Short-term insurance (section 28)
The ordinary rules for the determination of taxable income also apply to a short-term insurer.
Short-term insurers are allowed to deduct expenditure incurred in respect of their business of
insurance, premiums on reinsurance and the actual amount of a liability incurred for any
claims, less any claims recovered. In addition, allowances for unexpired risks, claims reported
but not paid and claims not reported nor paid, are allowed subject to the discretion of the
Commissioner. Such allowances claimed as a deduction in a year of assessment must be
included as income in the succeeding year of assessment.
Long-term insurance (section 29A)
Insurers hold and administer certain assets on behalf of various categories of policyholders,
while the balance of the assets represents the shareholders’ interests.
These companies are liable for income tax according to a five-fund approach. The application
of this approach requires that long-term insurers allocate their assets to the five separate
funds, namely, untaxed policyholder fund, individual policyholder fund, company policyholder
fund, corporate fund and the risk policy fund. The taxable income derived by an insurer in
respect of its individual policyholder fund, its company policyholder fund, its corporate fund
and its risk policy fund must be determined separately in accordance with the provisions of
the Act as if each fund had been a separate taxpayer and the individual policyholder fund,
company policyholder fund, untaxed policyholder fund, corporate fund and its risk policy fund
shall be deemed to be separate companies which are connected persons in relation to each
other for the purposes of certain provisions of the Act.
Mining entities are allowed to deduct capital expenditure incurred from taxable income derived
from mining operations, subject to certain limitations as indicated in the paragraph below.
Capital expenditure includes, for example, expenditure on shaft sinking and mine equipment.
It also includes expenditure on development, general administration and management before
the commencement of production or during a period of non-production.
The deduction of capital expenditure incurred on a particular mine is restricted to the taxable
income derived from that mine only. Any excess (unredeemed) capital expenditure will be
carried forward and deemed to be capital expenditure incurred during the next year of
assessment of the mine to which the capital expenditure relates. The capital expenditure of a
mine cannot be set-off against non-mining income such as interest, rental, other trading
activities etc. However, if a new mine commenced mining operations after 14 March 1990, its
excess (unredeemed) capital expenditure may also be deducted from the total taxable income
derived from mining of other mines operated by the taxpayer, as does not exceed 25% of the
total taxable income derived from its other mines.
The taxable income of a company derived from mining for gold is taxed in accordance with a
special formula (see 2.14.5). A company which derives taxable income from other mining
operations is taxed at the same rate (28%) as is applicable to other companies.
Taxpayers conducting mining operations are required to rehabilitate areas where mining has
taken place. These taxpayers are therefore required to make provision for rehabilitation
expenses during the life of the mine. Amounts paid in cash to rehabilitation funds are allowed
as a deduction for income tax purposes.