13 April 2020 South Africa imposes national lockdown due to COVID-19 | Impact on mining companies On 24 March 2020, the South African President announced a national lockdown to tackle the spread of the coronavirus, which began on 26 March and is planned to last until 16 April 2020. As a result of the lockdown, mining entities are required to "shutdown" as they are not regarded as essential service providers. Accordingly, mining entities are in a compulsory "care and maintenance" phase which means no production will occur during this lockdown period. For tax purposes, this period of non-production may trigger the requirements of section 36(11)(b) of the Income Tax Act, 58 of 1962 (the Act). Therefore, all expenses incurred during this period will be deemed to have been incurred during a time of non-production and are not deductible under the general deduction formula in terms of section 11(a) but rather under section 36(11)(b). Section 36(11)(b) provides that any expenditure incurred during a period of non-production constitutes capital expenditure. Capital expenditure includes expenditure on development, general administration and management (including any interest and other charges payable after 31 December 1950, on loans utilized for mining purposes) prior to the commencement of production or during any period of non-production. Capital expenditure is only deductible against mining taxable income, granted the mining entities have sufficient taxable income. The capitalization of the expenditure may increase the tax base of fixed assets, resulting in an increase in the deferred tax asset. Although the period of non-production is planned to be less than a month, mining entities should analyze their expenditure incurred in the period of non-production and perform an apportionment calculation if necessary, to ensure the correct application of section 36(11)(b). Document ID: 2020-0964 |
