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Income Tax Act, 1962 (Act 58 of 1962)

Chapter II: The Taxes

Part I: Normal Tax

9C. Circumstances in which certain amounts received or accrued from disposal of shares are deemed to be of a capital nature

 

(1)        For the purposes of this section—

 

"connected person"

means a connected person as defined in section 1, provided that the expression 'and no holder of shares holds the majority voting rights in the company' in paragraph (d)(v) of that definition shall be disregarded;

 

"disposal"

means a disposal as defined in paragraph 1 of the Eighth Schedule or any event treated as a disposal in terms of section 9H;

[Definition amended by section 12(1)(a) of the Taxation Laws Amendment Act, 2015 (Act No. 25 of 2015]

 

"equity share"

includes a participatory interest in a portfolio of a collective investment scheme in securities and a portfolio of a hedge fund collective investment scheme excluding a share which at any time during that period was—

(a) a share in a share block company as defined in section 1 of the Share Blocks Control Act;
(b) a share in a company which was not a resident, other than a company contemplated in paragraph (a) of the definition of "listed company"; or
(c) a hybrid equity instrument as defined in section 8E;

[Definition amended by section 12(1)(b) of the Taxation Laws Amendment Act, 2015 (Act No. 25 of 2015]

 

"qualifying share"

[Definition deleted by section 12(1)(c) of the Taxation Laws Amendment Act, 2015 (Act No. 25 of 2015]

 

(2) Any amount received or accrued (other than a dividend or foreign dividend) or any expenditure incurred in respect of an equity share must be deemed to be of a capital nature if that equity share had, at the time of the receipt or accrual of that amount or incurral of that expenditure, been held for a period of at least three years.

[Definition amended by section 12(1)(d) of the Taxation Laws Amendment Act, 2015 (Act No. 25 of 2015]

 

(2A) Subsection (2) does not apply in respect of so much of the amount received or accrued in respect of the disposal of a qualifying share contemplated in that subsection as does not exceed the expenditure allowed in respect of that share in terms of section 12J(2).

 

(3) The provisions of this section shall not apply to any equity share if at the time of the disposal of that share the taxpayer was a connected person in relation to the company that issued that share and—
(a) more than 50 per cent of the market value of the equity shares of that company was attributable directly or indirectly to immovable property other than—
(i) immovable property held directly or indirectly by a person that is not a connected person to the taxpayer; or
(ii) immovable property held directly or indirectly for a continuous period of more than three years immediately prior to that disposal; or
(b) that company acquired any asset during the period of three years immediately prior to that disposal and amounts were paid or payable by any person to any person other than that company for the use of that asset while that asset was held by that company during that period.

[Subsection (3) amended by section 12(1)(f) of the Taxation Laws Amendment Act, 2015 (Act No. 25 of 2015]

 

(4) For purposes of this section, where any share has been transferred by a transferor to a transferee in terms of a collateral arrangement and an indentical share has in turn been transferred by the transferee to the transferor in terms of that collateral arrangement, that share and that other share shall be deemed to be one and the same share in the hands of the transferor.

[Subsection (4) amended by section 12(1)(g) of the Taxation Laws Amendment Act, 2015 (Act No. 25 of 2015]

 

(4A) For purposes of this section, where any share has been transferred by a transferor to a transferee in terms of a collateral arrangement and an identical share has in turn been transferred by the transferee to the transferor in terms of that collateral arrangement, that share and that other share shall be deemed to be one and the same share in the hands of the transferor.

[Subsection (4A) inserted by section 12(1)(h) of the Taxation Laws Amendment Act, 2015 (Act No. 25 of 2015]

 

(5) There shall in the year of assessment in which any equity share held for a period of at least three years is disposed of by the taxpayer be included in the taxpayer's income any expenditure or losses incurred in respect of such equity share and allowed as a deduction from the income of the taxpayer during that or any previous year of assessment in terms of section 11. Provided that this subsection must not apply—
(a) in respect of any expenditure or loss to the extent that the amount of that expenditure or loss is taken into account in terms of section 8(4)(a) or section 19; or
(b) to equity shares in a REIT or a controlled company, as defined in section 25BB(1), that is a resident.

[Subsection (5) substituted by section 19(1) of the Taxation Laws Amendment Act, 2016 (Act No. 15 of 2016) - commenced 1 January 2016]

 

(6) Where the taxpayer holds shares of the same class in the same company which were acquired by the taxpayer on different dates and the taxpayer has disposed of any of those shares, the taxpayer shall for the purposes of this section be deemed to have disposed of the shares held by the taxpayer for the longest period of time.

[Subsection (6) amended by section 12(1)(j) of the Taxation Laws Amendment Act, 2015 (Act No. 25 of 2015]

 

(7) The provisions of section 22(8) shall not apply on or after the date that an equity share has been held for a period exceeding three years.

[Subsection (7) amended by section 12(1)(k) of the Taxation Laws Amendment Act, 2015 (Act No. 25 of 2015]

 

(8) For the purposes of this section, where a company issues shares to a person in substitution of previously held shares in that company by reason of a subdivision, consolidation or similar arrangement or a conversion contemplated in section 40A or 40B, such share and such previously held shares shall be deemed to be one and the same share if—
(i) the participation rights and interests of that person in that company remain unaltered; and
(ii) no consideration whatsoever passes directly or indirectly from that person to that company in relation to the issued shares.