Abstract
The mining industry plays a pivotal role in the development of the economy as well as contributing to the gross domestic product of South Africa. In developing a mine, a substantial amount of upfront capital investment is required, therefore special relief provisions have been enacted for mining companies and to encourage more investments and exploration activities in the country. The special relief provisions are contained in section 15 read together with section 36 of the Income Tax Act No. 58 of 1962 (the Act). These provisions provide for a 100% capital expenditure deduction of costs incurred on prospecting activities, including any costs incurred during any period prior to the commencement of production or during a period of non-production. However, there are several uncertainties when applying section 15 read together with section 36 of the Act. The key uncertainty is in relation to the meaning of the words “capital expenditure”, which is not comprehensively defined in the Act. Therefore, the definition is left open to interpretation by the taxpayer which can easily be claimed under the incorrect section of the Act. This research study aims to address the lack of clarity and guidance on what would qualify as capital expenditure, by conducting a detailed analysis of the meaning of capital expenditure. A doctrinal methodology based on an interpretive paradigm that is qualitative in nature has been selected as the approach to the research problem. The conclusion drawn has been summarised and presented as a framework to be applied in establishing whether certain costs would qualify for favourable capital expenditure deduction.
M.Com. (South African and International Taxation)