681 Allowance for mine rehabilitation expenditure

Summary

This section provides tax relief for expenditure incurred in relation to the rehabilitation work necessary after certain mines cease to be operated. Two separate measures are provided.

Firstly, when expenditure on rehabilitation is incurred the person who worked the mine may have ceased to carry on a mining trade. If the person is carrying on a mining trade at that time, the expenditure is deductible against the trading income of that trade. If the person is not carrying on the trade at that time, the expenditure is regarded as incurred on the last day on which the trade was carried on. It follows that the expenditure is then deductible in the final period of trading and is available, if necessary, for terminal loss purposes.

Secondly, where a person who is working a qualifying mine make payments into a mine rehabilitation fund, the person is entitled to an allowance in respect of the payment. The total estimated amount which is to be paid into the fund is allowable for tax purposes on an even spread basis over the life of the mine. However, the aggregate of allowances at any time may not exceed the aggregate of payments made into the fund up to that time.

Whenever payments are made out of the fund to the person concerned there will be a clawback of the allowances made. When the funds so paid out are used to rehabilitate the mine the expenditure on rehabilitation will be tax deductible. The reason for this mechanism is that if the full cost of rehabilitating a mine is not tax deductible until the point at which the mine ceases to be operated there may not be sufficient income against which to set the expenditure. Under the regime provided in the section the payments into the fund are allowed for tax purposes as they are paid and at the end of the day the clawback of allowances and tax deductibility of expenditure should match each other. If the receipt from the fund exceeds the expenditure on the mine rehabilitation, the clawback ensures taxation on the excess. If there is a shortfall, the allowance in respect of the actual expenditure ensures appropriate relief.

Details

Definitions and construction

(1)(a) “the Minister” is the Minister for Communications, Energy and Natural Resources.

“integrated pollution control license” is a license granted under the Environmental Protection Agency Act, 1992.

“mine rehabilitation fund” is defined as a fund which satisfies the following conditions —

• Payments must be made into the fund by a person who is carrying on a trade of working a qualifying mine, and the fund-holder must be a third party unconnected with the person working the mine.
• The fund must be obligatory under a State mining facility or under another agreement with the Minister to which the State mining facility is subject. The latter provision enables a company, whose State mining facility does not oblige it to operate a fund, to enter a formal agreement with the Minister which, in effect, obliges it to operate such a fund as a condition of its State mining facility.
• The sole purpose of the fund must be to have the amount, no more and no less, of funds which, in the opinion of the Minister, could reasonably be expected to be necessary to meet rehabilitation expenditure in relation to the mine. That amount is to be specified in a certificate given by the Minister.
• No part of the fund may be paid to the person who is working the mine or to a person who has worked the mine, except in the following circumstances —
  • where the fund-holder has been authorised by the Minister and either the Environmental Protection Agency (EPA) or the local authority to release funds to finance rehabilitation expenditure, or
  • where any balance in the fund may be paid out following a certificate of completion of rehabilitation being approved by the Minister and either the EPA or the local authority.

“qualifying mine” is a mine which is being worked for the purposes of obtaining any scheduled minerals as set out in section 672, or dolomite, dolomitic limestone, fireclay, coal, calcite or gypsum.

“rehabilitation expenditure” is expenditure in connection with the rehabilitation of the site of a mine in order to comply with a condition of a State mining facility, planning permission or an integrated pollution control licence. This can include —

• the physical closing of the mine,
• longer term work involved in the monitoring to be carried out by the mining company at lower underground levels (this would include a capital sum paid to the local authority to assume responsibility for the site), and
• the putting in place of certain infrastructure such as the provision of a water system where, following the mining operations, wells formerly used as a water source have dried up.

“rehabilitation” and “relevant local authority” are self-explanatory.

“relevant payments” are payments into a mine rehabilitation fund made in accordance with a schedule certified by the Minister in accordance with subsection (2)(b)(ii).

“State mining facility” means a licence, lease or permission given by the Minister in relation to a mine.

(1)(b)(i) Any land used in connection with the working of a mine is to be regarded as being within the site of a mine so that its rehabilitation will qualify for relief.

(1)(b)(ii) Any incidental receipts in the course of closure are to be netted against rehabilitation expenditure to arrive at a net amount of expenditure.

(1)(c) The rules of subsections (2) and (3) of section 306 are to apply in determining the basis period of a year of assessment for the purposes of the section.

Certification process

(2)(a) The Minister may give a certificate in relation to a mine rehabilitation fund where he/she is of the opinion that the conditions in the definition of “mine rehabilitation fund” are satisfied, and that the sole purpose of the fund is to accumulate an amount which could reasonably be expected to be necessary to finance rehabilitation expenditure in relation to the mine.

(2)(b) The other information which must be included in a certificate is —

• the Minister’s estimate of the life of the mine at the time the certificate is given,
• the Minister’s estimate of rehabilitation expenditure, and
• a schedule of payments to be made to the fund-holder so as to fund rehabilitation expenditure.

(2)(c) A certificate may be amended by giving notice in writing to the person to whom the certificate was given.

Allowance for rehabilitation expenditure

(3)(a) An allowance is to be made in respect of rehabilitation expenditure. The allowance cannot exceed the net cost of the rehabilitation of the site of the mine and is given for the chargeable period in which (or in the basis period for which) the expenditure is incurred.

(3)(b) Expenditure incurred after a person ceases to carry on the trade of working a qualifying mine is to be treated as incurred on the last day of trading so as to be available for relief against income of the period in which trading ceased.

Allowances for payments to a mine rehabilitation fund

(4)(a) Allowances are to be made in respect of payments into a mine rehabilitation fund. The total payments into the fund over the life of the mine are to be allowed on an equal annual instalment basis over the life of the mine. This is achieved by taking the total of all payments set out in the schedule and allowing in each year an amount equal to that amount divided by the number of years in the life of the mine.

The allowance is given to a person working the mine and who is obliged to make the payment in accordance with the schedule. The allowance is made for any chargeable period falling in the life of the mine (that is, the period from the date of the certificate to the estimated end of the mine’s life).

This is achieved by the formula in the subsection. The normal situation is covered by E x 1/L (that is, the total of all payments to be paid into the fund divided by the number of years in the mine’s life). The N/12 part of the formula deals with a situation where there is a chargeable period of less than 12 months. This could arise in the first or last year of the life of the mine where only part of a chargeable period would be within the life period – it could also arise in the case of a short accounting period of a company. In such a case the allowance is reduced proportionately.

(4)(b) At no stage can the cumulative allowances made in respect of payments to a mine rehabilitation fund exceed the cumulative payments made at that stage. This is necessary because of the basing of the allowances on payments to be made over the life of the mine. If, for example, payments were in the main to be made in the later stages of the life of the mine, allowances could, without this provision, be made before payments were made.

(4)(c) A person who has been denied an allowance under paragraph (b) is allowed to bring the allowance forward to be added to the allowance for the next year and to be given as part of the allowance in that year but subject to the overall test that at that stage cumulative allowances cannot exceed cumulative payments.

Amendment of Ministerial certificate

(5) Special rules apply in a situation where the Minister has amended a certificate. An amendment of a certificate could arise where the estimated life of the mine changes, where the schedule of payments changes or where the estimated cost of rehabilitation changes.

Where, having regard to the certificate as amended, excessive allowances have been granted, the excess of allowances made over the allowances which would have been made by reference to the amended certificate are to be treated as trading income at the time of revision of the certificate.

If the allowances made are less than the allowances which would have been made by reference to the amended certificate, the allowance for the year of amendment is to be increased by the difference. This is subject to the rule that cumulative allowances cannot exceed cumulative payments.

Payments made out of mine rehabilitation fund

(6)(a) Where a payment is made out of a mine rehabilitation fund to a person who worked the mine or to a connected person, the amount is treated as trading income of the person.

(6)(b) The amount to be so treated as trading income is limited to the excess of cumulative allowances made over cumulative amounts treated as trading income in all previous chargeable periods. In effect, this limits the amount treated as trading income to a clawback of allowances already made and not already clawed back.

(6)(c) In the case of a person carrying on the trade of working the qualifying mine, the deemed trading income is treated as arising at the time of receipt. If the person is not carrying on the trade, the amount is to be treated as trading income arising in the chargeable period in which the mine ceased to be worked. This latter provision is necessary to match the trading income with the actual costs of rehabilitation which are also referable to that period.

(6)(d) An amount received is to be returned, and assessed, for the chargeable period in which (or in the basis period for which) it is received – even though it is referable to another period. This allows for the smooth functioning of the Self Assessment system.

Transfer of obligations

(7) Where the obligations of a person to rehabilitate a mine are transferred to another person (this could arise, for example, on a sale of the mine), the person to whom the obligations were transferred is to be treated as if everything done to or by the transferor was done to or by the transferee. This ensures, inter alia, that the clawback provisions can continue to apply.

Bar on double relief and double counting of certain receipts

(8)(a) & (b) Rehabilitation expenditure which qualifies for an allowance under subsection (3) cannot also qualify for any other allowance or deduction.

(8)(c) Incidental receipts which are netted off against expenditure in calculating the net cost of the rehabilitation of the site of a mine are not to be treated as trading receipts as this would involve double taxation.

Making of allowances

(9) Allowances to be made under the section to a person carrying on a trade of working a mine are to be made in taxing that trade (that is, in the case of income tax, in charging the profits of the trade and, in the case of corporation tax, in computing trading income). For income tax purposes, an excess allowance that cannot be offset against the profits of the trade for a year of assessment may be carried forward for set-off against the profits of the trade for subsequent years of assessment.

Relevant Date: Finance Act 2021