Biodiversity Tax Incentives for Protected Areas

Written on 02/12/2024
MJ Minter Inc
Biodiversity Tax Incentives for Protected Areas

Biodiversity Tax Incentives for Protected Areas
Section 37D of the Income Tax Act No. 58 of 1962 (ITA) introduces South Africa’s first effective biodiversity tax incentive for nature reserves and national parks. These protected areas are declared in accordance with the National Environmental Management: Protected Areas Act No. 57 of 2003 (NEMPAA). The primary goal of Section 37D is to support biodiversity conservation efforts by providing financial sustainability to critical conservation initiatives nationwide.

How Does Section 37D Work?

1. Eligibility: Section 37D applies to land declared as a nature reserve or national park under sections 20 or 23 of NEMPAA.

2. Title Deed Endorsement: The land must be subject to a title deed endorsement for a minimum of 99 years.

3. Deduction Percentage: Section 37D allows for a 4% straight-line deduction on the value of the land declared. This deduction is applied to the taxpayer’s taxable income each tax year for 25 years.

4. Land Valuation: The value of the land is determined based on either:

  • Actual cost and improvements.
  • A prescribed formula that considers municipal or market value

5. Right of Use: If a right of use (e.g., agricultural activities or commercial tourism) is maintained, the deduction is apportioned accordingly.

6. Effective Date: The deduction becomes effective in the year when the land is declared and the title deed endorsement is affected.
7. Termination of Protected Area Status: If the protected area status is terminated according to NEMPAA, the taxpayer may be liable for certain tax penalties.
8. Setoff: The deduction can be set off against taxable income or used to increase an assessed loss (tax loss).
 
The Value of Section 37D
Generally, the value of land is not deductible for tax purposes. However, the Section 37D deduction offers a unique opportunity to deduct the value of land. It provides a reduction in tax liability for communal and private landowners who commit to long-term conservation efforts, securing South Africa’s biodiversity and ecological infrastructure through protected areas.

Do not hesitate to contact our office for professional advice in this regard.