Page 511 - SAIT Compendium 2016 Volume2

IN 55 (2) Income Tax acT: InTeRPReTaTIon noTes IN 55 (2)
(c) In the circumstances where the equity instrument was granted by or acquired from an associated institution in relation to the employer, and that associated institution is unable to deduct or withhold employees’ tax on the gain (due to the amount required to be deducted exceeding the remuneration from which the withholding must be made), then both—
• the person who granted the right to acquire the equity instrument, or from whom the equity instrument was acquired; and
• the employee’s employer,
are jointly and severally liable for an amount equal to the amount of employees’ tax attributable to the gain. If this occurs, the employees’ tax to be deducted or withheld must be aggregated over the year of assessment during which the gain is made. The local SARS of ce must immediately be noti ed of this fact.
In the case where the remainder of the year of assessment is insuf cient to deduct or withhold the employees’ tax due in respect of the gain, or where such a deduction may cause the employee undue hardship, the local SARS of ce must be approached for guidance.
(d) An employee may make a gain under a transaction which the employer or the person who granted the right or from whom the equity instrument was acquired, was not a party to. In such cases, the employee must immediately inform these parties of the fact that a gain has been made, and the amount of the gain. Any employee who fails to perform this duty will be guilty of an offence, and may be criminally prosecuted.
5.2 Acquisition from an associated institution
An associated institution and the employer are deemed to be jointly and severally liable for an amount equal to the amount of employees’ tax attributable to that gain where—
(a) the equity instrument was granted to the employee by an ‘associated institution’ in relation to the employer (as
de ned in the Seventh Schedule to the Act) of that employee; and
(b) that associated institution is unable to deduct or withhold employees’ tax in respect of the gain, due to the amount
required to be deducted exceeding the remuneration from which the withholding must be made.
The employee must inform his or her employer and the associated institution that gains have been made in respect of
such equity instruments and the amount of the gain must be disclosed to the employer and the associated institution. This means that, for example, upon an employee resigning from a previous employer within the same group but still retains restricted equity instruments in the previous employer which is an associated institution in relation with that employer, he or she must inform the current employer about any gain made from the vesting of that equity instruments from the previous employer.
Example 5 – Acquisition from an associated institution
Facts:
B is employed by Company J. Company K is the holding company of Company J, and is an associated institution, as de ned. B acquires 100 restricted equity instruments for R300 in Company K by virtue of his employment with Company J. B may not dispose of those instruments for three years. The market value on the date of acquisition was R300. When the instruments vest after three years, the market value is R1 000. There is no cash paid by Company K to B.
Result:
Company K is deemed to pay an amount of remuneration to B, being equivalent to the amount of the gain of R700 (R1 000 market value at vesting less R300 market value at acquisition). As Company K does not pay remuneration to B, Company J is deemed to be jointly and severally liable together with Company K for the deduction of employees’ tax on the gain.
In some cases, employee’s (residents) who were awarded with restricted equity instruments are seconded overseas for a certain period before the restriction ceases. Where the vesting occurs upon return to the Republic or while overseas, the provision of section 10 (1) (o) (ii) will apply. The gain made will be deemed to have accrued evenly over the period of services rendered. This means that the gain will be apportioned evenly according to the period relating to services rendered outside the Republic that quali es (section 10 (1) (o) (ii) exemption) and the period relating to services rendered in the Republic. The portion of a gain that relates to services rendered in the Republic will be included in the taxpayer’ income and be taxed accordingly.
Persons who are not residents are taxed on their receipts or accruals from sources, within or deemed to be within the Republic. If a person ceased to be a resident, that person is subjected to immediate deemed disposal of all the assets (that is, restricted and unrestricted equity instrument) for capital gains tax purposes. However, paragraph 12 (2) (a) (iii) of the Eighth Schedule to the Act exempts unvested equity instruments, because these instruments will only be subjected to ordinary gain or loss when vesting takes place. Immediately when a restricted equity instrument vests, the gain or loss made upon vesting must be apportioned. The portion relating to the period of service rendered while in the Republic will be subjected to tax in the Republic.
5.3 Disposal of restricted equity instruments to the employer
An employee, who disposes of an equity instrument to his or her employer in terms of a restriction imposed by the employer, and for an amount less than the market value of that equity instrument, must include the amount received, less any consideration paid for the equity instrument, in his or her income. This amount is also deemed to be an amount of remuneration paid by the employer to the employee, and is subject to the deduction of employees’ tax.
5.4 General
An employee that fails to inform his or her employer that he or she has made any gain on the vesting of any equity instrument, is guilty of an offence and is liable on conviction to a ne not exceeding R2 000 in terms of paragraph 11A (7) of the Fourth Schedule to the Act.
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