Abstract
M.Com.
Section 15 of the Income Tax Act, No. 58 of 1962 allows a taxpayer engaged in mining to deduct capital expenditure incurred from taxable income derived from mining operations. The deductible capital expenditure is determined in terms of the rules set out in section 36 of the Income Tax Act of 1962, and these deductions would generally be in place of capital allowances under certain subsections in section 11, 12 and 13. Broadly speaking sections 11, 12 and 13 allow taxpayers carrying on a trade to deduct capital allowances over several years, whereas section 15 allows for the full deduction of capital allowances in the year in which the expenditure is incurred.
Although the capital allowances under section 15 can be deducted in full, the deduction of the capital expenditure, in any year of assessment, is limited to the taxable income from mining operations as determined immediately prior to the deduction of capital expenditure in terms of section 36(7E). Additionally, the deduction of capital expenditure is limited and ring-fenced to the particular mine, and can therefore not be deducted against income generated from other mines in terms of section 36(7F) of the Income Tax Act of 1962. Moreover section 36(7E) and section 36(7F) provide that any excess capital expenditure not claimed as a deduction due to these limitations should be carried forward to the following year of assessment and is deemed to be capital expenditure incurred in that following year.
The Supreme Court of Appeal delivered a judgment in October 2012 specifying the methodology of calculating the taxable income subject to the capital expenditure deduction where a taxpayer makes a loss in one of its three mines, generates taxable income from its non-mining operations and incurs capital expenditure in all three mines (Armgold/Harmony Freegold Joint Venture v CSARS (703/2011) [2012] ZASCA 152). In this court case the capital expenditure incurred is subject to the above mentioned capital allowance limitations and the determination of taxable income against which the capital expenditure is to be deducted becomes important (Armgold/Harmony Freegold Joint Venture v CSARS (703/2011) [2012] ZASCA 152). The taxpayer and tax authorities applied different approaches in calculating this taxable income and hence the matter appeared before the tax court and ultimately the Supreme Court of Appeal.
The aim of this study is to critically analyse the judgement delivered by the Supreme Court of Appeal in order to determine if the judgement is in accordance with the requirements of the Income Tax Act of 1962. This analysis will include considering the requirements of the Income...