The South African Revenue Service (SARS) recently released Binding Private Ruling 159 (Ruling), which deals with the disposal of assets, being shares, in terms of an amalgamation transaction immediately after having acquired those shares in terms of an asset-for-share transaction. The facts were that companies A and B are controlled by various shareholders (individuals and family trusts). The shareholders wanted to hold their investments through a single company and not through both companies A and B.
Category: Share Incentive Scheme
Treasury Plans to Tax Dividends Paid to Employees as Income
Changes proposed by the Treasury in the Taxation Laws Amendment Bill follow international trends in tightening the net on the use of salaries disguised as dividends. According to the explanatory memorandum published by the Treasury recently, many share schemes hold pure equity shares where the sole intent of the scheme is to generate dividends for employees as compensation for past
Sale of shares – capital v revenue
Background ITC 13003 [2013] involved the disposal of shares by a taxpayer and whether the proceeds realised constituted gross income and were of a revenue nature. The taxpayer happened to be a Special Purpose Vehicle and it was argued that the proceeds of the sale of shares were of a capital nature. There were also additional costs incurred which were closely associated with the acquisition of the shares in question. These costs incurred were the so-called ’equity-kicker’ and ‘indemnity costs’.
Disposal of shares by a special purpose vehicle
Judgment was handed down in the case of A (Pty) Ltd v Commissioner for the South African Revenue Service (case number 13003, as yet unreported) on 13 June 2013. The case involved the timeworn question of whether the receipts or accruals in respect of the disposal of a particular asset constitute gross income, or whether it is excluded as being capital in nature.
Shareholders can be hit with tax bill
Author: Amanda Visser (Businessday, bdlive.co.za) Shareholders will in certain circumstances be held responsible for the tax debt of a company when there is a voluntary winding up, even if they are not involved in the day-to-day management of the company. Some tax experts have argued the provision in the Tax Administration Act (TAA) that allows the South African Revenue Service (SARS) to hold shareholders liable for the tax debt of a company is inequitable.
Conversion of a share block scheme into sectional title – exemption from transfer duty
With effect from 1 January 2013 transfer duty is no longer payable in respect of a transaction contemplated in item 8 of schedule 1 of the Share Blocks Control Act, No 59 of 1980, whereby a right to or interest in the use of immovable property conferred by virtue of the ownership of a share in a share block company is converted to ownership of the immovable property concerned.
Dividends withholding tax implications where a resident company is a beneficiary of a share scheme trust
Dividends withholding tax (“DWT”) was introduced into the Income Tax Act 58 of 1962 (“the Act”) with effect from 1 April 2012. Section 64F of the Act exempts the withholding of DWT in respect of the receipt of dividends, to the extent that it does not consist of dividends in specie by “beneficial owners” which are listed in the section. A resident company is included in the exemption in terms of the list in section 64F(a) .
Budget 2013 – Share Schemes
By Andrew Lewis (DLA Cliffe Dekker Hofmeyr) Executive summary Share incentive schemes were again mentioned in this year’s tax budget proposals. It thus appears that the broad-based employee share plan contemplated in s8B of the Income Tax Act will be reviewed and possibly merged with s8C of the Income Tax Act into a single employee share scheme regime.
Cross issue of shares
DLA Cliffe Dekker HofmeyrAndrew LewisSouth Africa Section 24B of the Act was initially introduced to deal with the acquisition of assets through the issue of shares. Pursuant to the judgment of CIR v Labat Africa Limited 72 SATC 75 a company would ordinarily not incur expenditure in connection with the issue of its own shares and thus the need for s24B. Section 24B of the Income Tax Act was recently amended to only deal with the issue of shares in exchange to the issue of shares (ie the cross-issue of shares), being an “anti-avoidance” provision. Section 24B(2) of the Income Tax Act provides that if a company acquires shares that are issued to that company “directly or indirectly in exchange for shares issued by that company“, that company incurs no expenditure for the acquisition of the shares issued to it. As a result, the subsequent disposal of the shares by Read More …
Share schemes
Share incentive schemes are once again in the spot light in this year’s tax budget proposals. It appears that previous amendments have not satisfied Treasury’s concerns on share incentive schemes. Treasury indicates that some staff equity schemes are used as a tool to lower overall tax rates for executives and other-high-income earners. Schemes for lower income taxpayers are sometimes subject to anomalies that may give rise to double taxation.