Page 543 - SAIT Compendium 2016 Volume2

IN 62 Income Tax acT: InTeRPReTaTIon noTes IN 62
It is not necessary to apply for a tax directive to ascertain the employees’ tax to be deducted or withheld from gains
made by the disposal of qualifying equity shares.
(c) In the circumstances where the qualifying equity share 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 share, or from whom the equity share 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 qualifying equity share 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.
4.3.2 Disposal of any qualifying equity share or any right or interest after ve years
Section 8B does not include the gain in income where a person disposes of a qualifying equity share after the period of ve years from the date of grant. The gain will be regarded as being of a capital nature due to the provisions of section 9C, and will therefore be subject to capital gains tax (CGT). Detailed information relating to CGT can be found in the Comprehensive Guide to CGT available on the SARS website www.sars.gov.za.
4.3.3 Disposal of any rights or interest in a qualifying equity share
The disposal of any rights or interest in a qualifying equity share, for example, voting rights or the right to receive dividends, within ve years from the date the qualifying equity share was granted, constitutes a gain that must be included in the taxpayer’s income.
The gain is calculated as the proceeds received or accrued as a result of the disposal of the right or interest, less a pro rata portion of the cost incurred on acquisition of such qualifying equity share.
The portion of the cost attributable to the disposed rights or interest must be calculated based on the ratio that the amount received or accrued upon disposal of that right or interest bears to the market value of the qualifying equity share at the time of the disposal of the right.
Example 5 – Apportionment when disposing of a right or interest
Facts: Ms V acquired qualifying equity shares for R40 000 (R2 per share x 20 000 shares). The shares had a market value of R50 000 on the date of grant. Ms V sold her voting rights in the qualifying equity shares on the 15 May 2008, for R25 500. Immediately before the disposal of the voting right, the qualifying equity share had a market value of R78 000. Result: The amount of the consideration permitted to be deducted from the disposal proceeds of a right or interest in qualifying equity shares will be apportioned based on the consideration received, against the market value of the share as follows:
Acquisition cost x Consideration received
Market value of qualifying equity shares
= R40 000 x R25 500 = R13 077 R78 000
The acquisition cost attributable to the voting right is R13 077. Ms V will be taxed on the gain of R12 423 (that is, R25 500 – R13 077) made on the sale of the voting right. The acquisition cost attributable to the balance of the qualifying equity share (including the remaining rights or interest in the qualifying equity share) is an amount of R26 923 (that is, R40 000 – R13 077).
Note: In this example, the R50 000 market value of the shares on date of grant has no bearing on the calculation of the attributable cost.
4.4 Death of the taxpayer – Section 25
A disposal is deemed to be made by the taxpayer to his or her estate when a taxpayer dies. Section 8B (1) (b) deems that, even if a disposal is made within the ve year period, no gain is deemed to be made by such a disposal.
However, the provisions of section 25 deem that—
• if the amount would have been income in the hands of the taxpayer had the disposal taken place before the taxpayer
died; and
• there is an ascertainable heir or legatee for that amount, the amount is deemed to be income of that heir or legatee.
However, as death is generally considered to be a no-fault disposal, and the intention was not to tax the estate or the heir or legatee on the disposal, section 8B (4) provides that section 25 does not apply to amounts received or accrued from such disposal after the date of death.
Therefore neither the estate, nor the ascertained heir or legatee is subject to a section 8B gain on the disposal of a qualifying equity share, even if the disposal takes place within ve years of receipt of that share. There may, however, be a capital gain.
4.5 Deduction under of Section 11 (lA)
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