trust transferred Licence A to Company C for market value, the transfer was a balancing adjustment event under paragraph 40-295(1)(a). | Summary: The Farm-in Agreement between Company A, Company B, XY Unit Trust and Company C will be a farm-in farm-out arrangement for the purposes of section 40-1100. | Detailed Reasoning - Detailed reasoning: Licence B, Licence C, Licence D and Licence E all fall within the definition of mining, quarrying or prospecting right under section 995-1. None constitute trading stock of their owners. The Farm-in Agreement will involve the transfer of the following rights: • an immediate transfer of a X% interest in Licence B and Licence C; and • a deferred transfer of up to an additional Y% interest in Licence B and Licence C. Subsection 40-1100(1) defines a farm-in farm-out (FIFO) arrangement as 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. Per paragraph 40-1100(1)(b), 'exploration benefits' must be provided by the transferee to the transferor for a FIFO arrangement to exist. The definition of exploration benefit (in subsection 40-1100(2)) requires the following: (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. Under the Farm-in Agreement: (a) Company A, Company B and XY Unit Trust (the transferors) immediately transfer a X% beneficial interest with a further deferred beneficial interest of up to Y% in Licence B and Licence C, which are a mining, quarrying or prospecting right, to Company C (the transferee), thereby satisfying the requirement in paragraph 40-1100(1)(a); and (b) in exchange for the transfer, Company C (the transferee) will be providing the transferor one or more exploration benefits, thereby satisfying the requirement in (c) paragraph 40-1100(1)(b). Company C provides an exploration benefit to the transferors under the Farm-in Agreement on the following basis: • Company C undertakes to conduct exploration or prospecting for minerals, or quarry materials, obtainable by mining and quarrying operations, thereby satisfying the requirement in subparagraph 40-1100(2)(a)(ii); • the exploration or prospecting relates to the transferors' remaining interest in the Licences (the mining, quarrying or prospecting right) that the transferors will not transfer, or agree to transfer, under the Farm-in Agreement, thereby satisfying the requirement in paragraph 40-1100(2)(b); and • as the transferors (Company A, Company B and XY Unit Trust) will not conduct the exploration or prospecting, paragraph 40-1110(2)(d) applies (and paragraph 40-1100(2)(c) does not). Were the transferors to conduct the exploration or prospecting, expenditure incurred by them relating to the exploration or prospecting would be expenditure, of a kind referred to in subsection 40-730(1), that meets the requirements of subsection 40-1100(3), thereby satisfying the requirement in paragraph 40-1100(2)(d). For the purposes of paragraph 40-1100(2)(d), the expenditure would meet the requirements of subsection 40-1100(3) because: • for that expenditure, the transferors satisfy, or would satisfy, paragraph 40-730(1)(c) by carrying on a business via the existing joint venture that included exploration or prospecting for minerals or quarry materials obtainable by such operations, and the expenditure would be necessarily incurred in carrying on that business; • the expenditure will not be of a kind referred to in subsection 40-730(2) or (3); and • the expenditure will not be of a kind that another provision of the Income Tax Assessment Acts provide is not deductible. | Summary: The termination value of the part interest in the Tenements will be reduced by the value of the exploration benefit received. | Detailed Reasoning - Detailed Reasoning: Section 40-1105 states: If, under a *farm-in farm-out arrangement, you receive an *exploration benefit in relation to the transfer of part of your interest in a *mining, quarrying or prospecting right, the *termination value of the part of the interest is reduced by the *market value of the exploration benefit. Therefore, as Company A, Company B and XY Unit Trust receive an exploration benefit in relation to the transfer of part of the Tenements (each a mining, quarrying or prospecting right) under the Farm-in Agreement, the termination value of the part of those Tenements (worked out at the time the balancing adjustment event occurs in accordance with subsection 40-300(1)) is reduced by the market value of the exploration benefit to be provided by Company C in accordance with the Farm-in Agreement. Where the termination value of a UCA right includes the market value of any exploration benefits received (per paragraph 40-300(1)(b) and item 4 of the table in paragraph 40-305(1)(b)), it is not necessary to calculate the market value of the exploration benefit. The amounts offset each other (see paragraph 1.72 of the Replacement Explanatory Memorandum to the Tax and Superannuation Laws Amendment (2015 Measures No. 2) Act 2015 (the EM)). | Summary: Each of the Tenements that are part of the Farm-in Agreement are taken to have been split into more than one depreciating asset. | Detailed Reasoning - Detailed Reasoning: Subsection 40-115(2) provides: If you stop *holding part of a *depreciating asset, this Division applies as if, just before you stopped holding that part, you had split the original asset into the part you stopped holding and the rest of the original asset. (The rest of the original asset is then taken to be a different asset from the original asset.) Upon transfer of the Tenements pursuant to the terms of the Farm-in Agreement the respective holders of the Tenements transfer to Company C a part interest in depreciating assets they own. They (the original holders together with Company C) become joint holders under section 40-35. Immediately before the transfer (i.e. just before the relevant transferor stops holding a part of a Tenement), subsection 40-115(2) treats the asset as having been split into the part the original holder no longer holds and the (remainder of the) original asset. The remainder of the Tenement that the transferors continue to hold is taken to be a different asset from the original Tenement. | Summary: The entire adjustable value of the Tenements will be allocated to the interest retained by Company A, Company B and XY Unit Trust (as applicable) pursuant to section 40-1110. | Detailed Reasoning - Detailed Reasoning: If: • under a FIFO arrangement, you provide a part of your interest in a mining, quarrying or prospecting right; and • because of subsection 40-115(2), Division 40 applies as if you had split your interest into the part you stopped holding and the rest of your interest, then, pursuant to paragraph 40-1110(1)(d), the first element of the cost of the asset that consists of the rest of your interest is the sum of: • the adjustable value of your interest just before it was split; and • a reasonable proportion of the amount you are taken to have paid under section 40-185 for any economic benefit involved in splitting your interest. As Company A, Company B and XY Unit Trust have provided a part of their Tenements (each a mining, quarrying or prospecting right) under a FIFO arrangement and, pursuant to subsection 40-115(2), they are taken to have split the Tenements into the part they stopped holding (i.e. the part transferred to Company C) and the rest of the Tenements, the adjustable value just before they were split, meaning the entire adjustable value of the Tenements, is allocated to the cost of the retained part in accordance with paragraph 40-1110(d). | Summary: A reasonable proportion of the incidental costs of splitting of the Tenements can be attributed to the partly disposed interest. | Detailed Reasoning - Detailed Reasoning: If: • under a FIFO arrangement, you provide a part of your interest in a mining, quarrying or prospecting right; and • because of subsection 40-115(2), Division 40 applies as if you had split your interest into the part you stopped holding and the rest of your interest, then, pursuant to paragraph 40-1110(1)(c), the first element of the cost of the asset that consists of the part you stopped holding is a reasonable proportion of the amount you are taken to have paid under section 40-185 for any economic benefit involved in splitting your interest. As Company A, Company B and XY Unit Trust have provided a part of their Tenements (each a mining, quarrying or prospecting right) under a FIFO arrangement and, pursuant to subsection 40-115(2), they are taken to have split the Tenements into the part they stopped holding (i.e. the part transferred to Company C) and the rest of the Tenements, a reasonable proportion of the incidental costs paid to split the Tenements can be attributed to the part that was disposed of under the Farm-in Agreement pursuant to paragraph 40-1110(c). | Summary: A capital gain or loss made by Company A, Company B or XY Unit Trust from a CGT event (that is also a balancing adjustment event) that happens upon their transfer of part of the Tenements to Company C will be disregarded pursuant to section 118-24. | Detailed Reasoning - Detailed Reasoning: Pursuant to subsection 118-24(1), a capital gain or capital loss you make from a CGT event (that is also a balancing adjustment event) that happens to a depreciating asset you hold is disregarded where the decline in value of the asset was worked out under Division 40. The decline in value of the Tenements will be worked out under Division 40. Therefore, any capital gain or loss made by Company A, Company B or XY Unit Trust upon the transfer of the Tenements to Company C under the Farm-in Agreement will be disregarded under section 118-24 where that transfer also constitutes a balancing adjustment event. | Summary: To the extent Licence C, Licence D and Licence E are pre-UCA assets, for the purposes of working out the capital proceeds from the transfer of a part interest in those Tenements to Company C under the Farm-in Agreement, the market value of the exploration benefit received will be treated as zero pursuant to subsection 116-115(1). | Detailed Reasoning - Detailed Reasoning: If: • CGT event A1 is the disposal of part of your interest in a mining, quarrying or prospecting right; and • the part is disposed of under a FIFO arrangement; and • you have received an exploration benefit in respect of the event happening, in working out the capital proceeds for the CGT event, subsection 116-115(1) treats the market value of the exploration benefit as zero. Therefore, where the Licence C, Licence D and Licence E (each a mining, quarrying or prospecting right) are pre-UCA assets and an exploration benefit in respect of a disposal of a part interest in those Tenements to Company C under the Farm-in Agreement (a FIFO arrangement) is received, the market value of the exploration benefit is treated as zero for the purposes of working out the capital proceeds from the disposal, pursuant to subsection 116-115(1). | Summary: A capital gain will not arise under section 104-25 as a result of the contractual right created under the Farm-in Agreement and the subsequent satisfaction or partial satisfaction of the contractual right. | Detailed Reasoning - Detailed Reasoning: If: • CGT event C2 arises as a result of an exploration benefit being provided to you; and • the exploration benefit is provided under a FIFO arrangement, in working out the capital proceeds for the CGT event, subsection 116-115(2) treats the market value of the exploration benefit as zero. Therefore, where Licence C, Licence D and Licence E are pre-UCA assets, an exploration benefit is provided under the Farm-in Agreement (a FIFO arrangement) and gives rise to a CGT event C2 (as a result of contractual right being satisfied), the market value of the exploration benefit is treated as zero for the purposes of working out the capital proceeds from the CGT event, pursuant to subsection 116-115(2). Subsection 116-115(2) prevents a capital gain from arising in relation to exploration benefits received pursuant to the contractual right to receive those exploration benefits under a FIFO arrangement (see paragraph 99 of the EM). | Summary: Any income that would be included in Company C's assessable income because it was a reward for providing exploration benefits is treated as NANE income pursuant to section 40-1130. | Detailed Reasoning - Detailed Reasoning: If, under a FIFO arrangement, you provide an exploration benefit in relation to the transfer to you of part of another entity's interest in a mining, quarrying or prospecting right and, for providing the exploration benefit, you receive a reward as a result of which an amount would, apart from paragraph 40-1130(1)(b), be included in your assessable income, the entire amount of the reward is NANE income pursuant to that paragraph. As Company C will provide an exploration benefit in relation to the transfer of part of the Tenements (each being a mining, quarrying or prospecting right) under the Farm-in Agreement (a FIFO arrangement), any income received by Company C for providing the exploration benefit which would, apart from paragraph 40-1130(1)(b), be included in its assessable income will instead by NANE income. | Summary: The creation of the right in Company A, Company B and XY Unit Trust to receive an exploration benefit will not cause CGT event D1 to happen in respect of Company C. | Detailed Reasoning - Detailed Reasoning: CGT event D1 under section 104-35 happens if you create a contractual right or other legal or equitable right in another entity. However, pursuant to paragraph 104-35(5)(g), CGT event D1 does not happen if: (g) you created the right by creating in another entity a right to receive an *exploration benefit under a *farm-in farm-out arrangement. Therefore, pursuant to paragraph 104-35(5)(g) no CGT event D1 will happen in respect of Company C to the extent it has created a right in Company A, Company B and XY Unit Trust to receive an exploration benefit under the Farm-in Agreement (a FIFO arrangement). | Summary: The depreciable cost of the transferred rights in the hands of Company C is reduced by the market value of the exploration benefits provided pursuant to section 40-1130. | Detailed Reasoning - Detailed Reasoning: If, under a FIFO arrangement, you provide an exploration benefit in relation to the transfer to you of part of another entity's interest in a mining, quarrying or prospecting right, the first element of the cost of the part of the interest is reduced by the market value of the exploration benefit pursuant to paragraph 40-1130(1)(a). As Company C will provide an exploration benefit in relation to the transfer of part of the Tenements (each being a mining, quarrying or prospecting right) under the Farm-in Agreement (a FIFO arrangement), the cost of those parts of the Tenements is reduced by the market value of the exploration benefit. | Summary: Subsection 40-730(3) will not deny a deduction for known and ascertainable expenditure incurred by Company C under the Farm-in Agreement that are also exploration benefits. | Detailed Reasoning - Detailed reasoning: Subsection 40-730(1) provides a deduction under the following circumstances: | Detailed Reasoning - Deduction for expenditure on exploration or prospecting: (1) You can deduct expenditure you incur in an income year on *exploration or prospecting for * minerals, or quarry materials, obtainable by *mining and quarrying operations if, for that expenditure, you satisfy one or more of these paragraphs: (a) you carried on mining and quarrying operations; (b) it would be reasonable to conclude you proposed to carry on such operations; (c) you carried on a * business of, or a business that included, exploration or prospecting for minerals or quarry materials obtainable by such operations, and the expenditure was necessarily incurred in carrying on that business. Expenditure cannot, however, be deducted undersubsection 40-730(1) to the extent that it forms part of the cost of a depreciating asset (subsection 40-730(3)). To the extent Company C's funding commitment will be known and ascertainable by reference to the Farm-in Agreement, that amount is included in the cost, to Company C, of the mining, quarrying or prospecting rights received under the Farm-in Agreement (a FIFO arrangement), per items 1 and 2 of the table in subsection 40-185(1). But for the application of subsection 40-1130(1)(c), when Company C incurs the expense of this amount a deduction would be denied under subsection 40-730(3) because the amount has been included in the cost of the Tenements received. However, pursuant to the application of paragraph 40-1130(1)(c), subsection 40-730(3) does not apply to such known and ascertainable amounts that are also exploration benefits. This is because the inclusion of the amount in Company C's cost is only notional, by reason of the adjustment made under paragraph 40-1130(1)(a) (see question 8 of this ruling and paragraph 1.90 of the EM). Paragraph 40-1130(1)(c) reads: | Detailed Reasoning - 40-1130(1): If, under a *farm-in farm-out arrangement, you provide an *exploration benefit in relation to the transfer to you of part of another entity ' s interest in a *mining, quarrying or prospecting right: (a) the first element of the *cost of the part of the interest is reduced by the *market value of the exploration benefit; and (b) if, for providing the exploration benefit, you receive a reward as a result of which an amount would, apart from this paragraph, be included in your assessable income - the entire amount of the reward is not assessable income and is not *exempt income; and (c) subsection 40-730(3) does not apply in relation to expenditure that you incur under the arrangement if the reduction in market value under paragraph (a) took into account your liability to incur that expenditure. | Summary: Having regard to the matters in subsection 177D(2) of the ITAA 1936, the Commissioner will not make a determination under section 177F of the ITAA 1936 to cancel a tax benefit obtained by a party to the Farm-in Agreement in connection with that agreement. | Detailed Reasoning - Detailed Reasoning: Part IVA of the ITAA 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit in connection with an arrangement. If Part IVA of the ITAA 1936 applies the tax benefit can be cancelled. We have considered the application of Part IVA of the ITAA 1936 to the arrangement you asked us to rule on and conclude that Part IVA of the ITAA 1936 does not apply to the extent the arrangement is carried out as described in the relevant facts and circumstances upon which this ruling is based, including the terms of the Farm-in Agreement entered into. The Commissioner will not make a determination under section 177F of the ITAA 1936 to cancel a tax benefit obtained by an entity in connection with the Farm-in Agreement.

(b) will each of the above Tenements be taken to have been split into more than one depreciating asset immediately before their transfer pursuant to section 40-115? | (c) will the entire adjustable value of the above Tenements be allocated to the interest retained by Company A, Company B and XY Unit Trust (as applicable) pursuant to section 40-1110? | (d) can Company A, Company B and XY Unit Trust (as applicable) attribute a reasonable proportion of the incidental costs of splitting the above Tenements to the interest part disposed of under the Farm-in Agreement pursuant to section 40-1110? | (e) will a balancing adjustment amount from a CGT event be included as assessable income of the farmor, when the farmee (Company C) receives the Tenements under the Farm-in Agreement? | 1. For the purposes of question 1 of this ruling, Licence A is a depreciating asset within the meaning of section 40-30 and a post-UCA asset.: 2. Each of the Tenements subject of the Farm-in Agreement are depreciating assets within the meaning of section 40-30. | 3. Except for the purposes of questions 4 and 5 of this ruling, each of the Tenements subject to the Farm-in Agreement are a post-UCA asset.