Environmental assets

2008-01-17 00:00

Global warming appears to be the buzz words in the world at present. There has been an increased concern worldwide on the amount of pollution which has been emitted. It follows that the preservation of the environment becomes the primary focus in the world economy, particularly in the manufacturing sector.

In terms of the current tax legislation, plant and machinery, which is used in the manufacturing process, is depreciated in terms of section 12C (40:20:20:20) of the Income Tax Act No. 58 of 1962, as amended. It appears that any other environmental assets are not subject to depreciation. However, environmental moveable equipment is subject to the provisions of section 11(e) of the act (general wear and tear).

There is currently uncertainty relating to the deductibility of environmental costs incurred after trade ceases. In terms of the act, ongoing trade and production are pre-requisites for the deduction of business expenses. It therefore follows that capital expenditure relating to decommissioning, remediation and restoration costs which are incurred after trade ceases will not be deductible. The environmental capital expenditure is generally of a permanent nature, not used directly in the process of manufacture and is of an ancillary nature. The fiscus has indicated that the environmental capital expenditure is a legal precondition for operation and should be encouraged as a matter of sound government policy.

In the Revenue Laws Amendment Bill, which is currently circulated for public comment, it is proposed that the post trade environmental expenses be tax deductible. The provisions will be encompassed in section 37B of the act. These expenses are seen to be necessary and they represent activities to remedy a potential legal liability that may arise from trade. The proposal is aimed at providing relief for environmental production assets (waste treatment and recycling facilities together with any improvements) as well as post production assets (waste dumps and dams together with any improvements). It is envisaged that these assets must be ancillary to the manufacturing process and they must be of a permanent nature. Furthermore, they must be used for the purposes of fulfiling the enterprise’s legal environmental obligations.

It is important to note that the proposed section only relates to new or unused production and post-production assets together with any improvements. Section 37B will only relate to assets acquired after the effective date. It does not relate to assets that were acquired from a purchaser who used the assets prior to the sale.

As the environmental production assets are closely linked to the production process, a similar write off period is envisaged (40:20:20:20). This is in line with section 12C of the act. The rate for environmental post-production assets is five percent per annum on a straight line basis. These assets are used to control the resultant pollutants outside the ongoing process. They will entail dams, reservoirs, evaporation ponds, etc. Due to the permanent nature of these assets, the five percent write-off is linked to that of a building used in the process of manufacture.

The section proposes that the amount to be depreciated is the cost of the production or post-production asset to the taxpayer. This depreciable amount is based on the lesser of the cost of the asset to the taxpayer or the arm’s length price at the time of acquisition. The section will not apply in the situation where the taxpayer no longer owns the environmental assets. The section will also permit the deduction of environmental capital expenditure (decommission, remediation and restoration) as if the initial trading has continued. Unlike pre-trade expenditure and losses under section 11A, the environmental capital expenditure is not ring-fenced. It must be noted that this section applies to environmental capital expenditure even if the production or post-production asset is eligible for depreciation relief under sections 12C or 13 of the Income Tax Act.

Join the conversation!

24.com encourages commentary submitted via MyNews24. Contributions of 200 words or more will be considered for publication.

We reserve editorial discretion to decide what will be published.
Read our comments policy for guidelines on contributions.

24.com publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
0 comments
Comments have been closed for this article.

Inside News24

 
/News

Book flights

Compare, Book, Fly

Traffic Alerts
Traffic
There are new stories on the homepage. Click here to see them.
 
English
Afrikaans
isiZulu

Hello 

Create Profile

Creating your profile will enable you to submit photos and stories to get published on News24.


Please provide a username for your profile page:

This username must be unique, cannot be edited and will be used in the URL to your profile page across the entire 24.com network.

Settings

Location Settings

News24 allows you to edit the display of certain components based on a location. If you wish to personalise the page based on your preferences, please select a location for each component and click "Submit" in order for the changes to take affect.




Facebook Sign-In

Hi News addict,

Join the News24 Community to be involved in breaking the news.

Log in with Facebook to comment and personalise news, weather and listings.