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Did you know that like any other trader, miners are taxed on income realised from their operations? There are, however, other specific deductions that are applicable to their business operations and one such deduction is the Capital Redemption Allowance deductible in terms of the 5th Schedule to the Income Tax Act.

What is Capital Redemption Allowance?
Capital Redemption Allowance is a deduction allowable in respect of specified capital expenditure incurred by a miner. This covers a wide range of capital expenses such as mine buildings, plant and equipment, shaft sinking and others. It should be stated that pre-production costs are normally included in computing this deduction subject to restrictions.

The CRA, however, excludes expenditure incurred on the acquisition of mine claims, goodwill and company floatation expenses.
CRA is granted in place of other capital allowances (special initial, wear and tear, scrapping allowances, etc) allowed to other traders in terms of the Income Tax Act.

In order to understand how the deduction is computed, it is critical to explain the terms stated below.
Current Capital Expenditure refers to the costs incurred by a miner in the current tax year in respect of specified capital expenditure such as mine buildings, plant and equipment, shaft sinking and others.

Capital Redemption Allowance is a deduction allowable to a miner in respect of specified capital expenditure incurred by a miner in respect of items such as mine buildings, plant and equipment, shaft sinking and others. This allowance may consist of both the current expenditure and other expenses incurred in previous years prior to the commencement of mine production.

It should be emphasised that no CRA arises until the year of assessment in which a mine first commences production. There are, however, exceptions, particularly in cases where a taxpayer has more than one mine.  If a miner is unable to claim the full capital expenditure or any part of the pre-production expenses in a particular year, the balance of the expenditure (not claimed against the income of the miner) is termed the Unredeemed Balance of Capital Expenditure.

Election of method to be adopted by a miner  in claiming CRA
There are four methods normally adopted by a miner in claiming CRA as follows:

•  Life of Mine Basis – Mine Owner

•  Mixed Basis

•  New Mines – Current Basis

•  Replacement

When adopting any of the above method, a miner is required to make a formal election to the Commissioner-General stating the method preferred.

Methods of calculating CRA explained
New Mine Basis
A person who conducts mining operations in a new mine may elect to deduct in the year of assessment in which productiona commences both:  (i) the accumulated capital expenditure incurred prior to commencement and (ii) capital expenditure incurred subsequent to commencement (in the respective year of assessment).

Capital expenditure in subsequent years is deductible as and when it is incurred.  The basis is available to individuals and firms. It also applies regardless of whether the taxpayer owns or tributes the mine. The Capital Redemption Allowances is calculated as follows:

UBCE b/f            xxx
Less Recoupment            xxx
Add: CCE            xxx
CRA                xxx
Life of Mine Basis
Where a taxpayer adopts this method, he submits to the Commissioner an estimate of the number of years for which operations are expected to continue. This is normally based on certified estimates of ore reserves done by mining experts. The Capital Expenditure ranking for CRA (less any recoupment) is divided by the life of the mine calculated from the commencement of year of assessment concerned.
This calculation is used even if the mine was in production for only a portion of the year. A new estimate of the life of the mine is required for each year of assessment. A taxpayer who adopts the life of mine basis in respect of a particular mine is permitted to change subsequently to the “mixed basis”. (to be explained below). This method is also open to both mine owning companies and individuals provided the taxpayer is able to supply estimates of ore reserves on an annual basis to the Commissioner-General. The CRA under this method is calculated as follows:
UBCE b/f                                                                                xxx
Less Recoupment                                                                   xxx
Add: CCE                                                                                xxx
Total                                                                                         xxx
CRA = Total Costs divided by Life of Mine
Mixed Basis
This is a mixture of the life of mine and new mine basis. The aim of this method is to allow a composite deduction in respect of:
a) a portion of the balance of unredeemed capital expenditure brought forward, and b) expenditure incurred during the current year. It should be stated that the deductible portion of the unredeemed balance is determined on either the life of mine basis or the fair and reasonable basis depending on the taxpayer. In addition, it should be stated that once an election is made under this method, it is binding for subsequent years of assessment. The Capital Redemption Allowance under this method is calculated as follows:
UBCE b/f                                                                                  xxx
Less Recoupment                                                                     xxx
Net                                                                                              xxx
Portion of CRA
=Net/Life of mine                                                                   xxx
Add CCE                                                                                   xxx
CRA                                                                                           xxx

• Our valued clients are hereby reminded that the PAYE for the month of October is due on November 10, 2013.

Disclaimer: This article was compiled by the Zimbabwe Revenue Authority for information purposes only. Zimra shall not accept responsibility for loss or damage arising from use of material in this article and no liability will attach to the authority.  

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