Page 540 - SAIT Compendium 2016 Volume2

IN 60 Income Tax acT: InTeRPReTaTIon noTes IN 62
Section 23A (2) limits the section 11 (o) allowance to rental income derived from ‘affected assets’. For more on section 23A, see Interpretation Note No. 53 ‘Limitation of Allowances Granted to Lessors of Affected Assets’ dated 12 February 2010.
4.8 Prohibition of the allowance for certain assets falling under the First Schedule
An allowance under section 11 (o) is prohibited by paragraph 12 (2) of the First Schedule for machinery, implements, utensils or articles for which a deduction under paragraph 12 (1) or (1A) of that Schedule is allowable.
5. Conclusion
A taxpayer may elect to claim a deduction under section 11 (o) for the alienation, loss or destruction of a qualifying depreciable asset. If no election is made, a capital loss must be determined under the Eighth Schedule.
Legal and Policy Division
SOUTH AFRICAN REVENUE SERVICE
Income Tax Interpretation Note 62 Broad-based employee share plan
DATE: ACT : SECTION :
30 March 2011
INCOME TAX ACT 58 OF 1962 (the Act) Sections 8B, 10 (1) (nC) and 11 (lA) Broad-based employee share plan
This Note explains the tax consequences for an employee who participates in a broad-based employee share plan.
2 Background
In his 2004/05 Budget Speech, the Minister of Finance proposed the introduction of legislation which will allow a tax-free transfer of shares by an employer to employees in order to encourage broad-based employee participation in companies. Section 8B was subsequently introduced into the Act by section 8 (1) of the Revenue Laws Amendment Act 32 of 2004 and is applicable with effect from 26 October 2004. Section 8B deals with any ‘qualifying equity shares’ acquired under a broad-based employee share plan approved on or after 26 October 2004. The aim is to encourage long-term empowerment of employees through the receipt of shares at less than market value without adverse tax consequences. Section 11 (lA) was introduced to permit a deduction for the person granting qualifying equity shares.
3 The law
The purpose of section 8B is to provide an exemption from income tax of certain gains which may accrue to an employee from a qualifying broad-based employee share plan. The exemption is limited to gains made upon the disposal of a ‘qualifying equity share’ acquired under a ‘broad-based employee share plan’. Certain strict conditions must be met before the gains are exempt from income tax and capital gains tax.
In order to understand the provisions of section 8B, a few de nitions are crucial. These de nitions are part of the legislation quoted in the Annexure to this Note.
3.1 Broad-based employee share plan
A plan will qualify as a ‘broad-based employee share plan’ if the requirements set out below are met.
3.1.1 Consideration
The equity shares in an employer or any other associated institution in relation to that employer must be offered to employees for free or at a minimum consideration, which does not exceed the par value of the shares, as required by the Companies Act, 2008.
3.1.2 Employees
Eligible employees are limited to employees who—
• do not participate in any other equity scheme associated with the employer; and
• are employed on a permanent basis and who have been employed on a permanent basis for a period of at least one
year.
The plan must allow for at least 80% of the above employees to be entitled to participate in this scheme.
3.1.3 Shareholder rights
Employees who acquire qualifying equity shares must be entitled to all dividends and full voting rights in the shares offered to them under the broad-based share plan.
3.1.4 Restrictions
No restrictions or conditions other than those listed below may be imposed on the disposal of the shares acquired under the plan.
SUBJECT :
Preamble
In this Note—
• references to sections are to sections of the Act; and
• unless the context otherwise indicates, any word or expression in this Note bears the meaning ascribed to it in the
Act.
1 Purpose
(a) (b)
Restrictions imposed by legislation.
A right of any person to acquire the share from the employee or former employee at—
(i) (ii)
the market value on the date of such acquisition, or
where the employee or former employee is or was guilty of misconduct or poor performance, at the lower of market value on the date of acquisition or market value on the date of grant.
532
saIT comPendIum oF Tax LegIsLaTIon VoLume 2