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.

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. Section 8B schemes are not used by many taxpayers owing to the onerous requirements. If the s8C and s8B share scheme provisions are combined, it is anticipated that it will be to the detriment of high-net worth individuals.

It is also indicated that the interrelationship between employer deductions and employee share scheme income will be examined by Treasury. It is anticipated that one of the South African Revenue Service concerns is that taxpayers currently argue that the contributions to the employee share scheme for their employees are deductible (see Provider v Commissioner of Taxes, 17 SATC 40), while the contributions received by the Trust are capital in nature on the basis that the trust is not engaged in a profit-making scheme (see CIR v Pick ‘n Pay Employee Share Purchase Trust 54 SATC 271).