Page 542 - SAIT Compendium 2016 Volume2

IN 62 Income Tax acT: InTeRPReTaTIon noTes IN 62
• The consideration for which the new equity share is deemed to have been acquired is an amount equal to the consideration given for the original equity share.
• No amount is included in the person’s income by section 8B as a result of the person having disposed of the original equity share.
The new equity share acquired as a result of the disposal of the original equity share is deemed to be a qualifying equity share acquired on the same date and for the same consideration as the original equity share. The shares so acquired are deemed to be qualifying equity shares even if the market value of the shares received in exchange exceeds R50 000 during the permitted time period.
Example 2 – Acquisition of equity shares as a result of the disposal of qualifying equity shares
Facts: Sally is an employee of Subco Limited. Subco Limited and Otherco Limited are subsidiaries of Holdco Limited. On 1 March 2010, Subco Limited granted 5 000 qualifying equity shares to Sally at R1 per share. The total market value of the shares at the time of their acquisition was R50 000. On 1 March 2011, Holdco Limited decides to rationalise its business by closing down Subco Limited and transferring all of its employees to Otherco. Due to the rationalisation, employees of Subco are required to dispose of their Subco shares and in return, they receive equity shares in Otherco with a market value totalling R75 000.
Result: The shares that Sally receives from Otherco Limited are deemed to be qualifying equity shares, despite the market value of the new shares acquired being in excess of R50 000. They are deemed to have been acquired by Sally on 1 March 2010. No amount is included in Sally’s income as a result of the disposal of the original qualifying equity shares, despite the fact that they were disposed of within 5 years from the date of grant. The R5 000 that Sally paid for the original Subco Limited shares is deemed to be a consideration paid for the new shares in Otherco Limited.
4.2.2 Acquisition of equity shares as a result of qualifying equity shares already held
An equity share acquired by a person as a result of any qualifying equity share already held by that person is deemed to be a qualifying equity share. The equity share received is further deemed to have been received on the date of grant of the original equity share held by that person. The limit of R50 000 does not apply in these circumstances.
Example 3 – Acquisition of equity shares as a result of holding qualifying equity shares
Facts: Bafana is an employee of M Limited. M Limited is a subsidiary of P Limited. On 1 March 2005, P Limited granted to Bafana 1 000 qualifying equity shares at R1 per share. The total market value of the shares at the time of their acquisition was R40 000. On 1 March 2009, P Limited decided to unbundle its interests in M Limited. As a result of the unbundling, and by virtue of the shares already held by him, Bafana received shares in M Limited with a total market value of R60 000.
Result: Bafana is deemed to have acquired qualifying equity shares from P Limited on the date of grant (that is, 1 March 2005). The total market value of all the qualifying shares held is R100 000 (R40 000 + R60 000). However, only the market value of the original qualifying equity shares received (that is, R40 000) is considered in determining whether the limit of R50 000 has been exceeded (even though the total market value of all shares acquired is more than R50 000).
4.3 Taxation of the gain on disposal of qualifying equity shares
The gain made from the disposal of a qualifying equity share, or the disposal of any right or interest in a qualifying equity share, must be included in the income of the person who disposes of that share, if the share is disposed of by that person within ve years from the date of grant of that share. However, a disposal is not considered to be made—
• where a qualifying equity share is exchanged for another qualifying equity share (see 4.2);
• on the death of that person (see 4.4); or
• on the insolvency of that person.
4.3.1 Disposal of any qualifying equity share or any right or interest within ve years
Any gain made from the disposal of any qualifying equity share, or the disposal of a right or interest in a qualifying equity share, within ve years from the date of grant must be included in the income of the taxpayer.
Note:
Example 4 – Calculation of gain when a disposal occurs within ve years
Facts: The facts are the same as Example 1. Lesego, an employee of ABC Ltd, resigns from her employment on 1 August 2009. Under the terms of the plan, her shares must be sold back to the company at the market value determined at the date that she acquired the shares, in this case R50 000 (that is, 25 000 shares at R2 per share).
Result: The proceeds from the disposal of the shares constitute income in Lesego’s hands, since the shares were disposed within ve years from the date of grant of the shares. The gain on the disposal of the shares is calculated as the proceeds of R50 000 less the R25 000 consideration paid for the shares (that is, 25 000 shares at R1 per share). The gain of R25 000 must therefore be included in Lesego’s income.
(a) (b)
Any gain made from the disposal of a qualifying equity share acquired under a broad-based employee share plan is deemed to be an amount of remuneration payable to the employee by the person by whom the right was granted or from whom the qualifying equity share was acquired, under paragraph 11A(1) of the Fourth Schedule to the Act. Employees’ tax in respect of the gain must be deducted or withheld by the person who granted the right to the employee, or from whom the qualifying equity instrument was acquired, from–
(i) any consideration paid or payable to the employee in respect of the disposal of qualifying equity shares; or (ii) any cash remuneration paid or payable by that person to the employee after that qualifying equity share has
been disposed of.
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saIT comPendIum oF Tax LegIsLaTIon VoLume 2