Section 12C(1)(a) special depreciation allowance on landfill cells

Interpretation of s12C, s13 and s37B(1): The Enviroserv Supreme Court of Appeal of South Africa Case Perspective

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The Supreme Court of Appeal, in the Enviroserv case, made a ruling regarding the classification of landfill cells for the purpose of depreciation allowance under various sections of the Income Tax Act (ITA). Here's a breakdown of the key points:

1. Section 12C

  • Provides for special depreciation allowances on plant and machinery used directly in the process of manufacture, incentivizing growth in the manufacturing sector.
  • The allowance is 40% of the cost for the year of assessment when the machinery was first used, and 20% for each of the subsequent three years.
  • The requirement is that the asset must be used in a process of manufacture or in a similar process.

2. Section 13

  • Allows for an allowance of 2% of the cost of a building used in the process of manufacture.
  • The building must be wholly or mainly used for manufacturing, research and development, or similar processes in the taxpayer’s trade.

3. Section 37

  • Regulates depreciation allowance on environmental treatment and recycling assets, and environmental waste disposal assets used in a process ancillary to manufacture or a similar process.
  • Landfill cells were found not to be ancillary to the process of manufacture, and thus, depreciation allowances cannot be claimed under this section.

The court concluded that landfill cells are not waste disposal assets or buildings as envisaged by Sections 37B and 13, respectively. Instead, they are considered assets used in the process of manufacture, making them eligible for accelerated depreciation allowance under Section 12C. The court emphasized that the storage of leachate in the cells does not negate the fact that the cells are involved in the process of producing the leachate, qualifying them for the depreciation allowance under Section 12C. As a result of this ruling, taxpayers who own landfill cells or waste disposal assets may be able to claim the accelerated depreciation allowance under Section 12C, provided all the requirements of that section are met.