Major new tax burden introduced

Author: David Warneke (Partner and head of Tax Technical at BDO South Africa). The Taxation Laws Amendment Act of 2017 (Act 17 of 2017) which was promulgated on 18 December 2017 contains provisions, namely section 22B of the principal Income Tax Act and paragraph 43A of the Eighth Schedule to the Income Tax Act, that will result in a significant compliance burden for companies, even in cases in which they do not result in additional taxation. The provisions deal with disposals of shares in a company (say A) that are held by another company (say B) in circumstances in which B held a significant portion of the equity shares (which the Amendment Act defines as a qualifying interest) in A at any time within the 18 months preceding the disposal. Section 22B applies in situations in which the shares that are the subject of the provision are held as trading Read More …

Consecutive asset-for-share transactions

Author: Ben Strauss (Director at Cliffe Dekker Hofmeyr). Section 42 of the Income Tax Act, No 58 of 1962 (Act) allows taxpayers to transfer assets to a company free of immediate tax consequences, provided certain requirements are met; there is a roll-over for tax purposes. However, certain anti-avoidance provisions may be triggered if the company that acquired the assets, disposes of the assets within 18 months of acquisition.

The death of share buy-backs?

Author: Emil Brincker (National Practice Head at Cliffe Dekker Hofmeyr). Share buy-backs have become very popular over the last few years in circumstances where a taxpayer intended to dispose of his shareholding in a company. Share buy-backs have become very popular over the last few years in circumstances where a taxpayer intended to dispose of his shareholding in a company. This was especially the case to the extent that the seller is also a company. The reason is that, should one consider the definition of a dividend in s1 of the Income Tax Act, No 58 of 1962 (Act), the proceeds from a share buy-back will be deemed to be a dividend to the extent that it is not funded out of so-called share capital or contributed tax capital (CTC). To the extent that the seller is a company, such dividend would also not be subject to dividends tax at Read More …

Ruling on unitised incentive scheme does not provide much clarity

An employee incentive scheme that is commonly used works as follows: A company forms a trust. The company funds the trust, and the trust then uses the funds to buy shares in the company. The employees of the company are given units in the trust, usually free of charge. The units entitle the employees to receive distributions from the trust on the underlying shares. The employees forfeit their units in certain circumstances and may generally not dispose of their units. The trust may “repurchase” the units from the employees in certain circumstances.

Beware of tax on dividend stripping and manipulation of dividend rights

Author: Ben Strauss. Dividends paid by local companies are generally exempt from income tax in the hands of shareholders and, in certain cases, are either exempt from dividends tax or subject to a reduced rate of dividends tax. Taxpayers may be tempted to enter into transactions where they either do “dividend stripping”, or manipulate the right to receive dividends to avoid income tax, capital gains tax (CGT) or dividends tax.

the draft reviewed Mining Charter: Employee share ownership plans and the ownership element – playing the waiting game?

One of the key elements addressed in the Draft Reviewed Broad Based Black-Economic Empowerment (“BBBEE”) Charter for the South African Mining and Minerals Industry, 2016 (the “draft reviewed Mining Charter”) is the issue of ownership. The Department of Mineral Resources (“DMR”) seeks to achieve the ownership requirement through broad-based employee share option plans (“ESOPs”), which are likely to have an impact on both mining companies and their employees from a tax perspective. The DMR published the draft reviewed Mining Charter in April, following an assessment of compliance by mining companies with the Amended Mining Charter of 2010. According to the preamble of the draft reviewed Mining Charter, this assessment revealed the following regarding the ownership element of the Mining Charter:

SARS rules again on the capitalisation of loan accounts

Author: Ben Strauss (Director at Cliffe Dekker Hofmeyr). The South African Revenue Service (SARS) has now issued a number of rulings on the matter of the “conversion” of debt to equity. We have discussed previous rulings on this topic in our Tax Alerts of 15 January 2016 and 9 October 2015. On 31 May 2016 SARS issued Binding Private Ruling 236 (Ruling) which again deals with the issue.

SARS ruling on a share subscription transaction followed by a share

Author: Mansoor Parker (Tax Executive at ENSAfrica). On 17 March 2016, the South African Revenue Service (“SARS”) issued an interesting binding private ruling (“BPR 227”) concerning a share subscription transaction which was followed by two share buyback transactions. BPR 227 deals with an area that National Treasury and SARS have identified as a problem, namely where a shareholder disposes of its shares through means of a share buyback as opposed to selling the shares outright to a third party. Before dealing with BPR 227 we will explain the background to this issue, the steps taken by National Treasury and SARS to deal with this issue and why BPR 227 was treated differently.

When are funds used for a ‘qualifying purpose’? a ruling regarding s8EA in the context of a BEE transaction

On 13 April 2016, the South African Revenue Service (SARS) issued Binding Private Ruling 228 (Ruling), which dealt with s8EA of the Income Tax Act, No 58 of 1962 (Act). Section 8EA is an anti-avoidance provision, which treats the yield on third-party backed shares as income instead of dividends in the hands of the holder.

Impact of tax on investment returns

Saving more and investing through a tax-free savings account is a very tax efficient way of ensuring maximum after-tax returns for your hard earned money, according to Francis Marais, research and investment analyst at Glacier by Sanlam. “Fortunately, in South Africa, we have a few tools to help with achieving maximum tax efficiency. Some are explicit tax savings vehicles, while some are less explicit, but worth keeping in mind,” said Marais.