THE REPUBLIC OF SOUTH AFRICA
IN THE TAX COURT OF SOUTH AFRICA
(HELD AT MEGAWATT PARK, JOHANNESBURG)
Case No: IT 76811
In the matter between:
TAXPAYER OLIE APPELLANT
and
THE COMMISSIONER FOR THE RESPONDENT
SOUTH AFRICAN REVENUE SERVICE
JUDGMENT
This judgment is handed down electronically by circulation to the parties or their legal
representatives by email and by uploading it to the electronic file of this matter on
CaseLines. The date for hand-down is deemed to be 4 September 2026.
(1) REPORTABLE: YES / NO
(2) OF INTEREST TO OTHER JUDGES: YES / NO
(3) REVISED: YES / NO
4 September 2026 _________________
DATE SIGNATURE
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SENYATSI, J
INTRODUCTION
[1] This is an appeal against the disallowance by the Commissioner for the South African
Revenue Service ( “SARS”) of certain deductions claimed by the appellant , Taxpayer Olie
Trading (Pty) Ltd ( “Taxpayer Olie” or “the taxpayer”), for the 2018, 2019 and 2020 years of
assessment. The dispute concerns two categories of expenditure that Taxpayer incurred on
behalf of its associated company, Clarisse Mining Limited (“Clarisse”), during a period when
Clarisse’s mine was under “care and maintenance.”
[2] The appellant contends that it is entitled to deduct these expenses in terms of
section 11(a) read with section 23(g) of the Income Tax Act 58 of 1962 ( “the Act”). SARS
contends that the expenses do not satisfy the requirements of the general deduction formula
and were not incurred by the appellant in the production of its income or for the purposes of
its trade.
[3] The matter was heard over three days from 11 to 13 August 2026. The appellant called
one witness, Mr Summers, the Group Financial Controller of the South African companies in
the Technologies Group. The Respondent did not call any witnesses.
BACKGROUND FACTS
[4] The material facts are largely common cause between the parties. Taxpayer is a wholly
owned subsidiary of Technologies Incorporated, a company listed on the New York Stock
Exchange. Taxpayer is in the business of processing, marketing and selling foundry-grade
chromite sand.
[5] Clarisse is a company that holds a mining right to mine chrome ore in the North West
Province. Company-one holds a 74% shareholding in Clarisse, making Clarisse a “connected
person” in relation to Taxpayer as defined in section 1 of the Act. The remaining 26%
shareholding is held by a Black Economic Empowerment company.
[6] On 22 July 2009, Taxpayer and Clarisse entered into an offtake agreement ( “the
agreement”). In terms of the agreement, Clarisse undertook to supply and sell to Taxpayer
agreement”). In terms of the agreement, Clarisse undertook to supply and sell to Taxpayer
whatever quantity of chrome ore it had available for sale. The purchase price was determined
as the cost price per tonne of production plus 6.5%, plus VAT.
[7] Clause 12 of the agreement provided as follows:
“In the event that the seller goes into or is on care and maintenance, the purchaser
shall be liable for all the operational costs of the seller. Such liability shall cease as and
when the seller becomes operational again.”
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[8] On 31 August 2017, Clarisse went into care and maintenance. It remained in care and
maintenance throughout the 2018, 2019 and 2020 years of assessment. During this period,
Clarisse ceased all mining operations.
[9] The expenses in dispute fall into two categories:
Category 1: Production costs that Taxpayer paid on behalf of Clarisse prior to
31 August 2017, in anticipation of recovering these costs from future purchases of
chrome ore. When Clarisse went into care and maintenance, Taxpayer was unable to
recover these costs. The amount of R25 140 766 was written off as a bad debt in the
2018 year of assessment.
Category 2: Operational costs that Taxpayer incurred on behalf of Clarisse during the
care and maintenance period, in terms of clause 12 of the agreement. These amounts
were:
(a) 2018: R11 775 057
(b) 2019: R14 683 877
(c) 2020: R14 019 378
[10] On 31 August 2022, SARS issued additional assessments disallowing these
deductions. SARS contended that the expenses did not relate to Taxpayer but to Clarisse and
were not incurred in the production of Taxpayer’s income or for the purposes of its trade.
[11] Taxpayer lodged an objection on 12 October 2022. On 14 March 2023, SARS partially
disallowed the objection. Taxpayer then filed a notice of appeal on 2 May 2023.
THE EVIDENCE OF MR SUMMERS
[12] Mr Summers testified that he is the Group Financial Controller of the South African
companies in the Technologies Group. He has been employed by the group since 2009 and
was involved in the negotiation and conclusion of the offtake agreement.
[13] Mr Summers explained that Taxpayer entered into the agreement to secure a reliable
supply of chrome ore for its processing operations. Taxpayer invested approximately
R40 million in erecting a chrome processing plant at Clarisse ’s mine. He testified that had
Clarisse erected the processing plant itself, the BEE shareholder Company-Three Proprietary
Limited (Company-Three) would have had to contribute 26% of the costs, which it could not
Limited (Company-Three) would have had to contribute 26% of the costs, which it could not
afford.
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[14] Regarding the payment arrangements, Mr. Summers testified that Taxpayer would pay
for Clarisse’s production costs and recoup these costs when Taxpayer purchased chrome ore.
Clarisse would pay Taxpayer by setting off what it owed against what Taxpayer owed it.
He explained that the time between extraction of chrome ore and receipt of payment for
chromite sand was between 120 to 365 days, and this risk was carried by Taxpayer.
[15] When Clarisse went into care and maintenance, Mr Summers testified that Taxpayer
paid Clarisse’s operational costs as required under clause 12 of the agreement. He stated that
Clarisse had to remain liquid and solvent to retain its mining right. The majority of the
operational costs related to security and electricity, with most costs relating to securing
Taxpayer’s chrome processing plant on the mine.
[16] Mr Summers explained that Taxpayer continued to trade during the care and
maintenance period, having concluded a distribution agreement with Company-Two
Operations South Africa (Pty) Ltd to promote and sell chromite sand.
[17] Under cross-examination, Mr Summers conceded that all invoices for the operational
costs were in the name of Clarisse , as Clarisse had the contractual relationship with the
service providers. He also conceded that the Category 1 expenditure (R25 140 766) was
incurred over a period of time prior to 2018 and was not incurred in a single year of
assessment.
[18] Mr Summers further conceded that the costs incurred during the care and
maintenance period were not costs of acquiring trading stock but were holding costs to
maintain the mine in a state where it could resume operations. He acknowledged that the
monies advanced to Clarisse were without the prospect of repayment.
THE LEGAL FRAMEWORK
[19] The dispute concerns the application of the general deduction formula in section 11(a)
of the Act, read with the prohibition in section 23(g).
These provisions provide as follows:
Section 11(a):
These provisions provide as follows:
Section 11(a):
“For the purpose of determining the taxable income derived by any person from
carrying on any trade, there shall be allowed as deductions from the income of such
person so derived - (a) expenditure and losses actually incurred in the production of
the income, provided such expenditure and losses are not of a capital nature.”
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Section 23(g):
“No deductions shall in any case be made in respect of the following matters, namely
- (g) any moneys, claimed as a deduction from income derived from trade to the extent
to which such moneys were not laid out or expended for the purposes of trade.”
[20] A taxpayer claiming a deduction bears the onus of proving that the expenditure
satisfies all the requirements of these provisions. In terms of section 102(2) of the Tax
Administration Act 28 of 2011, the taxpayer bears the burden of proof.
ANALYSIS
I. The requirements of section 11(a) and section 23(g)
[21] For expenditure to be deductible under section 11( a) read with section 23( g), it must
satisfy the following requirements:
1. The expenditure must be “actually incurred” by the taxpayer;
2. The expenditure must be incurred “in the production of income”;
3. The expenditure must be “laid out or expended for the purposes of trade”;
4. The expenditure must not be of a “capital nature.”
[22] It is the first three requirements that are decisive in this matter. I will address each in
turn.
II. Was the expenditure “actually incurred” by the taxpayer?
[23] In Port Elizabeth Electric Tramway Co Ltd v CIR ,1 the court held that expenditure is
“actually incurred” when the taxpayer has become liable to pay it. The liability must be that of
the taxpayer, not a third party. Although that case dealt with whether the company could
deduct payment made to a widow and legal fees as expenses incurred by the company in the
production of income, the principles established in that case have been appli ed consistently
by our courts.
[24] In this case, the invoices for the Category 1 and Category 2 expenses were issued in
the name of Clarisse , not Taxpayer . Mr Summers conceded this under cross -examination.
Clarisse had the contractual relationship with the service providers. If Clarisse had defaulted
on payment, the service providers would have had a legal claim against Clarisse, not
Taxpayer.
1 1936 CPD 241,8 SATC 13.
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[25] The appellant argues that it “incurred” the expenses because it was contractually
obliged to pay them under clause 12 of the agreement. However, the question is not whether
Taxpayer was obliged to pay the expenses, but whether it was the party that incurred them in
the sense contemplated by section 11(a).
[26] The distinction is significant. A taxpayer may pay another person’s expenses, but that
does not mean the taxpayer “incurred” them in the production of its own income. The expenses
remain those of the other person. The fact that the taxpayer had a contractual obligation to
pay them does not transform them into the taxpayer’s own expenses for tax purposes.
[27] In CIR v Standard Bank of SA Ltd ,2 the court held that a taxpayer cannot claim a
deduction for expenditure that was not its own, even if it had a legal obligation to pay it.
The expenditure must be incurred by the taxpayer in its own capacity. In this regard, the Court
will assess the closeness of the connection between the expenditure and the income-earning
operations.3
[28] The appellant’s argument that the contractual agreement “allowed for this
arrangement” is misplaced. As stated in Napier v Barkhuizen 4, freedom of contract is not
absolute. A contractual clause may regulate obligations inter partes , but it cannot prevail
where its effect conflicts with mandatory statutory provisions. The Act requires expenditure to
be incurred by the taxpayer claiming the deduction. A contract cannot override this
requirement.
[29] The invoices being in Clarisse ’s name is a clear indication that the expenses were
Clarisse’s, not Taxpayer’s. Taxpayer was merely paying Clarisse’s debts. This is not
expenditure “actually incurred” by Taxpayer for purposes of section 11(a).
III. Was the expenditure “in the production of income”?
[30] The leading authority on the meaning of “in the production of income” is Port Elizabeth
Electric Tramway Co Ltd v CIR 5 (supra), where the court held that the purpose of the
Electric Tramway Co Ltd v CIR 5 (supra), where the court held that the purpose of the
expenditure must be looked to. If it is performed for the purpose of earning income, then the
expenditure attendant upon it is deductible.
2 1985 (2) SA 192 (A) at para 19.
3 See CIR v Nemojim 1983 (4) SA 935 (A), at 947 G-H.
4 2006 (4) SA 1 (SCA) at para 59.
5 Foot note 1 above.
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[31] In CIR v Nemojim (Pty) Ltd6 , the court held that there must be a direct and sufficient
link between the expenditure and the income -earning operations of the taxpayer. This case
dealt with the purchase of shares of non-operating companies with the purpose of selling the
shares in future whilst earning dividend once the companies resumed trading at profit.
The court held that the cost of sale when the shares are sold at profit was deductible.
[32] In this case, the Category 2 expenses (care and maintenance costs) were incurred
during a period when Clarisse’s mine was not operating. No mining operations were being
conducted. No chrome ore was being produced. No income was being generated from
Clarisse’s mining operations.
[33] The appellant argues that the expenses were incurred to secure its future supply of
chrome ore, which was necessary for its income-earning operations. However, the authorities
make clear that expenditure incurred to secure future income is often capital in nature, not
revenue. More importantly, as already stated, the expenditure was incurred for the obligations
of a third party.
[34] In Sub-Nigel Ltd v CIR ,7 the court held that expenditure incurred to maintain the
income-earning structure is capital in nature. The court held that where the loan i s obtained
for the purpose of declaring dividend, no deduction will be allowed as the loan was not for the
purpose of production of income. The care and maintenance expenditure was incurred to
preserve the mine for future operations. It was not incurred in the production of current income.
[35] The appellant’s argument conflates its activities with those of Clarisse. It is Clarisse
that was under care and maintenance, not Taxpayer. While Taxpayer continued to trade
(having secured a distribution agreement with Company -Two), that does not mean the care
and maintenance expenses it paid on Clarisse’s behalf were incurred in the production of its
and maintenance expenses it paid on Clarisse’s behalf were incurred in the production of its
own income. The expenses were incurred to preserve Clarisse’s mining right and operations,
not to generate Taxpayer’s income.
[36] Mr Summers conceded under cross-examination that the Category 2 expenses were
“holding costs ” to maintain the mine in a state where it could resume operations.
This reinforces the conclusion that the expenses were directed at preserving the income -
earning structure for future operations, not producing income in the current years of
assessment.
6 1983 (4) SA 935 (A).
7 1948 (4) SA 580 (A),15 SATC 381.
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IV. Was the expenditure “laid out or expended for the purposes of trade”?
[37] Section 23(g) prohibits deductions for expenditure that was not “laid out or expended
for the purposes of trade” . This requirement is closely linked to the “in the production of
income” requirement.
[38] In CIR v Genn & Co (Pty) Ltd, 8 the court held that expenditure is for the purposes of
trade if it is incurred in the carrying on of the taxpayer ’s business. The expenditure must be
connected to the taxpayer’s business operations.
[39] In this case, the expenses paid on behalf of Clarisse were not incurred in Taxpayer’s
trade of processing, marketing and selling chromite sand. They were incurred to preserve
Clarisse’s mining operations. Taxpayer’s trade did not include paying the operational costs of
other companies, even if it had a contractual obligation to do so.
[40] The appellant argues that the expenses were for the purposes of its trade because
they were incurred to secure its future supply of chrome ore. However, this again conflates
the preservation of future supply with the current carrying on of trade. The expenses were not
incurred in the course of Taxpayer’s current trading operations. They were incurred to
preserve a potential future source of supply.
[41] As the court held in CIR v Pick ‘n Pay Employee Share Purchase Trust,
9 expenditure
that is incurred to protect or preserve a source of income is not necessarily expenditure for
the purposes of trade. There must be a direct nexus between the expenditure and the
taxpayer’s trading operations. In that case, the accruals arising out of the disposal of shares
in the employees’ share scheme held by the Trust were held to be of cap ital nature and not
earned in the ordinary course of the taxpayer’s business. The appeal was dismissed.
V. The timing of the deduction (Category 1 Expenditure)
[42] Even if the Category 1 expenditure (the R25 140 766 written off as a bad debt) could
[42] Even if the Category 1 expenditure (the R25 140 766 written off as a bad debt) could
otherwise be deductible, the appellant faces an additional obstacle. The evidence of
Mr Summers, confirmed under cross -examination, established that this expenditure was
incurred over a period of time prior to the 2018 year of assessment.
[43] Section 11(a) requires expenditure to be “actually incurred” in the year of assessment
in which it is claimed. A taxpayer cannot carry forward expenditure from previous years and
claim it in a later year.
8 1955 (3) SA 293 (A) at 299B-G.
9 1992 (4) SA 39 (A) at 46C-E.
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[44] In Concentra (Pty) Ltd v CIR,10 the court held that expenditure must be claimed in the
year in which it is incurred. If a taxpayer fails to claim a deduction in the correct year, it forfeits
the right to claim it in a subsequent year.
[45] In Subnige Ltd v CIR ,11 the court reaffirmed this principle, stating: “For the whole
scheme of the Act shows that, as the taxpayer is assessed for income tax for a period of one
year, no expenditure incurred in a year previous to the particular tax year can be deducted.”
[46] The appellant’s witness conceded that the Category 1 expenditure included amounts
that related to previous years. The appellant cannot now claim these amounts in the 2018 year
of assessment. This is a further basis for disallowing the Category 1 deduction.
VI. The bad debt argument (section 11(j))
[47] The appellant originally claimed the Category 1 expenditure as a bad debt in terms of
section 11(j) of the Act. Section 11(j) provides:
“(j) the amount of any debts due to the taxpayer which have during the year of
assessment become bad, provided such amount is included in the current year
of assessment or was included in the previous years of assessment in the
taxpayer’s income.”
[48] For a debt to qualify as a bad debt deduction under section 11(j), it must be a debt due
to the taxpayer. The debt must have been included in the taxpayer’s income in the current or
the previous year of assessment.
[49] In this case, the expenses paid on behalf of Clarisse were not debts due to Taxpayer.
They were expenses that Taxpayer had voluntarily paid (or was obliged to pay under the
agreement). Clarisse did not owe Taxpayer these amounts; Taxpayer had simply paid
Clarisse’s expenses. There was no debt in the sense contemplated by section 11(j).
[50] The amounts were not included in Taxpayer’s income in any previous year. They were
payments made to third parties on behalf of Clarisse . They did not constitute income to
payments made to third parties on behalf of Clarisse . They did not constitute income to
Taxpayer. Therefore, the requirements of section 11(j) are not satisfied.
[51] The appellant’s attempt to recharacterise the expenses as costs of sales in its notice
of objection does not assist it. The true nature of the expenses cannot be altered by
reclassification in the financial statements. As the court held in Sishen Iron Ore Company v
10 1990 (2) SA 371 (A).
11 15 SATC 381.
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CIR (supra), the classification of expenditure is determined by a commonsense appreciation
of the relevant facts, not by the label placed on the expenditure.
VII. The tax treatment of care and maintenance expenditure
[52] The taxation treatment of expenditure incurred during a care and maintenance period
is well established. Such expenditure is not deductible as ordinary operational expenditure
under section 11(a). Instead, it must be capitalised and treated as capital expenditure to be
set off against future income when trade resumes.
[53] Section 15 of the Act provides for deductions from income derived from mining
operations. It is common cause that a party that is under care and maintenance is not
conducting mining operations. Hence, any expenditure incurred during this period is not
deductible against current income.
[54] The practice of SARS is to capitalise such expenditure into the category of
“unredeemed capital expenditure. ” The right to deductibility is preserved until mining
operations are resumed. This is the proper tax treatment of care and maintenance
expenditure.
[55] In this case, Taxpayer (a non-mining company) sought to recharacterise expenditure
that would ordinarily be added to Clarisse ’s unredeemed capital expenditure as operational
expenditure of Taxpayer , entitled to immediate deductibility. This is an impermissible tax
avoidance arrangement.
[56] The fact that Clarisse and Taxpayer are separate legal entities does not entitle
Taxpayer to claim deductions for Clarisse’s expenditure. As SARS correctly submitted, “no
dualism in the form of one taxpayer claiming the expenditure of another” is permitted. The Act
is structured around the concept of a “singular person” being the pivot point for both income
and deductions.
CONCLUSION
[57] For the reasons set out above, I find that the appellant has failed to discharge the onus
of proving that the disallowed expenses are deductible in terms of section 11(a) read with
section 23(g) of the Income Tax Act.
section 23(g) of the Income Tax Act.
[58] The expenses were not “actually incurred” by the appellant. They were Clarisse ’s
expenses, paid by Taxpayer . The invoices were in Clarisse ’s name. Clarisse had the
contractual relationship with the service providers. Taxpayer was merely paying Clarisse’s
debts.
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[59] The expenses were not incurred “in the production of income” of Taxpayer. They were
incurred to preserve Clarisse’s mining operations for future potential income. They were
holding costs, not production costs. They were not directed at generating Taxpayer’s current
income.
[60] The expenses were not “laid out or expended for the purposes of trade” of Taxpayer.
They were not incurred in Taxpayer ’s trade of processing, marketing and selling chromite
sand. They were incurred to preserve a potential future source of supply.
[61] The Category 1 expenditure was incurred in previous years and cannot be claimed in
the 2018 year of assessment. The requirements of section 11(j) for a bad debt deduction are
not satisfied.
[62] The contractual arrangement between Taxpayer and Clarisse cannot override the
provisions of the Income Tax Act. Freedom of contract is not absolute. Where a contract
conflicts with mandatory statutory provisions, the statute prevails.
[63] The appellant’s appeal is without merit. The assessments issued by SARS must be
confirmed.
ORDER
In the result, I make the following order:
1. The appeal is dismissed.
2. The additional assessments for the 2018, 2019 and 2020 years of assessment are
confirmed with interest.
3. The Appellant is ordered to pay the costs of the Respondent.
4. The costs shall include the costs of counsel.
________________________________
SENYATSI J
PRESIDENT OF THE TAX COURT
GAUTENG DIVISION, JOHANNESBURG
___________________________ __________________________
Member of The Tax Court: Member of The Tax Court:
Mr. Isaac Nkama Ms Phindile Mkhize
Commercial Member Accountant Member