Category: PART I – Normal Tax (ITA)

Section 15 (ITA) – Deductions from income derived from mining operations

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15.     Deductions from income derived from mining operations

 

There shall be allowed to be deducted from the income derived by the taxpayer from mining operations –

 

(a)     an amount to be ascertained under the provisions of section 36, in lieu of the allowances in sections 11(e), (f), (gA), (gC), (o), 12B, 12BA, 12D, 12DA, 12F and 13quin;

[Paragraph (a) substituted by section 20 of Act 55 of 1966, by section 18 of Act 129 of 1991, by section 24 of Act 31 of 2005, by section 29 of Act 35 of 2007 and by section 22(1) of Act 17 of 2023 effective on 1 March, 2023 and applicable in respect of assets brought into use on or after that date]

 

(b)     any expenditure incurred by the taxpayer during the year of assessment on prospecting operations (including surveys, boreholes, trenches, pits and other prospecting work preliminary to the establishment of a mine) in respect of any area within the Republic together with any other expenditure which is incidental to such operations:

 

Provided that –

 

(i)      except in the case of any person who derives income from mining for diamonds in the Republic, the Commissioner may determine that any expenditure referred to in this paragraph shall be deducted in a series of annual instalments, so that only a portion of such expenditure is deducted in the year of assessment in which it is incurred, and the residue in such subsequent years of assessment and in such proportions as the Commissioner may determine, until the expenditure is extinguished;

 

(ii)     in the case of any company which derives income from different classes of mining operations, the deduction under this paragraph shall be made from the income derived from such class or classes of mining operations and in such proportions as the Commissioner may determine;

 

(iii)    any expenditure which has been allowed to be deducted from the income of any person in terms of this paragraph shall not be included in such person’s capital expenditure as defined in subsection (11) of section 36.

Section 20A (ITA) – Ring-fencing of assessed losses of certain trades

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20A.    Ring-fencing of assessed losses of certain trades

(1)     Subject to subsection (3), where the circumstances in subsection (2) apply during any year of assessment in respect of any trade carried on by a natural person, any assessed loss incurred during that year in carrying on that trade may not be set off against any income of that person derived during that year otherwise than from carrying on that trade, notwithstanding section 20(1)(b).

(2)     Subsection (1) applies where the sum of the taxable income of a person for a year of assessment (determined without having regard to the other provisions of this section) and any assessed loss and balance of assessed loss which were set off in terms of section 20 in determining that taxable income, equals or exceeds the amount at which the maximum marginal rate of tax chargeable in respect of the taxable income of individuals becomes applicable, and where-

(a)     that person has, during the five year period ending on the last day of that year of assessment, incurred an assessed loss in at least three years of assessment in carrying on the trade contemplated in subsection (1) (before taking into account any balance of assessed loss carried forward); or

(b)     the trade contemplated in subsection (1), in respect of which the assessed loss was incurred constitutes-

(i)      any sport practised by that person or any relative;

(ii)     any dealing in collectibles by that person or any relative;

(iii)    the rental of residential accommodation, unless at least 80 per cent of the residential accommodation is used by persons who are not relatives of that person for at least half of the year of assessment;

(iv)    the rental of vehicles, aircraft or boats as defined in the Eighth Schedule, unless at least 80 per cent of the vehicles, aircraft or boats are used by persons who are not relatives of that person for at least half of the year of assessment;

(v)     animal showing by that person or any relative;

(vi)    farming or animal breeding, unless that person carries on farming, animal breeding or activities of a similar nature on a full-time basis;

(vii)   any form of performing or creative arts practised by that person or any relative;

[Subparagraph (vii) amended by section 37 of Act 23 of 2018 effective on 17 January 2019]

(viii)  any form of gambling or betting practised by that person or any relative; or

[Subparagraph (viii) amended by section 37 of Act 23 of 2018 effective on 17 January 2019]

(ix)    the acquisition or disposal of any crypto asset.

[Subparagraph (ix) added by section 37 of Act 23 of 2018 and substituted by section 23 of Act 23 of 2020]

(3)     The provisions of subsection (1) do not apply in respect of an assessed loss incurred by a person during any year of assessment from carrying on any trade contemplated in subsection (2)(a) or (b), where that trade constitutes a business in respect of which there is a reasonable prospect of deriving taxable income (other than taxable capital gain) within a reasonable period having special regard to-

(a)     the proportion of the gross income derived from that trade in that year of assessment in relation to the amount of the allowable deductions incurred in carrying on that trade during that year;

(b)     the level of activities carried on by that person or the amount of expenses incurred by that person in respect of advertising, promoting or selling in carrying on that trade;

(c)     whether that trade is carried on in a commercial manner, taking into account-

(i)      the number of full-time employees appointed for purposes of that trade (other than persons partly or wholly employed to provide services of a domestic or private nature);

(ii)     the commercial setting of the premises where the trade is carried on;

(iii)    the extent of the equipment used exclusively for purposes of carrying on that trade; and

(iv)    the time that the person spends at the premises conducting that business;

(d)     the number of years of assessment during which assessed losses were incurred in carrying on that trade in relation to the period from the date when that person commenced carrying on that trade and taking into account-

(i)      any unexpected events giving rise to any of those assessed losses; and

(ii)     the nature of the business involved;

(e)     the business plans of that person and any changes thereto to ensure that taxable income is derived in future from carrying on that trade; and

(f)      the extent to which any asset attributable to that trade is used, or is available for use, by that person or any relative of that person for recreational purposes or personal consumption.

(4)     Subsection (3) does not apply in respect of a trade contemplated in subsection (2)(b) (other than farming) carried on by a person during any year of assessment where that person has, during the 10 year period ending on the last day of that year of assessment, incurred an assessed loss in at least six years of assessment in carrying on that trade (before taking into account any balance of assessed loss carried forward).

[Sub­section (4) substituted by section 23 of Act 34 of 2019]

(5)     Notwithstanding section 20(1)(a), any balance of assessed loss carried forward from the preceding year of assessment, which is attributable to an assessed loss in respect of which subsection (1) applied in that preceding year or any prior year of assessment, may not be set off against any income derived by that person otherwise than from carrying on the trade contemplated in subsection (1).

(6)     For the purposes of this section and section 20, the income derived from any trade referred to in subsections (1) or (5), includes any amount-

(a)     which is included in the income of that person in terms of section 8 in respect of an amount deducted in any year of assessment in carrying on that trade; or

(b)     derived from the disposal after cessation of that trade of any assets used in carrying on that trade.

(7)     Notwithstanding anything to the contrary contained in this Act, all farming activities carried on by a person shall be deemed to constitute a single trade carried on by that person for the purposes of this section.

(8)     Where the provisions of subsection (2) apply during any year of assessment in respect of any trade carried on by a person, that person must indicate the nature of the business in his or her return contemplated in section 66 for that year of assessment.

(9)     For the purposes of subsections (2)(a) and (4), any assessed loss incurred in any year of assessment ending on or before 29 February 2004 shall not be taken into account.

Section 23(p) of ITA

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(p)      the value in respect of any cession of a policy of insurance ceded by a taxpayer to-

 

(i)      any-

 

(aa)    employee (or former employee);

 

(bb)   director (or former director); or

 

(cc)    dependant or nominee of the employee (or former employee) or director (or former director),

 

of the taxpayer; or

 

(ii)     any pension fund, pension preservation fund, provident fund, provident preservation fund or retirement annuity fund for the benefit of any-

 

(aa)    employee (or former employee);

 

(bb)   director (or former director); or

 

(cc)    dependant or nominee of the employee (or former employee) or director (or former director),

 

of the taxpayer;

Section 23(b) of ITA

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(b)     domestic or private expenses, including the rent of or cost of repairs of or expenses in connection with any premises not occupied for the purposes of trade or of any dwelling–house or domestic premises except in respect of such part as may be occupied for the purposes of trade: Provided that –

 

(a)     such part shall not be deemed to have been occupied for the purposes of trade, unless such part is specifically equipped for purposes of the taxpayer’s trade and regularly and exclusively used for such purposes; and

 

(b)     no deduction shall in any event be granted where the taxpayer’s trade constitutes any employment or office unless –

 

(i)      his income from such employment or office is derived mainly from commission or other variable payments which are based on the taxpayer’s work performance and his duties are mainly performed otherwise than in an office which is provided to him by his employer; or

 

(ii)     his duties are mainly performed in such part;

Subsections 2, 2A and 3 of section 20C of ITA

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(2)     Where a headquarter company has during any year of assessment incurred any interest in respect of any financial assistance granted to that headquarter company by a person-

 

(a)     that is not a resident; and

 

(b)     if that person is a company, that directly or indirectly (and whether alone or together with any other company forming part of the same group of companies as that person) holds at least 10 per cent of the equity shares and voting rights in that headquarter company,

 

the amount of that interest in respect of which a deduction is allowable to that headquarter company in that year of assessment is limited to so much of the amount of interest received by or accrued to the headquarter company as relates to any portion of that financial assistance that is directly applied as financial assistance to any foreign company in which the headquarter company directly or indirectly (whether alone or together with any other company forming part of the same group of companies as that headquarter company) holds at least 10 per cent of the equity shares and voting rights.

 

(2A)   Where a headquarter company has during any year of assessment incurred any amount that constitutes a royalty payable to a person-

 

(a)     that is not a resident; and

 

(b)     if that person is a company, that directly or indirectly (and whether alone or together with any other company forming part of the same group of companies as that person) holds at least 10 per cent of the equity shares and voting rights in that headquarter company,

 

the amount of that royalty in respect of which a deduction is allowable to that headquarter company in that year of assessment is limited to so much of any amounts received by or accrued to the headquarter company in respect of-

 

(i)      the use or right of use of or permission to use any intellectual property as defined in section 23I; or

 

(ii)     the imparting of or the undertaking to impart any scientific, technical, industrial or commercial knowledge or information, or the rendering of or the undertaking to render, any assistance or service in connection with the application or utilisation of such knowledge or information,

 

from any foreign company in which the headquarter company directly or indirectly (whether alone or together with any other company forming part of the same group of companies as that headquarter company) holds at least 10 per cent of the equity shares and voting rights.

 

(3)     Any amount that is disallowed as a deduction in any year of assessment of a headquarter company in terms of subsection (2) or (2A) must-

   

(a)     be carried forward to the immediately succeeding year of assessment of the headquarter company; and

  

(b)     where that amount is disallowed as a deduction-

 

(i)      in terms of subsection (2), be deemed to be an amount of interest actually incurred by the headquarter company during that succeeding year in respect of financial assistance granted to that headquarter company by a person that is not a resident; or

 

(ii)     in terms of subsection (2A), be deemed to be an amount actually incurred by the headquarter company during that succeeding year that constitutes a royalty payable to a person that is not a resident.

Section 23(c) of ITA

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(c)     any loss or expense, the deduction of which would otherwise be allowable, to the extent to which it is recoverable under any contract of insurance, guarantee, security or indemnity, except where section 23L(3) applies;

[Paragraph (c) substituted by section 24(1) of Act 23 of 2020 effective on 1 January, 2021 and applies in respect of years of assessment commencing on or after that date]