Armgold/Harmony Freegold Joint Venture (Pty) Ltd v Commissioner for the South African Revenue Services (703/2011) [2012] ZASCA 152; 2013 (1) SA 353 (SCA); [2013] 1 All SA 253 (SCA); 74 SATC 351 (1 October 2012)

Armgold/Harmony Freegold Joint Venture (Pty) Ltd v Commissioner for the South African Revenue Services (703/2011) [2012] ZASCA 152; 2013 (1) SA 353 (SCA); [2013] 1 All SA 253 (SCA); 74 SATC 351 (1 October 2012)

The Supreme Court of Appeal held that while SARS's method of setting off the St Helena mine's loss against the taxable incomes of the Freegold and Joel mines before capital expenditure deductions was impermissible in principle, the appellant's approach also failed to comply with the statutory scheme. The correct interpretation requires the aggregate capex deduction to be limited by section 36(7E) to the taxpayer's total taxable income from mining before capex, which includes the losses of unprofitable mines. The individual capex caps for profitable mines must then be reduced proportionally so that their total does not exceed the general cap. The operating expenses and losses of one mine...

Citation
[2012] ZASCA 152
Parties
Appellant: Armgold/Harmony Freegold Joint Venture (Pty) Limited; Respondent: Commissioner for the South African Revenue Service
Court
Supreme Court of Appeal
Jurisdiction
South Africa
Judgment Date
1 October 2012
Case Number
703/2011
Procedural Posture
Civil Appeal / Appeal From Tax Court, South Gauteng High Court, Johannesburg
Outcome
Appeal dismissed with costs, including costs of two counsel.
Judges
Navsa, Cloete, Heher, Leach, Pillay
Legal Topics
Mining Capital Expenditure, Income Tax Act 58 of 1962, Deduction of Assessed Losses, Ring Fencing of Mining Operations, Taxable Income Calculation
Tax Law Commercial and Corporate Mining Capital Expenditure Income Tax Act 58 of 1962 Deduction of Assessed Losses Ring Fencing of Mining Operations Taxable Income Calculation

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Parties

Armgold/Harmony Freegold Joint Venture (Pty) Limited

Appellant

Commissioner for the South African Revenue Service

Respondent

Procedural Posture

Civil Appeal / Appeal From Tax Court, South Gauteng High Court, Johannesburg

Legal Issues

  1. 1 How should deductions for mining capital expenditure and assessed losses be applied in calculating the taxable income of a mining company operating multiple mines, some of which operate at a loss?
  2. 2 Is it permissible to set off the operating expenses or losses of one mine against the taxable income of other profitable mines before capital expenditure deductions are made?
  3. 3 Does the Income Tax Act require each mine's operations to be treated as a separate trade for purposes of assessed loss and capital expenditure deductions?

Ratio Decidendi

The Supreme Court of Appeal held that while SARS's method of setting off the St Helena mine's loss against the taxable incomes of the Freegold and Joel mines before capital expenditure deductions was impermissible in principle, the appellant's approach also failed to comply with the statutory scheme. The correct interpretation requires the aggregate capex deduction to be limited by section 36(7E) to the taxpayer's total taxable income from mining before capex, which includes the losses of unprofitable mines. The individual capex caps for profitable mines must then be reduced proportionally so that their total does not exceed the general cap. The operating expenses and losses of one mine...

Court Disposition

Appeal dismissed with costs, including costs of two counsel.

Orders

  • The appeal is dismissed with costs, such costs to include the costs of two counsel.