In particular, the government will change its petroleum resource rent tax for frontier areas to allow 150% of expenditure to be deducted against future income, up from 100% now, said the source, who is familiar with the plan.
The plan will be formally announced Tuesday in the government's budget for next fiscal year.
Domestic production of oil now barely accounts for 50% of domestic demand, though substantial quantities are exported. Imports make up the balance of domestic demand, putting some pressure on Australia's long-term trend trade deficit.
To further encourage companies to make use of the tax break, the government plans to increase to 20% the area it defines as frontier in its ongoing release of new exploration blocks, the source said.
The government hopes to maintain exploration spending at least around current levels, the source said.
Total spending on oil exploration last fiscal year rose 13% to A$995.0 million.
The move by the government is sure to please industry lobby the Australian Petroleum Production and Exploration Association, which has lobbied long and hard for such a tax break.
The source said the government's move partly reflects a need to boost exploration in a bid to increase oil and gas production.
The government's research agency Geoscience Australia warned recently that without a major new production province, Australia's oil output - estimated at 723,000 barrels a day - will fall by 40% over the next decade.
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