Shares Flashcards
1
Q
Exam Technique on shares
A
- Start with s42 Anti avoidance even if s45 is applicable etc
- Issue of shares not a disposal
- Share issue increase CTC
- Sale triggers a disposal of an asset
- CTC arise with consideration received
- Full distribution on liquidation is ROC
- Acquisition of shares = BC+STT on BC
-1. What is the intention
- Holding period of the shares
- Normal trading activities
- How you financed the purchase of the shares
- Where you invested your proceeds
- If capital in nature, consider inclusion rate 40%/ 80% and annual exclusion
- Disposal of shares is capital in nature and is not included in gross income
- Juba is deemed to have acquired the equity shares on the date that the trading stock was acquired (date not given), and the date the manufacturing machine was acquired, 1 September 2019.
- This dates shall not be used for the purposes of determining whether the share is a ‘qualifying share’ for the purposes of s 9C (Bonus mark).
- The transaction occurred at MV (No s 24BA). - BC at liquidation ( #shares held * liquidation price) capitalisation *0
- For identical shares start with s9C
- Non participating pref issue not a disposal for CGT purposes no effect on CTC
- CTC will increase by BC of building rolled over
- Company makes a distribution, not a disposal
- Mention she holds shares for investment purposes so proceeds ate capital in nature
- The share price is regularly published since the company is listed and the share price is known
-Foreign Tax on dividends s64N subtract after dividend Tax TRIGGER: Amount similar to dividend tax. It will be limited
2
Q
- Acquisition
- Distribution
- Disposal
Consider case laws
A
- Either investment (capital account) Base Cost
- Speculation (revenue account) s11(a)
Disposal: CGT
-Interest do not form part of base cost if Company is not a listed company and par 20(2)(a) do not allow an inclusion of interest
Acquisition:
- Mention that it was for a capital account as intention was to hold as capital investment to receive a dividend
3
Q
Exam Technique: SHARES
A
- How much of the distribution is dividend or ROC
- Tax implications for company or shareholders
- A decrease in CTC is a ROC - Dividends earned from REIT not exempt
🔺 VAT -No VAT on dividends is a non supply -No VAT on sale of shares as financial service therefore exempt 🔺 Income Tax 🔺ROC -Not due to an actual disposal -BC reduced by ROC 🔺Disposal of shares -Capital asset is sold it triggers a disposal 🔺Scope and Implication 🔺STT -Buyer pays STT
4
Q
Dividend
- Company’s perspective
- Shareholders perspective
A
- Company may need to withhold dividend tax
2. Exemption 10(1)(k)
5
Q
Return of Capital (ROC)
- Company
- Shareholder
A
- No tax implication arise for a company since it is a return of shareholder funds
- CGT calculations are necessary for SH/H on receiving or accruing ROC
- Distribution of TS will result in a recoupment in hands of company
- If distribute a capital asset, do CGT calculation
ROC think PAR 76B
- Find new BC
- If distribution (ROC) > Base Cost limit it
- New Base Cost = 0
- Excess not previously included in capital gains will be added back
- Exclusion = 40K if dealing with individual
- Rate at 40%
6
Q
Capitalization issue
A
- Not a dividend as defined
- Not a ROC as defined
- Does not increase CTC
- BC for SH/H received is zero s40C
7
Q
s9C
A
- Provisions apply automatically
- Only applies to equity shares not prefs
- It also only relates to resident equity shares I.e foreign shares do not qualify
- It does however apply to dual listed foreign shares
8
Q
Par 19 8th schedule
A
- Only applicable to a Company
- Where a Company disposes of shares and made a loss consider PAR 19
- Natural persons
- PAR 19 N/A as dividend was subject to dividend tax not an exempt dividend as defined as she would be subject to 20% WHT
- Capital loss ring fenced PAR 39 - Companies
- PAR 19 applicable as not subject to dividend tax
-As company did declarations DT not subject
Exemption is distribution * holding% - proceeds if greater than capital loss, fully disregard
Claw Back: # of shares * spot or average *8/28 if selected whichever one, use it throughout
9
Q
s8C Employer perspective
A
- No specific section in ITA
- s11(a) read with 23(g)
- Deduction only when company has an unconditional liability to pay share appreciation right (vesting date)
10
Q
s8C Employees perspective
A
- Gains included in income and subject to employee tax
- Amount is income in nature and has to form part of income
Acquisition of share:
- mention that they are restricted equity shares
- gains and losses are exempt s10(1)(nD) before vesting
Vesting:
-When restrictions are lifted
s8C applies when shares are deemed to vest
- Consider CGT
- Interest free loan given to EE results in EE benefit to be included in gross income
- PAR 19 N/A this is not a dividend stripping
- Cannot donate restricted shares before vesting (proceeds is MV at vesting date)
- Not subject to s9C
11
Q
Share buyback
A
- It is not a dividend as defined
- It is not a ROC
- Tax implication move to SH/H as they pay CGT
- Expenditure eg interest not in production of income no deduction s11(a), s23(f), s23(g)
- Definition exclude amounts that constitute an acquisition by company of own securities by way of a repurchase
- sale is capital in nature
- Sale is capital in nature
- Dividend Tax
No DT implications
——————————————————-
- Proceeds = # shares * % holding *%sold * price
12
Q
CTC
A
- A decrease in share premium is not reduction of CTC = 0
- If no authorization, there is no ROC amount. Whole amount is dividend. Then exemption s10(1)(k)
- Issue shares increase CTC
13
Q
S42 and s24BA, s40C
A
Trading stock at Tax Value
Allowance asset at Tax Value
Capital asset at Base cost
- Asset for share (status of seller is irrelevant )
- s42 is not applicable there is a value shifting transaction consider 40CA and 24BA
- Disposal of asset but TP still linked to asset
- s42
- Don’t want it to apply if you have assessed loss
- N/A to NR
- Calculate allowance asset wear and tear
- MV> BC s42 applies. Asset deemed to be sold at BC. No gain or recoupment
- s42 applies automatically
- Transfer asset at TV
- Co will be deemed to step in shoes of previous owner
- No transfer duty - s24BA
- Mismatch on MV of asset and shares
- Deemed to acquire shares = mv of asset given up
- Reduce expenditure by amount of mismatch
- Par 38 N/A if not a CP
- MV of assets > MV shares then capital gain
- MV of shares>MV assets deemed asset in specie
- There is a dividend
- Dividend in specie
- Liability Dividend Tax (Company)
- It is deemed to be paid on….
- Dividend Tax 20%
- Paid over to SARS on … - s40C issue of shares for no consideration
- capitalization issue
- AoR perspective
14
Q
Dividends and interests
A
- Interest free loan without any repayment terms is a deemed dividend s64E(4)
- Received a dividend from private company= R1200
Therefore 1200/,8 = 1500, s10(1)(k) (1500) - No exemption on foreign interest
- Cash distribution, think dividends.
- Interest incurred to produce local dividends is not in production of income
- Loan from company is interest free loan (no repayment terms specific)= deemed dividend
- Interest incurred to produce foreign dividends is disallowed s23(q)
- Consequences of loan advanced to holder s64E
- Interest included in TI
- Co is holder with income instrument s24J
15
Q
Shareholder is sharedealer
A
- Entire distribution received is gross income
- Acquisition s11(a) may be limited by dividend stripping
- S9C will apply if held shares more than 3 years
