Page 1127 - SAIT Compendium 2016 Volume2

EXPLANATORY MEMORANDUM ON THE TAXATION LAWS AMENDMENT BILL, 2015
D. Amendments to the provisions relating to trading stock in section 22
It is proposed that consequential amendments be made by inserting a new subsection (4A) and additional paragraphs in subsection (9) of section 22 relating to the amounts to be taken into account in respect of values of trading stock in respect of collateral arrangements.
E. De nition of Collateral Arrangement
It is proposed that a de nition of a collateral arrangement re ecting the above-policy intent be inserted in section 1 of the Securities Transfer Tax Act.
F. Corporate re-organisation impact
The de nitions of ‘identical share’ and ‘collateral arrangement’ will also acknowledge the impact of an amalgamation transaction as envisaged in section 44 on the inability of a party to a collateral arrangement to return a share of the same class in the same company as that share originally transferred in terms of a collateral arrangement.
IV. Effective date
The proposed amendments come into operation on 1 January 2016 and apply in respect of collateral arrangements entered into on or after that date.
3.8 REFINEMENTS TO SECURITIES LENDING ARRANGEMENTS
[Applicable provisions: Sections 1, 9C(4) and 22(4A)]
I. Background
In 1996, a speci c tax dispensation for Securities Lending Arrangements (as currently de ned in the Act) was made in the Act and the Stamp Duties Act (subsequently incorporated in the Securities Transfer Tax Act). As a result, the event of granting collateral by way of a pledge for securities lending is currently not subject to income tax and securities transfer tax because it does not involve the actual transfer of bene cial ownership. The speci c tax dispensation for Securities Lending Arrangements is limited and effectively allows for the deferral of securities transfer tax for a limited period of 12 months.
In 2015, the Minister of Finance made an announcement in the Budget to review the tax implications of an outright transfer in bene cial ownership of collateral and subsequently ensure the limitation on the use of collateral arrangements in possible tax avoidance schemes. As a result, amendments have been made in the 2015 Taxation Laws Amendment Bill (TLAB) so that the tax dispensation of collateral arrangement is similar to that of securities lending arrangement. Consequently, no capital gains tax and Securities Transfer Tax implications arise in instances where shares are provided on an out and out basis to the extent that identical shares are returned to the borrower by the lender within twelve months from the date that the collateral arrangement was entered into.
II. Reasons for Change
The proposed amendments to the 2015 TLAB provides similar tax dispensation on securities lending arrangement and collateral arrangement. The 2015 amendments necessitated the introduction of the concept ‘identical share’ for ‘collateral arrangements’ to ensure that the concept of ‘collateral arrangement’ correctly re ects the original policy intent in securities lending arrangements as it relates to the return of securities used as collateral, being of the same kind and of the same or equivalent quantity and quality. The legislation now clearly imitates the policy that the return of collateral of the same kind and of the same or equivalent quantity and quality means a share of the same class in the same company as that share transferred as collateral barring the impact of an amalgamation transaction as envisaged in section 44. However, there is no similar de nition in the Act regarding the concept of ‘identical share’ on securities lending arrangements.
III. Proposal
As the proposed, the tax dispensation regarding collateral arrangement is similar to that of securities lending arrangements; it is proposed that the current provisions in the securities lending arrangements should be updated to be similar to the new provisions contained in the proposed tax dispensation on collateral arrangements.
A. Identical Security
It is proposed that a de nition of ‘identical security’ similar to ‘identical share’ contained in collateral arrangement be inserted in section 1 and as a consequential replaces the concept of ‘the same kind and of the same or equivalent quantity and quality’ as used for securities lending arrangements to now match a similar use as in collateral arrangements.
B. Lending Arrangement de nition consequential
Similar to collateral arrangement, the de nition of ‘lending arrangement’ in the Security Transfers Tax Act will also be amended to acknowledge the impact of an amalgamation transaction as envisaged in section 44 on the inability of a party to a lending arrangement to return a share of the same class in the same company as that share originally transferred in terms of that lending arrangement.
IV. Effective Date
The proposed amendments will come into operation on 1 January 2016 and apply to any securities lending arrangement entered into on or after that date.
3.9 TAX ISSUES RESULTING FROM INTRODUCTION OF THE SAM BASIS FOR SHORT TERM INSURERS
[Applicable provisions: Sections 28(3), and section 28(7) to (11)]
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