Category: PART VI – Proceeds

“Environmental waste disposal asset” definition of paragraph 37B of Eighth Schedule

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‘environmental waste disposal asset’ means any air, water, and solid waste disposal site, dam, dump, reservoir, or other structure of a similar nature, or any improvement thereto, if the structure is –

 

(a)     of a permanent nature;

 

(b)     utilised in the course of a taxpayer’s trade in a process that is ancillary to any process of manufacture or any other process which, in the opinion of the Commissioner, is of a similar nature; and

 

(c)     required by any law of the Republic for purposes of complying with measures that protect the environment.

“Environmental treatment and recycling asset” definition of paragraph 37B of Eighth Schedule

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‘environmental treatment and recycling asset’ means any air, water, and solid waste treatment and recycling plant or pollution control and monitoring equipment (and any improvement to the plant or equipment) if the plant or equipment is-

 

(a)     utilised in the course of a taxpayer’s trade in a process that is ancillary to any process of manufacture or any other process which, in the opinion of the Commissioner, is of a similar nature; and

 

(b)     required by any law of the Republic for purposes of complying with measurres that protect the environment; and

Paragraph 35 (Eighth Schedule) – Proceeds from disposal

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35.     Proceeds from disposal

(1)     Subject to subparagraphs (2), (3) and (4), the proceeds from the disposal of an asset by a person are equal to the amount received by or accrued to, or which is treated as having been received by, or accrued to or in favour of, that person in respect of that disposal, and includes-

(a)     the amount by which any debt owed by that person has been reduced or discharged; and

(b)     any amount received by or accrued to a lessee from the lessor of property for improvements effected to that property.

(1A)    ………..

[Subparagraph (1A) inserted by section 133 of Act 31 of 2013 and deleted by section 78 of Act 23 of 2018 effective on 17 January 2019]

(2)     The amount of the proceeds from a disposal by way of a value shifting arrangement is determined as the market value of the person’s interests to which paragraph 11(1)(g) applies immediately prior to the disposal less the market value of the person’s interests immediately after the disposal, which amount shall be treated as having been received or accrued to that person.

(3)     The proceeds from the disposal, during a year of assessment, of an asset by a person, as contemplated in subparagraph (1) must be reduced by-

[Words preceding item (a) substituted by section 111 of Act 25 of 2015 effective on 1 January 2016]

(a)     any amount of the proceeds that must be or was included in the gross income of that person or that must be or was taken into account when determining the taxable income of that person before the inclusion of any taxable capital gain;

(b)     any amount of the proceeds that has during that year of assessment been repaid or has become repayable to the person to whom that asset was disposed of; or

[Paragraph (b) substituted by section 111 of Act 25 of 2015 effective on 1 January 2016] 

(c)     any reduction, as the result of the cancellation, termination or variation of an agreement, other than any cancellation or termination of an agreement that results in the asset being reacquired by the person that disposed of it, or any reduction due to the prescription or waiver of a claim or release from an obligation or any other event during that year, of an accrued amount forming part of the proceeds of that disposal.

[Item (c) substituted by section 111(1)(b) of Act 25 of 2015 and by section 58 of Act 34 of 2019]

(4)     Where during any year of assessment a person has become entitled to any amount which is payable on a date or dates falling after the last day of that year, that amount must be treated as having accrued to that person during that year.

Paragraph 35A (Eighth Schedule) – Disposal of certain debt claims

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35A.     Disposal of certain debt claims

(1)     This paragraph applies where-

(a)     a person has disposed of an asset during any year of assessment, all the proceeds of which will not accrue to that person in that year;


(b)     that person subsequently disposes of any right to claim payment in respect of that disposal; and


(c)     that claim includes any amount which has not yet accrued to that person at the time of the disposal of that claim.

(2)     So much of any consideration received by or accrued to a person from the disposal of a claim contemplated in subparagraph (1)(b) as is attributable to any amount which has not yet accrued to that person as contemplated in subparagraph (1)(c), must be treated as an amount of consideration which accrues to that person in respect of the disposal of the asset contemplated in subparagraph (1)(a).

[Subparagraph (2) substituted by section 71 of Act 17 of 2017 effective on 18 December 2017]

(3)     So much of any capital gain or capital loss determined in respect of the disposal by the person of the right to claim payment as contemplated in subparagraph (1)(b), as is attributable to any amount which has not yet accrued to mat person, must be disregarded.

Paragraph 37 (Eighth Schedule) – Assets of trust and company

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37.     Assets of trust and company

 

(1)     Where-

 

(a)     an asset contemplated in paragraph 15 which is not used for purposes of carrying on a trade or an asset which, if owned by a natural person, would be a personal-use asset as contemplated in paragraph 53, is owned by a trust or a company any interest in which or any shares of which are held directly or indirectly by a natural person;

 

(b)     there is a decrease in the market value of that asset while held by that trust or company after that person acquired an interest in that trust or company; and

 

(c)     any interest in that trust or that company is thereafter disposed of by a person, that person must be treated as having disposed of that interest for proceeds equal to the market value of that interest, determined on the date of disposal, as if the market value of that asset had not decreased.

 

(2)     Subparagraph (1) does not apply where more than 50 per cent of the assets of the trust or company consist of assets used wholly and exclusively for trading purposes.

Paragraph 37A (Eighth Schedule) – 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, 2002 (Act No. 28 of 2002); 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, 2002 (Act No 45 of 2002);

 

(ii)     long-term insurer as regulated in terms of the Long-Term Insurance Act, 1998 (Act No. 52 of 1998);

 

(iii)    bank as regulated in terms of the Banks Act, 1990 (Act No. 94 of 1990); 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 Minister of Minerals and Energy 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 Minister of Minerals and Energy 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 Minister of Minerals and Energy 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 contemplated in this section contravenes any provision of subsection (2) during any year of assessment by holding property other than property contemplated in that subsection –

 

(a)     an amount of taxable income is deemed to accrue equal to the market value of that other property on the first date that company or trust held that other property; and

 

(b)     the deemed amount contemplated in paragraph (a) shall be included in the income of the person contemplated in subsection (1)(d) for the year of assessment of that person during which that contravention occurred to the extent that other property is (directly or indirectly) derived from cash paid by that person to that company or trust.

 

(7)     If the company or trust contemplated in this section contravenes any provision of subsection (1)(a) during any year of assessment by distributing property from that company or trust for a purpose other than –

 

(a)     rehabilitation upon premature closure;

 

(b)     decommissioning and final closure;

 

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

 

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

 

an amount equal to the market value of property that was so distributed must for purposes of this Act be deemed to be an amount of taxable income which accrued to such company or trust during the year of assessment in which that distribution occurred.

 

(8)     Where the Commissioner is satisfied that a company or trust contemplated in this section has contravened any provision of this section during any year of assessment, the Commissioner may –

 

(a)     include an amount equal to twice the market value of all of the property held in that company or trust on the date of that contravention as taxable income; and

 

(b)     include the amount contemplated in paragraph (a) in the income of the person contemplated in subsection (1)(d) for the year of assessment of that person during which the Commissioner is satisfied the contravention occurred to the extent that property is (directly or indirectly) derived from cash paid by that person to that company or trust

 

Provided that the Commissioner may reduce the amount of taxable income contemplated under this subsection as the Commissioner may think fit.

Paragraph 37C (Eighth Schedule) – Deductions in respect of environmental conservation and maintenance

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37C.     Deductions in respect of environmental conservation and maintenance

 

(1)     Expenditure actually incurred by a taxpayer to conserve or maintain land is deemed to be expenditure incurred in the production of income and for purposes of a trade carried on by that taxpayer, if-

 

(a)     the conservation or maintenance is carried out in terms of a biodiversity management agreement that has a duration of at least five years entered into by the taxpayer in terms of section 44 of the National Environmental Management: Biodiversity Act, 2004 (Act No. 10 of 2004); and

 

(b)     land utilised by the taxpayer for the production of income and for purposes of a trade consists of, includes or is in the immediate proximity of the land that is the subject of the agreement contemplated in paragraph (a).

 

(2)

 

(a)     Any deduction of expenditure contemplated in subsection (1) must not be allowed to the extent that the expenditure exceeds the income of the taxpayer derived from trade carried on by the taxpayer on land utilised as contemplated in subsection (1)(b) in any year of assessment.

 

(b)     The amount by which the deduction exceeds the income of the taxpayer so derived must be deemed to be expenditure incurred by the taxpayer in the following year of assessment.

 

(3)     An amount equal to the expenditure actually incurred by a taxpayer to conserve or maintain land owned by the taxpayer is for purposes of section 18A deemed to be a donation by the taxpayer actually paid or transferred during the year to the Government for which a receipt has been issued in terms of section 18A(2), if the conservation or maintenance is carried out in terms of a declaration that has a duration of at least 30 years in terms of section 20, 23 or 28 of the National Environmental Management: Protected Areas Act, 2003 (Act No. 57 of 2003).

 

(4)     If during the current or any previous year of assessment a deduction is or was allowed to the taxpayer in terms of subsection (1) or (3) in respect of expenditure incurred to conserve or maintain land in terms of an agreement or declaration contemplated in those subsections, and the taxpayer subsequently is in breach of that agreement or violates that declaration, an amount equal to the deductions allowed in respect of expenditure incurred within the period of five years preceding the breach or violation must be included in the income of the taxpayer for the current year of assessment.

 

(6)     If-

 

(a)     land is declared a national park or nature reserve in terms of an agreement under section 20(3) or 23(3) of the National Environmental Management: Protected Areas Act, 2003 (Act No. 57 of 2003); and

 

(b)     the declaration is endorsed on the title deed of the land and has a duration of at least 99 years,

 

an amount equal to 10 per cent of the lesser of the cost or market value of the land without regard to any right of use retained by any taxpayer is for purposes of section 18A and paragraph 62 of the Eighth Schedule deemed to be a donation paid or transferred to the Government for which a receipt has been issued in terms of section 18A(2), in the year of assessment in which the land is so declared and each of the succeeding nine years of assessment.

 

(6)     If the taxpayer retains a right of use of land contemplated in subsection (5), the amount deemed to be a donation in terms of that subsection is an amount that bears to the amount determined in terms of that subsection the same ratio as the market value of the land subject to the right of use bears to the market value of the land had that land not been subject to the right of use.

 

(7)     If during the current or any previous year of assessment a deduction is or was allowed to the taxpayer in terms of subsection (5) in respect of a deemed donation in terms of a declaration contemplated in that subsection, and the taxpayer subsequently violates that declaration, an amount equal to the deduction allowed in respect of the deemed donation within the period of five years preceding the violation must be included in the income of the taxpayer for the current year of assessment.

 

37D.    ……….

 

37E.     ……….