Original Research

An analysis of the tax implications of prospecting expenditure incurred by junior exploration companies in South Africa

Joline Sturdy, Christo Cronjé
Journal of Economic and Financial Sciences | Vol 6, No 2 | a263 | DOI: https://doi.org/10.4102/jef.v6i2.263 | © 2018 Joline Sturdy, Christo Cronjé | This work is licensed under CC Attribution 4.0
Submitted: 27 June 2018 | Published: 31 July 2013

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Joline Sturdy, Department of Financial Accounting, University of South Africa, South Africa
Christo Cronjé, Department of Financial Accounting, University of South Africa, South Africa

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Abstract

One of the consequences of the change in the mineral policy of South Africa with the promulgation of the Mineral and Petroleum Resources Development Act 28 of 2002 was the increase in junior exploration companies. Junior exploration companies are mainly involved in prospecting activities. No definition exists for either prospecting or exploration in the Income Tax Act 58 of 1962 (Income Tax Act). The lack of research and case law on the tax treatment of prospecting expenditure by junior exploration companies may result in various interpretations for the treatment of prospecting expenditure. Through critical analysis of specific sections in the Income Tax Act, applicable case law and relevant literature, it is evident that there are different interpretations by junior exploration companies of the treatment of prospecting expenditure from an income tax perspective. The perceived challenges with interpretation of the tax treatment of prospecting expenditure by junior exploration companies create an opportunity for further research.

Keywords

junior exploration companies; prospecting expenditure; prospecting rights; mining operations; income derived from mining operations; Section 11(a), Section 15(b) and Section 22 of the Income Tax Act

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