South Africa
19.A81. Persons carrying on mining operations on a mine which commenced production after 1 January 1974 may deduct from income derived from mining in each year the whole of the capital expenditure incurred by them in the carrying on of such mining operations.
19.A82. Capital expenditure, in order to qualify for the deduction, must fall within one of the following categories:
- (a) Expenditure on shaft sinking and mine equipment—i.e. ‘all the apparatus (including buildings) necessary for carrying on mining’—and the cost of laying pipelines from the site to the marine terminal or refinery. Equipment under this category must exceed a certain cost (R40,000).
- (b) Expenditure on development, general administration and management (including interest on loans utilised for mining purposes) prior to the commencement of production or during any period of non-production.
- (c) In the case of deep-level gold mines, new gold mines, and natural oil mines, a special allowance of 5 per cent per annum of unredeemed expenditure incurred on a number of items: for example, expenditure incurred during any period of production on development of any reef on which, at the date of such development, stoping had not commenced. This deduction is available from the end of the month in which the expenditure is incurred up to the end of the year of assessment immediately preceding that in which the determination of the taxable income derived from the working of the mine does not result in an assessed loss.
19.A83. Capital expenditure deductible is ‘net’: that is, where a capital asset falls within the description of an allowable category, any amount obtained as a result of its sale must be deducted in order to arrive at net expenditure. The cost of acquisition of a mining right does not form part of the capital expenditure ranking for redemption.
19.A84. Computation of deduction. Formerly, accumulated (net) capital expenditure
together with 75 per cent of the capital expenditure incurred in the year of income were aggregated and the
aggregate amount was divided by the estimated life
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of the mine (but not exceeding thirty years)
and the resulting quotient was the redemption allowance for the year of assessment. Twenty-five per cent of
the capital expenditure for the year was immediately deductible. After deducting the allowance from the
aggregate amount, the portion remaining represented the unredeemed balance of capital expenditure and was
carried forward to the next year of assessment to form the basis of a fresh calculation for that year.
19.A85. It will be observed that the provision resembled the Australian section 122D in relation to accumulated capital expenditure. Special provisions existed in relation to gold mines, diamond mines and natural oil mines.
19.A86. In relation to years of assessment after 31 December 1973, capital expenditure incurred after that date is fully deductible and may, if it exceeds the assessable income of the enterprise, promote an assessed loss. A balance of any assessed loss incurred in a previous year of assessment may be carried forward to the year of assessment to be set off against income derived from any other trade in the Republic. If in any year of assessment the taxpayer does not carry on a business, he is not permitted to carry forward to this year any balance of assessed loss established in respect of the immediately preceding year of assessment. In this way, the taxpayer forfeits his right to claim a deduction for the accumulated loss. (On 14 August 1974, the Minister of Finance announced proposals to allow taxpayers operating a mine to write off all balances of unredeemed capital expenditure over a period of five years expressly for the purpose of financing expansion.)
19.A87. Closing down of mine. As under the Australian provisions, where the mine is closed down, any balance of unredeemed capital expenditure remaining is lost unless the mine is ultimately reopened by the taxpayer. Further, similar to section 122K of the Australian Act, if, as a consequence of sale, recoupments of capital expenditure are in excess of unredeemed capital expenditure, such excess is brought to account as income.
19.A88. Change of ownership. A purchaser may claim a deduction for capital expenditure computed as being the effective value to him at the time of purchase of the preliminary surveys, boreholes, shafts, development and equipment included in the assets purchased. Whatever amount is allowed to rank as capital expenditure for redemption by the new owner is deemed to be a recoupment from capital expenditure by the previous owner. ‘Effective value’ is determined by the Government Mining Engineer.