SCA Ruling on Deductibility of Mining Relocation Costs
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Sishen Iron Ore Company (Pty) Ltd v Commissioner for SARS (2025 ZASCA 16)
The Supreme Court of Appeal (SCA) delivered an important judgment on 5 March 2025relating to the tax deductibility of relocation and infrastructure costs for a mining company.
📌 Background
Sishen Iron Ore Company, a large mining operation in the Northern Cape, relocated:
The Dingleton township (residential area near the mine),
Key infrastructure (like rail, roads, and power lines) in its mining area, and
A 66kV power line used for mine equipment.
Sishen claimed tax deductions for all of these expenses. SARS disallowed most deductions and imposed penalties and interest.
⚖️ What the Court Had to Decide
The Supreme Court of Appeal (SCA) had to determine:
Were the relocation costs tax deductible under mining provisions of the Income Tax Act?
Was the 66kV power line part of “mine equipment”?
Could legal costs (helping township residents relocate) be deducted?
Should interest and penalties imposed by SARS be upheld?
🧾 Court Findings – What Was Allowed and What Wasn't
✅ The Court Allowed:
Relocation of Dingleton and SWEP infrastructure
The court ruled that these costs were essential for the continuation of mining operations and were therefore deductible under section 36(11)(e). Without the relocations, Sishen could not legally or safely expand its mining activities.
66kV Power Line costs
The court confirmed these expenses were directly related to mine equipment and deductible under section 36(11)(a), noting that the power supply was critical for operating mining machinery.
Penalties and interest
The court overturned SARS’s imposition of understatement penalties and interest, finding that they were incorrectly applied.
❌ The Court Did NOT Allow:
Legal costs for helping residents relocate did not directly relate to Sishen’s trade (iron ore mining) and could not be deducted under section 11(c).
📘 What Does This Mean
This case provides key guidance on when capital relocation and infrastructure costs can be claimed by mining (and potentially other industrial) operations:
If the costs are required to comply with a mining right or legal obligations, they may be deductible—even if they benefit third parties.
Infrastructure owned by third parties may still qualify if relocation is essential for mining continuation.
Detailed documentation—such as a Mining Work Programme (MWP)—can support the deduction of large-scale expenses.
💡 Takeaway
If you are advising mining clients or similar industries, you can use this court ruling to:
Better understand how capital expenditure provisions in the Income Tax Act apply to mining operations.
Align tax planning strategies with legal and regulatory compliance requirements.
Carefully assess legal and relocation expenses to determine whether they are sufficiently linked to income-producing activities and therefore deductible.
