Business Income
Foreign entities
Foreign entities
A licensee (contractor) is subject to tax subject according to the income tax act subject to modifications by the schedule. The schedule prevails over any other provisions made by the act.
Expenditure incurred in mining operations in a particular year of income is shall be allowed against income derived by the licensee that year of income under the licensed area.
prospecting expenditure” means expenditure incurred in undertaking operations authorized under a prospecting right, other than social infrastructure and capital expenditure subject to capital deductions. and includes expenditure incurred in acquiring interest in a prospecting right or prospecting information from the government or farm out agreement.
Note: where the licensee disposes interest in mining right or information after having deducted the prospecting expenditure; or otherwise recovers or recoups the prospecting expenditure, such an amount realized is income of the licensee and shall be charged to tax in that year of income
The rate of depreciation for machinery first used to undertake operations under a prospecting right is 100%. The income tax act does not define the term machinery but for purposes of capital deduction under the second schedule, this includes all assets under wear and tear schedule.
extraction expenditure” means capital expenditure incurred by a licensee when undertaking operations authorized under an extraction right other than social infrastructure and capital expenditure subject to capital deductions and includes expenditure whenever incurred in acquiring —
Extraction costs are deducted at 20% per annum till they are exhausted.
Extraction expenditure incurred in the year of commencement of commercial operations is restricted to the proportion of days in the year of income after commercial operations commence.
Note: where the mining rights or information are disposed or recouped, no deduction in respect of extraction expenditure shall be claimed in that year and the excess of the consideration over the written down value shall be income chargeable to tax. If the consideration is less than the written down value; the licensee shall be allowed to claim it as an allowable deduction.
A contribution made by a licensee to a rehabilitation fund in accordance with an approved rehabilitation plan relating the licensee’s mining operations shall be allowed as a deduction for the year of income in which the contribution was made.
Note: amounts contributed to rehabilitation fund should not be used to finance operations. Interest earned from the fund is exempted from tax. Amounts returned to the licensee out of the rehabilitation fund, or surplus remaining after rehabilitation work is considered to be taxable income.
An expenditure incurred by a licensee in carrying out work required by an approved rehabilitation plan in respect of the licensee’s mining operations shall be allowed as a deduction for the year of income in which the expenditure is incurred:
Interest expense- Ordinary interest expense is deductible. However, if the firm is thinly capitalized, the interest expense is restricted proportionate to that part of debt equal to 2 times the value of equity. (for other companies the ratio is 3:1) Sec 16(2)j(i)
Losses Carried forward-
If the licensee above elects otherwise or has no second mining area, he may in writing to the commissioner elect to treat the losses as loss in that mining area of the previous year. In this case he will only be allowed to carry backward losses for three years only.