The Supreme Court of Appeal recently delivered a landmark decision in Benhaus Mining v CSARS (165/2018) [2019] ZASCA 17, finding that Benhaus Mining (Pty) Ltd (‘Benhaus Mining’), a contract miner, is entitled to the favourable, accelerated mining capital expenditure allowance (‘the mining capex allowance’) in terms of section 15(a) read with section 36 of the Income Tax Act, No. 58 of 1962 (‘ITA’).

The mining capex allowance is reserved exclusively for miners as a class priviledge, in order to encourage mining as a key industry in South Africa, by aiming to compensate miners for the significant and unique risks inherent to their business.

To qualify for the mining capex allowance, a taxpayer must earn income from mining operations. Put differently, the taxpayer must be engaged in mining operations on a producing mine.

The terms ‘mining’ and ‘mining operations’ are defined in the ITA to include “every method or process by which any mineral is won from the soil or any substance or constituent thereof”.

The court found that a company that extracts mineral-bearing ore from the ground for a fee, on delivery to another
entity that processes the ore, undertakes mining operations within the meaning of sections 1 and 15(a) of the ITA.

Such a company therefore earns income from those mining operations and, therefore, qualifies for the mining capex allowance – i.e. it is entitled to claim deductions in respect of capital expenditure incurred in relation to mining equipment, in terms of section 15 read with section 36(7C) of the ITA.

The court came to this conclusion, despite the fact the Benhaus Mining holds no mining rights and does not trade in the minerals extracted from the earth.

Should you be a contract miner who digs mineral-bearing ore or run-of-mine product, you may similarly be entitled to the mining capex allowance.

Contact us should you wish to discuss the opportunities associated herewith.


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