My partner, Kevin Trudgeon, a taxation expert, advised me as follows with respect to capital gains tax (CGT) on mineral rights: The definition of 'gross income' in the Income Tax Act specifically excludes receipts and accruals of a capital nature. Accordingly, such a receipt is not taxable as income. The distinction between capital receipts and revenue receipts has traditionally been illustrated by using the analogy of a tree and its fruits – income is what capital produces and income is therefore in the nature of fruit, while capital is in the nature of the tree.

Although there has been a great deal of difficulty in determining the precise juristic nature of mineral rights, it is clear that when the owner of any mineral rights (whether owner by virtue of his ownership of the land to which those mineral rights accrue or otherwise) disposes of those mineral rights for a lump-sum amount, the proceeds on such a disposal will be in the nature of capital and not income, save of course where one is in the business of trading in mineral rights. This is because mineral rights are acquired for the purposes of mining the minerals which are the subject matter thereof and selling those minerals for a profit, thus deriving income. Essentially, mineral rights are the 'tree' (and not subject to income tax on the disposal thereof) while the minerals are the 'fruit'. However, as from October 1, 2001, the proceeds on the sale of capital assets (including mineral rights) will be subject to CGT in terms of section 26A read with schedule eight of the Tax Act. The capital gain (or loss, as the case may be) is determined by deducting the base cost of the asset from the proceeds derived from the disposal of the asset. A statutorily stipulated proportion of this gain (if any) is included in the taxpayer's taxable income and taxed at the taxpayer's marginal tax rate. Where the mineral rights were acquired (or disposed of) after October 1, 2001, the base cost of the mineral rights will, effectively, be the expenditure incurred in the acquisition of such mineral rights plus certain other expenditure specifically set out in schedule eight (notably, expenditure incurred for purposes of establishing, maintaining or defending legal title thereto or certain expenditure directly related to the cost of ownership of that asset). However, where the mineral rights were acquired prior to October 1, only the capital gain which accrued to the value of such mineral rights after October 1 is subject to CGT. In this regard a taxpayer has some scope to determine the most favourable tax outcome by electing one of the following three methods of valuation: (1) the market value method; (2) the 20% rule; or (3) the time-apportionment method. Taxpayers would be well advised to consider the aforementioned three methods and, where appropriate, seek independent valuations of their mineral rights.