Page 424 - SAIT Compendium 2016 Volume2

IN 43 (5) Income Tax acT: InTeRPReTaTIon noTes IN 43 (5)
‘3. To get rid of; throw out.’
Events comprising a disposal in the ordinary sense of the word include the extinction, sale, donation, conversion, cession, exchange, termination, redemption or cancellation of a share.*
Shares will be disposed of in the ordinary sense when a company is –
• dissolved following its liquidation or winding-up; or
• deregistered.
The placing of a company into liquidation does not result in a disposal of its shares because it remains a taxable entity until it is nally dissolved.† The date of dissolution is the date on which the company’s name is removed from the companies register unless the reason for its dissolution is a transfer of its registration to a foreign jurisdiction.‡ The distribution of a dividend in anticipation of the liquidation of a company does not result in a disposal of its shares.§
The deregistration of a company –¶
‘puts an end to the existence of the company. Its corporate personality ends in the same way that a natural person ceases to exist on death.’
It follows that the extinction of the rights attaching to a share occurs on the date of deregistration. This date corresponds with the date of disposal for CGT purposes under paragraph 77(1)(a) of the Eighth Schedule. Yet, the time of disposal of an equity share for the purposes of section 9C may not always correspond with the time of disposal of an asset under the Eighth Schedule. Paragraph 77(1) of the Eighth Schedule provides that the shares in a company that is being liquidated or wound up will be deemed to be disposed of on the earlier of –
• the date of dissolution; or
• the date when the liquidator declares in writing that no reasonable grounds exist to believe that the shareholder of the
company (or shareholders holding the same class of shares) will receive any further distributions in the course of the liquidation or winding-up of that company.
The above declaration by the liquidator will thus trigger a disposal for CGT purposes, but will have no impact for the purposes of section 9C. One implication of this timing difference is that the earlier CGT disposal will not trigger a recoupment of previously allowed expenditure under section 9C(5). Such a recoupment will occur only on dissolution of the company – see 9. The sequestration of the estate of a natural person does not trigger a disposal under section 9C – see 14. The death of a natural person does not trigger a disposal for the purposes of section 9C, although death is a disposal event for CGT purposes – see 15.
Deemed disposal under paragraph 12 of the Eighth Schedule
A deemed disposal under paragraph 12 of the Eighth Schedule would occur, for example, when a taxpayer –
• that is not a resident removes a share from a permanent establishment of that taxpayer in South Africa, or transfers a
share to such a permanent establishment [paragraph 12(2)(b) of the Eighth Schedule];
• commences to hold shares as trading stock [paragraph 12(2)(c) of the Eighth Schedule]; or
• ceases to hold shares as trading stock [paragraph 12(3) of the Eighth Schedule].
For a detailed discussion of when paragraph 12 will be applicable, see paragraph 6.2 of the Comprehensive Guide to Capital Gains Tax (Issue 4) available at www.sars.gov.za. Some of the implications of a deemed disposal under paragraph 12 of the Eighth Schedule include a deemed recoupment of previously allowed expenditure under section 9C(5) (see 9), and the switching off under section 9C(7) of the deemed inclusion in income under section 22(8) when shares cease to be held as trading stock (see 12).
4.3.3 Three-year ownership requirement
A taxpayer must have been the owner of a share for a continuous period of at least three years immediately before its disposal in order for it to comprise a qualifying share. Given that the Act is generally concerned only with bene cial ownership,** the word ‘owner’ must be taken as referring to the bene cial owner. For example, when a trustee vests a share in a bene ciary, the share would remain registered in the name of the trustee, but the bene ciary would become the bene cial owner from the date of vesting.
The word ‘year’ is not de ned in either section 9C or section 1(1). It follows that the ordinary meaning ascribed to the word will apply in interpreting its meaning. The word is also not de ned in the Interpretation Act.†† LAWSA‡‡ states the following on a period expressed in years:
‘By natural computation a period of a year beginning at any moment of time on a speci c calendar date will end at the equivalent moment on the corresponding calendar date in the succeeding year.’
A share will thus become a qualifying share when the period of holding is at least three continuous years immediately before the share is disposed of.
* These events also comprise a disposal for CGT purposes under paragraph 11 of the Eighth Schedule. † Van Zyl NO v CIR 1997 (1) SA 883 (c), 59 SATC 105.
‡ Section 83(1) of the Companies Act No. 71 of 2008.
§ Defy Ltd v C: SARS 2010 (5) SA 416 (SCA), 72 SATC 99 at 109
¶ Miller & others v Nafcoc Investment Holding Company Ltd & others [2010] 4 All SA 44 at 49.
** See, for example, Geldenhuys v CIR 1947 (3) SA 256 (c), 14 SATC 419 at 430 in which the court held in the context of the de nition of the term ‘gross income’ that the word ‘received’ meant ‘received by the taxpayer on his own behalf for his own bene t’; Taxpayer v COT Botswana (1980) 43 SATC 118 in which the court refused to impose tax on directors’ fees paid to a director who had ceded them in advance to his employer and SIR v Smant 1973 (1) SA 754 (a), 35 SATC 1 in which the court refused to tax a registered shareholder on amounts paid to him by a company after the shares had been disposed of and the amounts in question had been ceded to the buyer of the shares.
†† Act No. 33 of 1957.
‡‡ E Cameron ‘Period Expressed in Years’ Volume 27 (First Reissue Volume) The Law of South Africa (My LexisNexis: 31 October 2001) LexisNexis Butterworths, Durban in 441.
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