Speaking at the Association of Mining & Exploration Companies convention today in Perth, Western Australian Senator Chris Back said the “exploration development incentive” would allow investors to deduct the expense of mining exploration against their taxable income, as of July 1, 2014.

The plan will target small exploration companies and will allow the Australian Taxation Office to determine a proportion of expenses that can be claimed as tax credits by investors.

The incentive targeted at small companies is expected to help exploration stimulate the greenfield exploration sector, which has experienced a decline in actual metres drilled over the last 10 years despite one of the strongest periods of growth in the mining industry.

The scheme will be capped at $100 million over the forward estimates.

Tax credits to investors in the scheme will be allocated retrospectively under a modulation system to fit within the annual allocation of funds.

Industry reaction has been unanimous.

“I know personally of situations where exploration companies have had to let go of staff and make deep salary cuts to keep their doors open,” Queensland Resources Council chief executive Michael Roche said.

“Providing investors with a modest tax incentive to support explorers is a sound investment in the future and something the QRC has been pressing successive federal governments to adopt.”

The Australian Securities Exchange said the move should be adopted no matter which party won the upcoming election.

“The rest of our economy is simply not in a position to pick up the slack that’s being created by reduced mining investment,” ASX Group managing director and chief executive Elmer Funke Kupper told AMEC convention delegates today.

“The proposal recognises it takes on average at least seven years to develop a new mine and when environment risk capital is scarce that makes it difficult to attract that capital.

“The amount of investment in the proposed scheme is modest and can be easily managed.

“AMEC estimated that it would peak at about $130 million a year.

“Finally, we know that these schemes can work practically and the Canadians have shown this.”

AMEC chief executive Simon Bennison said the mineral exploration tax credit (METC), however, was distinct from the Canadian model.

“This is not a flow-through shares scheme as used by the Canadians but a serious modification that utilises Australia’s current dividend imputation system,” he said.

“We believe this is a great outcome that addresses the questions from Treasury and our political leaders as to what the implications for government will be should the METC be implemented.”

The South Australian Chamber of Mines and Energy, meanwhile, said it was “thrilled” by the announcement.

“This will provide a strong incentive for shareholders to commit capital to the exploration sector, making investment in these juniors attractive and addressing the severe lack of start-up capital in a competitive and difficult market,” SACOME chief executive Jason Kuchel said.

“To maintain the contribution of the mineral resources sector to Australia’s economy we must not only maintain exploration but increase it.”