Exemption employee share ownership plan rulings

Introduction The tax implications for the various participants of a share incentive scheme are complex and the legislation is not necessarily clear. In recent years, share incentive schemes have been a particular focus of the South African Revenue Service (SARS) and the National Treasury, and there have been regular amendments to the tax legislation. It is no wonder that SARS is issuing a number of binding private and binding class rulings that relate to share incentive schemes. Rulings Binding Private Ruling 161 is one such recent ruling. Released on February 5 2014, the ruling deals with the income tax and employees’ tax consequences for the employer and the trust used to facilitate an employee share ownership plan (ESOP).

Employee share ownership plan ruling

Author: Andrew Lewis (Senior Associate at Cliff Dekker Hofmeyer) The tax implications for the various participants of a share incentive scheme are complex and the legislation is not necessarily clear. In recent years, share incentive schemes have been a particular focus of the South African Revenue Service (SARS) and National Treasury with regular amendments to the tax legislation. It is no wonder that we see a number of binding private and binding class rulings being issued by SARS that relate to share incentive schemes. Binding Private Ruling No 161 (BPR 161) is one such recent ruling, released on 5 February 2014, which deals with the income tax and employees’ tax consequences for the employer company and the trust used to facilitate an employee share ownership plan (ESOP).

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

Changes To The Taxation Of Dividends In Employee Share Schemes

Author: Stephan Spamer & Mareli Treurnicht (ENS) As a general rule, subject to certain exceptions, local dividends received and accrued to a South African tax resident are exempt from normal tax in terms of section 10(1)(k) of the Income Tax Act, 1962 (“ITA”). One such exception applies to employee share schemes by virtue of the application of section 10(1)(k)(i)(dd).

Issue of shares as consideration

In order for the ownership of assets to pass from a seller to a buyer it is necessary that the parties agree three essential elements: price, terms and structure.  These three elements are interdependent in any transaction.  For instance, after agreeing the price of a transaction, i.e. the number of rands or rand value of other consideration the seller will receive, the parties will need to agree the terms such as whether the price will be paid by means cash, debt and/or shares as well as the timing of these payments.

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.

Consideration for the surrender of a right to acquire shares

Section 8C under the spotlight. The South African Revenue Service (Sars) issued Binding Private Ruling 147 (ruling) on 14 May 2013. It deals with the tax treatment of compensation received by an employee for the surrender of a right to acquire shares under s8C of the Income Tax Act, No 58 of 1962 (Act).

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.

Anti-avoidance: share repurchases through subsidiaries

Judgment was handed down on 16 November 2012 by the Tax Court in the case of A Ltd v Commissioner for the South African Revenue Service. The facts were as follows. A Ltd was a company listed on the JSE