Category: PART I – Normal Tax (ITA)

Section 36 (ITA) – Calculation of redemption allowance and unredeemed balance of capital expenditure in connection with mining operations

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 36.   Calculation of redemption allowance and unredeemed balance of capital expenditure in connection with mining operations

(1)     ……….

(2)     ……….

(3)     ……….

(4)     ……….

(5)     ……….

(6)     ……….

(7)     ……….

(7A)  ………..

(7B)   ……….

(7C)   Subject to the provisions of subsections (7E), (7F) and (7G), the amounts to be deducted under section 15(a) from income derived from the working of any producing mine shall be the amount of capital expenditure incurred.

(7D)  ………..

(7E)  The aggregate of the amounts of capital expenditure determined under subsection (7C) in respect of any year of assessment in relation to any mine or mines shall not exceed the taxable income (as determined before the deduction of any amount allowable under section 15(a), but after the set–off of any balance of assessed loss incurred by the taxpayer in relation to such mine or mines in any previous year which has been carried forward from the preceding year of assessment) derived by the taxpayer from mining, and any amount by which the said aggregate would, but for the provisions of this subsection, have exceeded such taxable income as so determined, shall be carried forward and be deemed to be an amount of capital expenditure incurred during the next succeeding year of assessment in respect of the mine or mines to which such capital expenditure relates.

(7EA) Subject to paragraph 12A(6)(a) to (d) and (f) of the Eighth Schedule, where a debt benefit, as defined in section 19, arises in respect of a debt that is owed by a person and that debt was used directly or indirectly to fund any amount of capital expenditure incurred, the debt benefit in respect of that debt must be applied to reduce any amount of capital expenditure incurred in the year of assessment that the debt benefit arises: Provided that any amount of the debt benefit that exceeds the capital expenditure incurred in the year of assessment that the debt benefit arises, must be treated as an amount received by or accrued to that person carrying on mining operations during that year of assessment in respect of a disposal of assets the cost of which has been included in capital expenditure incurred in respect of the mine to which that capital expenditure relates.

[Subsection (7EA) inserted by section 48 of Act 17 of 2017 effective on 1 January 2018, applies in respect of years of assessment commencing on or after that date]

(7F)  The aggregate of the amounts of capital expenditure determined under subsection (7C) in respect of any year of assessment in relation to any one mine shall, unless the Minister, after consultation with the Cabinet member responsible for mineral resources and having regard to any relevant fiscal, financial or technical implications, otherwise directs, not exceed the taxable income (as determined before the deduction of any amount allowable under section 15(a), but after the set-off of any balance of assessed loss incurred by the taxpayer in relation to that mine in any previous year which has been carried forward from the preceding year of assessment) derived by the taxpayer from mining on that mine, and any amount by which the said aggregate would, but for the provisions of this subsection, have exceeded such taxable income as so determined, shall be carried forward and be deemed to be an amount of capital expenditure incurred during the next succeeding year of assessment in respect of that mine: Provided that where the taxpayer was on 5 December 1984 carrying on mining operations on two or more mines, the said mines shall for the purposes of this subsection be deemed to be one mine.

(7G)

(a)     Where in the case of any mine in respect of which mining operations or any related operations were or are commenced by the taxpayer after 14 March 1990 (in this subsection referred to as a new mine) an amount of capital expenditure falls to be disallowed under the provisions of subsection (7F), there shall, notwithstanding the provisions of that subsection, be deducted from the total taxable income derived by the taxpayer from mining (as determined after the deduction of any capital expenditure which does not fall to be disallowed under the said provisions and after the set–off of any assessed loss incurred by him from mining operations in a previous year of assessment which has been carried forward) so much of the total amount of capital expenditure which has been so disallowed in relation to all producing new mines owned by the taxpayer as does not exceed 25 per cent of such taxable income.

(b)     The provisions of paragraph (a) shall not apply to capital expenditure incurred in respect of any new mine –

(i)      which has been disposed of by the taxpayer in the current or any previous year of assessment; or

(ii)     if the taxpayer is a company and its acquisition of the right to mine or the mineral rights in respect of such mine was financed wholly or partly by the issue of any share in respect of which any dividend or foreign divident is to be calculated by reference to that portion of the company’s profits which is attributable to the operation of such mine.

(8)     ……….

(9)     ……….

(10)   Where separate and distinct mining operations are carried on in mines that are not contiguous, the allowance for redemption of capital expenditure shall be computed separately.

Subsection 12 of section 36 of ITA

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(12)   The balance of capital expenditure unredeemed at the commencement of the first year of assessment chargeable under this Act shall be the balance shown to be unredeemed at the end of the last year of assessment chargeable under the Income Tax Act, 1941.

“Expenditure” definition of section 36 of ITA

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“expenditure” means net expenditure after taking into account any rebates or returns from expenditure, regardless of when such last-mentioned expenditure was incurred;

[Definition of “expenditure” subsitututed by section 21(d) of Act 65 of 1973 and amended by section 52(1)(b) of Act 15 of 2016 effective on 1 April, 2017 and applicable in respect of expenditure incurred during years of assessment commencing on or after that date]

“Capital expenditure incurred” definition of section 36 of ITA

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“capital expenditure incurred”, for the purpose of determining the amount of capital expenditure incurred during any period in respect of any mine, means the amount (if any) by which the expenditure that is incurred during such period in respect of such mine and is capital expenditure, exceeds the sum of the amounts received or accrued during the said period from disposals of assets the cost of which has in whole or in part been included in capital expenditure taken into account (whether under this Act or any previous Income Tax Act) for the purposes of any deduction in respect of such mine under section 15(a) of this Act or the corresponding provisions of any previous Income Tax Act;

Subsections 2, 3, 4, 5, 6, 7, 8, 9 and 10 of section 30B of ITA

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(2)     Subject to subsections (3) and (4), the Commissioner must approve an entity for the purposes of section 10(1)(d)(iii) or (iv) if-

(a)     that entity has submitted to the Commissioner a copy of the constitution or written instrument under which it has been established;

(b)     the constitution or written instrument contemplated in paragraph (a) provides that-

(i)      the entity must have a committee, board of management or similar governing body consisting of at least three natural persons, who are not connected persons in relation to each other, to accept the fiduciary responsibility of that entity;

[Subparagraph (i) substituted by section 8(a) of Act 18 of 2023]

(ii)     no single person may directly or indirectly control the decision-making powers relating to that entity;

(iii)    the entity may not directly or indirectly distribute any of its funds or assets to any person other than in the course of furthering its objectives;

(iv)    the entity is required to utilise substantially the whole of its funds for the sole or principal object for which it has been established;

(v)     no member may directly or indirectly have any personal or private interest in that entity;

(vi)    substantially the whole of the activities of the entity must be directed to the furtherance of its sole or principal object and not for the specific benefit of an individual member or minority group;

(vii)   the entity may not have a share or other interest in any business, profession or occupation which is carried on by its members;

(viii)  the entity must not pay to any employee, office bearer, member or other person any remuneration, as defined in the Fourth Schedule, which is excessive, having regard to what is generally considered reasonable in the sector and in relation to the service rendered;

(ix)    substantially the whole of the entity’s funding must be derived from its annual or other long-term members or from an appropriation by the government of the Republic in the national, provincial or local sphere;

(x)     the entity must as part of its dissolution transfer its assets to-

(aa)   another entity approved by the Commissioner in terms of this section;

(bb)   a public benefit organisation approved in terms of section 30;

(cc)   an institution, board or body which is exempt from tax under section 10(1)(cA)(i); or

(dd)   the government of the Republic in the national, provincial or local sphere;

(xi)    the persons contemplated in paragraph (b)(i) will submit any amendment of the constitution or written instrument of the entity to the Commissioner within 30 days of its amendment;

(xii)   the entity will comply with such reporting requirements as may be determined by the Commissioner from time to time; and

(xiii)   the entity is not knowingly and will not knowingly become a party to, and does not knowingly and will not knowingly permit itself to be used as part of, an impermissible avoidance arrangement contemplated in Part IIA of Chapter III, or a transaction, operation or scheme contemplated in section 103(5); and

[Subparagraph (xiii) amended by section 8(b) of Act 18 of 2023]

(c)     the Commissioner is satisfied that the association does not have a person acting in a fiduciary capacity, who is disqualified in terms of section 6 of the Trust Property Control Act, 1988 (Act 57 of 1988), section 25A of the Nonprofit Organisations Act, 1997 (Act 71 of 1997), or section 69 of the Companies Act.

[Paragraph (c) added by section 8(c) of Act 18 of 2023]

(3)     The requirements contained in subsection (2)(b)(iii) and (v) do not apply in respect of a mutual loan association.

(4)     Where the constitution or written instrument of an entity does not comply with subsection (2)(b), the Commissioner may deem it to so comply if the person who has accepted fiduciary responsibility for the funds and assets of that entity furnishes the Commissioner with a written undertaking that the entity will be administered in compliance with that subsection.

(5)     Where the Commissioner is-

(a)     satisfied that any entity approved in terms of subsection (2) has during any year of assessment in any material respect; or

(b)     during any year of assessment satisfied that any such entity has on a continuous or repetitive basis,

failed to comply with this section, or the constitution or written instrument under which it was established to the extent that it relates to this section, the Commissioner must notify the entity that he or she intends to withdraw approval of the entity if corrective steps are not taken by the entity within the period stated in the notice.

(6)     If no corrective steps are taken by the entity contemplated in subsection (5), the Commissioner must withdraw approval of that entity with effect from the commencement of the year of assessment contemplated in subsection (5).

(7)     If the Commissioner has withdrawn the approval of an entity as contemplated in subsection (6) the entity must within six months after the date of the withdrawal of approval (or such longer period as the Commissioner may allow) transfer, or take reasonable steps to transfer, its remaining assets to any entity, public benefit organisation, institution, board or body or the government of the Republic, contemplated in subsection (2)(b)(x).

(8)     If an entity is wound up or liquidated, the entity must, as part of the winding-up or liquidation, transfer its assets remaining after the satisfaction of its liabilities to any entity, public benefit organisation, institution, board or body or the government of the Republic, contemplated in subsection (2)(b)(x).

(9)     If an entity fails to transfer, or to take reasonable steps to transfer, its assets as contemplated in subsection (7) or (8), an amount equal to the market value of those assets which have not been transferred less an amount equal to the bona fide liabilities of that entity must for the purposes of this Act be deemed to be an amount of taxable income which accrued to that entity during the year of assessment in which the withdrawal of approval in terms of subsection (6) or the winding-up or liquidation contemplated in subsection (8) took place.

(10)   Any person who is in a fiduciary capacity responsible for the management or control of the income and assets of any approved association and who intentionally fails to comply with any provision of this section or of the constitution, or other written instrument under which such association is established to the extent that it relates to the provisions of this section, shall be guilty of an offence and liable on conviction to a fine or to imprisonment for a period not exceeding 24 months.

(11)   A person may not act in a fiduciary capacity if that person is disqualified in terms of section 6 of the Trust Property Control Act, 1988 (Act 57 of 1988), section 25A of the Nonprofit Organisations Act, 1997 (Act 71 of 1997), or section 69 of the Companies Act.

[Subsection (11) inserted by section 8(d) of Act 18 of 2023]

(12)   A person who fails to comply with the provisions of subsection (11) shall be guilty of an offence and liable, on conviction, to a fine or to imprisonment for a period not exceeding 24 months.

. [Subsection (12) inserted by section 8(d) of Act 18 of 2023]

Section 37 (ITA) – Calculation of capital expenditure on sale, transfer, lease or cession of mining property

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37.     Calculation of capital expenditure on sale, transfer, lease or cession of mining property

 

(1)     For the purposes of this Act, but subject to subsection (1A), whenever a taxpayer-

 

(a)     sells, transfers, leases or cedes any mining property; and

 

(b)     disposes of any assets contemplated in section 36(11) (hereinafter referred to as ‘the capital assets’) in consequence of the sale, transfer, lease or cession contemplated in paragraph (a),

 

the person acquiring those capital assets shall be deemed to have acquired such capital assets at a cost equal to the effective value of those capital assets to that person on the effective date of that agreement of sale, transfer, lease or cession of the mining property, and the said cost shall be deemed to be expenditure that is incurred by that person during the period of assessment during which that agreement takes effect and to be capital expenditure which is in respect of such period required to be taken into account for the purposes of the definition of ‘capital expenditure incurred’ in section 36(11).

 

(1A)  Where any consideration is given by the person acquiring the assets disposed of by the taxpayer, as contemplated in subsection (1), and the effective value of all those assets (including any mining property) so acquired, exceeds that consideration, the amount of the cost and expenditure in respect of the capital assets shall, for the purposes of subsection ( 1), be deemed to be an amount which bears to the total amount of such consideration the same ratio as such effective value of those capital assets bears to the effective value to that person of all the assets (including any mining property) so disposed of to that person.

 

(2)     For the purposes of paragraph (j) of the definition of ‘gross income’ in section 1 and section 36, the taxpayer who disposes of any capital assets contemplated in subsection (1), shall be deemed to have disposed of such capital assets for a consideration equal in value to the cost of those capital assets to the person acquiring such capital assets as determined under subsection (1) and (1A), and such consideration shall be deemed to have been received by or to have accrued to the said taxpayer on the effective date of the agreement of sale, transfer, lease or cession.

 

(3)     If the value of the consideration given or the value of the property disposed of is in dispute, the value may, be fixed by the Commissioner and shall be determined –

 

(a)     in the case of any mining property, in the same manner as if transfer duty were payable; or

 

(b)     in the case of any capital asset, at the market value of such capital asset.

 

(4)     The effective value on the effective date of the agreement of sale, transfer, lease or cession, of all the assets disposed of, shall be determined by the Director General for Minerals and Energy who shall, notwithstanding the repeal of the Second Schedule to the Transvaal Mining Leases and Mineral Law Amendment Act, 1918 (Act No. 30 of 1918), for the purposes of such determination have all the powers which were conferred upon him by the provisions of that Schedule.

 

(5)     For the purpose of this section, ‘mining property’ means-

 

(a)     any land on which mining is carried on; or

 

(b)     any right to minerals (including any right to mine for minerals) and a lease or sub-lease of such a right.

Section 37A (ITA) – Closure rehabilitation company or trust

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37A.    Closure rehabilitation company or trust

(1)     For purposes of determining the taxable income derived by a person from carrying on any trade, any cash paid during any year of assessment commencing on or after 2 November 2006 by that person to a company or trust shall be deducted from that person’s income if –

(a)     the sole object of that company or trust is to apply its property solely for rehabilitation upon premature closure, decommissioning and final closure, and post closure coverage of any latent and residual environmental impacts on the area covered in terms of any permit, right, reservation or permission contemplated in paragraph (d)(i)(aa) to restore one or more areas to their natural or predetermined state, or to a land use which conforms to the generally accepted principle of sustainable development;


(b)     that company or trust holds assets solely for purposes contemplated in paragraph (a);


(c)     that company or trust makes distributions solely for purposes contemplated in paragraph (a), or subsection (3) or (4); and


(d)     that person –


(i)


(aa)   holds a permit or right in respect of prospecting, exploration, mining or production, an old order right or OP26 right as defined in item 1 of Schedule II or any reservation or permission for or right to the use of the surface of land as contemplated in item 9 of Schedule II to the Mineral and Petroleum Resources Development Act; or


(bb)   is engaged in prospecting, exploration, mining or production in terms of any permit, right, reservation or permission as contemplated in item (aa); or


(ii)     after approval by the Commissioner, paid any cash to that company or trust and that payment was not part of any transaction, operation or scheme designed solely or mainly for purposes of shifting the deduction contemplated in this subsection from another person to that person.

(2)     The company or trust contemplated in subsection (1) may only hold –

(a)     financial instruments issued by any –

(i)      collective investment scheme as regulated in terms of the Collective Investment Schemes Control Act;


(ii)     long-term insurer as regulated in terms of the Long-Term Insurance Act;


(iii)    bank as regulated in terms of the Banks Act; or


(iv)    mutual bank as regulated in terms of the Mutual Banks Act 1993 (Act No. 124 of 1993);


(b)     financial instruments of a listed company unless –

(i)      those financial instruments are issued by a person contemplated in subsection (1)(d); or


(ii)     those financial instruments are issued by a person that is a connected person in relation to a person contemplated in subsection (1)(d);

(c)     financial instruments issued by any sphere of government in the Republic; or


(d)     any other investments which were held by that company or trust before 18 November 2003.

(3)     To the extent that the Cabinet member for mineral resources is satisfied that all of the areas in terms of any permit, right, reservation or permission contemplated in subsection (1)(d)(i)(aa) that have been rehabilitated as contemplated in subsection (1)(a), the company or trust in respect of those areas must be wound-up or liquidated and its assets remaining after the satisfaction of its liabilities must be transferred to –

(a)     another company or trust as contemplated in this section as approved by the Commissioner; or


(b)     if no such company or trust has been established, to an account or trust prescribed by the Cabinet member for mineral resources as approved of by the Commissioner if the Commissioner is satisfied that such company or trust satisfies the objects of subsection (1)(a).

(4)     If the Cabinet member for mineral resources is satisfied that a company or trust as contemplated in subsection (1)(a) –

(a)     will be able to satisfy all of the liabilities of that company or trust; and


(b)     such company or trust has sufficient assets to rehabilitate and restore, as contemplated in subsection (1)(a), all areas to which any permit, right, reservation or permission contemplated in subsection (1)(d)(i)(aa) relates, as the case may be,


that company or trust may transfer assets not required for purposes of paragraphs (a) and (b) to another company or trust established in terms of this section as approved by the Commissioner,

(5)

(a)     The constitution of a company or the instrument establishing a trust contemplated in this section must incorporate the provisions of this section and any amendments thereto.


(b)     Where the constitution of a company or the instrument establishing a trust contemplated in this section does not comply with this section, it shall be deemed to comply for a period not exceeding two years, if the person responsible in a fiduciary capacity for the funds and the assets of that company or trust, furnishes the Commissioner with a written undertaking that that company or trust will be administered in compliance with this section.

(6)     If a company or trust holds a financial instrument or investment during any year of assessment-

(a)     other than a financial instrument contemplated in subsection (2); or

(b)     other than an investment contemplated in subsection (2)(d),

an amount equal to 50 per cent of the highest market value of that other financial instrument or other investment during that year of assessment must be deemed to be an amount of normal tax payable by the person contemplated in subsection (1)(d), subject to subsection (8), to the extent that the financial instrument or investment is directly or indirectly derived from any amount in cash paid by that person to that company or that trust.

[Subsection (6) amended by section 28 of Act 8 of 2007 and substituted by section 49 of Act 17 of 2017 effective on 18 December 2017]

(7)       If a company or trust contemplated in subsection (1) during any year of assessment-

(a)     distributes property from that company or trust for a purpose other than-

(i)      rehabilitation upon premature closure;

(ii)     decommissioning and final closure;

(iii)    post closure coverage of any latent or residual environmental impacts; or

(iv)    transfer to another company, trust, or account established for the purposes contemplated in subsection (1)(a); or

(b)     uses property from that company or trust as security for any debt for a purpose other than a purpose contemplated in paragraph (a)(i) or (ii),

an amount equal to 50 per cent of the highest market value during that year of assessment of the property so distributed or used as security must be deemed to be an amount of normal tax payable by the person contemplated in subsection (1)(d), subject to subsection (8), in respect of that year of assessment.

[Subsection (7) amended by section 28 of Act 8 of 2007 and substituted by section 47 of Act 35 of 2007 and section 49 of Act 17 of 2017 effective on 18 December 2017]

(8)     Any amount deemed to be an amount of normal tax payable by the person contemplated in subsection (1)(d) in terms of subsection (6) or (7) must, to the extent that the amount cannot be recovered from that person, be recovered from the trust or company contemplated in this section.

[Subsection (8) amended by section 28 of Act 8 of 2007 and substituted by section 49 of Act 17 of 2017 effective on 18 December 2017]

(9)     Subsection (7) does not apply in respect of any amount deemed to be an amount of normal tax that is paid to the Commissioner by a company or trust contemplated in this section.

[Subsection (9) inserted by section 49 of Act 17 of 2017 effective on 18 December 2017]

(10)     A company or trust contemplated in this section must-

(a)     within three months after the end of any year of assessment submit a report to the Director-General of the National Treasury in respect of that year of assessment providing the Director-General of the National Treasury with information comprising-

(i)      the total amount of contributions to the company or the trust;

(ii)     the total amount of withdrawals from the company or the trust; and

(iii)    the purposes for which any amount of those withdrawals were applied; and

(b)     within seven days after receiving a request from the Director-General of the National Treasury provide such information as the Director-General may require.

[Subsection (10) inserted by section 49 of Act 17 of 2017 effective on 18 December 2017]