TAXATION TREATMENT OF REHABILITATION AND ENVIRONMENTAL EXPENDITURE

Abstract

In recent times, the political impetus gathered by the greater public environmental awareness has resulted in an explosion in the volume and complexity of mandatory environmental standards imposed on almost all industry, but particularly on mining and petroleum operations.1 Pressure exerted by the public (including shareholders) requires that companies not only take their mandatory requirements seriously, but that they also voluntarily assume certain environmental responsibilities. These pressures have and will result in higher levels of expenditure for many companies in areas not previously incurred, highlighting the need for adequate taxation relief to be provided.

The paper examines firstly the deductibility of rehabilitation and environmental expenditure under Section 51(1) of the Act. Further, it examines specific provisions within the Act available to all companies which relate to expenditure on environmental impact studies, or for the protection of the environment. The paper also examines rehabilitation provisions which relate specifically to the mining industry. The discussion includes consideration of recent leading cases such as the MIM Case and the AMC Case.

While the paper looks at the deductibility of such costs generally, it is directed at the mining and petroleum industries and seeks to identify practical examples that would be encountered by petroleum explorers. The paper also seeks to identify weaknesses within the current legislative framework that adversely affect companies carrying out rehabilitation and other environmental activities.