Modern Mining March 2020

CONTRACT MINING

Proposed amendments to the capital expenditure regime for contract miners Following the Benhaus Mining case, the Annexure C proposals to the 2020/21 Budget have recommended that National Treasury considers the challenges around the tax treatment of contract miners in further detail with possible amendments to the capital expenditure regime contained in section 36(11) of the Income Tax Act. What is the point of contention here and what will be the possible considerations as far as amendments are concerned? Munesu Shoko speaks to several experts for further clarity.

M ining by its nature requires large initial capital outlays and in recognition of this the South African Income Tax Act regime pro- vides for an accelerated deduction of such capital expenditure by miners. The Income Tax Act No 52 of 1968 (ITA) provides for a special regime for taxpayers engaged in mining operations. The reasoning behind the special treatment is that the establishment of a mine is an expensive and lengthy process, with long lead times until any profit is seen by the mining company. In the Benhaus Mining (Pty) Ltd vs Commissioner

for the South African Revenue Service (165/2018) [2019] ZASCA 1 (Benhaus Case), it was held that the special regime be extended to contract miners who engage in mining operations, under a contract with the holder of a mining right, and who earn a deter- minable fee under such agreement. The judgement arguably changed the tax land- scape for contract miners. The court found that a contract miner would be entitled to claim the deduc- tions and benefits conferred by sections 15(a) and 36(7C) of the ITA in respect of mining capital expen- diture to a mining contractor. This dispensation was

The SCA ruling in the Benhaus case held that contract miners do in fact conduct ‘mining operations’ and ‘mining’ as defined in the Income Tax Act and were therefore, like mining companies, entitled to claim deductions of the full amount of capital expenditure on mining equipment in the tax year in which it is incurred.

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36  MODERN MINING  March 2020